Chapter 3 Service Strategy

Learning Objectives Formulate a strategic service vision. Discuss the competitive environment of services. Describe how a service competes using the three generic service strategies. Discuss the service purchase decision. Discuss the competitive role of information in services. Explain the role of the virtual value chain in service innovation. Discuss the limits in the use of information. Categorize a service firm according to its stage of competitiveness. Conduct a data envelopment analysis (DEA).

Learning Objectives (Short List) Strategic Vision Competitiveness Information

Strategic Service Vision Elements Target Market Segment Service Concept Operating Strategy Service Delivery System

Target Market Segments What are common characteristics of important market segments? What dimensions can be used to segment the market, demographic, psychographic? How important are various segments? What needs does each have? How well are these needs being served, in what manner, by whom?

Service Concept What are important elements of the service to be provided, stated in terms of results produced for customers? How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others? How do customers perceive the service concept? What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed?

Operating Strategy What are important elements of the strategy: operations, financing, marketing, organization, human resources, control? On which will the most effort be concentrated? Where will investments be made? How will quality and cost be controlled: measures, incentives, rewards? What results will be expected versus competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers?

Service Delivery System What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures? What capacity does it provide, normally, at peak levels? To what extent does it, help insure quality standards, differentiate the service from competition, provide barriers to entry by competitors?

Competitive Environment of Services Relatively Low Overall Entry Barriers Economies of Scale Limited High Transportation Costs Erratic Sales Fluctuations No Power Dealing with Buyers or Suppliers Product Substitutions for Service High Customer Loyalty Exit Barriers

Competitive Service Strategies Overall Cost Leadership Differentiation Focus

Overall Cost Leadership Seeking Out Low-cost Customers Standardizing a Custom Service Reducing the Personal Element in Service Delivery (promote self-service) Reducing Network Costs (hub and spoke) Taking Service Operations Off-line

Differentiation Making the Intangible Tangible (memorable) Customizing the Standard Product Reducing Perceived Risk Giving Attention to Personnel Training Controlling Quality Note: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service.

Focus Buyer Group: (e.g. USAA insurance and military officers) Service Offered: (e.g. Shouldice Hospital and hernia patients) Geographic Region: (e.g. Austin Cable Vision and TV watchers)

Interactive Class Exercise Give examples of service firms that use the strategy of focus and differentiation. Give examples of service firms that use the strategy of focus and overall cost leadership.

Customer Criteria for Selecting a Service Provider Quality Reputation Safety Speed Availability Convenience Dependability Personalization Price

Service Purchase Decision Service Qualifier: To be taken seriously a certain level must be attained on the competitive dimension, as defined by other market players. Service Winner: The competitive dimension used to make the final choice among competitors. Service Loser: Failure to deliver at or above the expected level for a competitive dimension.

Competitive Role of Information in Services Strategic Focus Competitive Use of Information On-line Off-line (Real time) (Analysis) Creation of barriers to entry: Data base asset: External Reservation system Selling information (Customer) Frequent user club Development of services Switching costs Micro-marketing Revenue generation: Productivity enhancement: Internal Yield management Inventory status (Operations) Point of sale Data envelopment Expert systems analysis (DEA)

The Virtual Value Chain Marketplace vs Marketspace Value-adding Information Gather Organize Select Synthesize Distribute Stages of Evolution Visibility Mirroring Capability New Customer Relationships

Limits in the Use of Information Anti-competitive (Barrier to entry) Fairness (Yield management) Invasion of Privacy (Micro-marketing) Data Security (Medical records) Reliability (Credit report)

What ethical issues are associated with micro-marketing in the: Class Discussion What ethical issues are associated with micro-marketing in the: Breakfast Cereal Industry? Beer Industry? Pharmaceutical Industry?

Using Information to Categorize Customers Coding (how to handle) Routing (call centers) Targeting (hidden discounts) Sharing (source of revenue)

Stages in Service Firm Competitiveness Available for Service Journeyman Distinctive Competence Achieved World-Class Service Delivery

Stages in Service Firm Competitiveness 1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery Customers patronize service Customers neither seek Customers seek out the firm The company’s name is synonymous firm for reasons other than out nor avoid the firm. on the basis of its sustained with service excellence. Its service performance. reputation for meeting doesn’t just satisfy customers; it customer expectations delights them and thereby expands customer expectations to levels its competitors are unable to fulfill. Operations is reactive, Operations functions in a Operations continually excels, Operations is a quick learner and fast at best. mediocre, uninspired reinforced by personnel innovator; it masters every step of the fashion. management and systems service delivery process and provides that support an intense capabilities that are superior to customer focus. competitors. SERVICE QUALITY Is subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations and highly variable. expectations; consistent expectations; consistent seeks challenge; improves on one or two key on multiple dimensions. continuously. dimensions.

Stages in Service Firm Competitiveness 1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery BACK OFFICE Counting room. Contributes to service, plays Is equally valued with front Is proactive, develops its own an important role in the total office; plays integral role. capabilities, and generates service, is given attention, opportunities. but is still a separate role. CUSTOMER Unspecified, to be A market segment whose A collection of individuals A source of stimulation, ideas, satisfied at minimum cost. basic needs are understood. whose variation in needs is and opportunity. understood. INTRODUCTION OF NEW TECHNOLOGY When necessary for When justified by cost When promises to enhance Source of first-mover advantages, survival, under duress. savings. service. creating ability to do things your competitors can’t do. WORKFORCE Negative constraint. Efficient resource; disciplined; Permitted to select among Innovative; creates procedures. follows procedures. alternative procedures. FRONT-LINE MANAGEMENT Controls workers. Controls the process. Listens to customers; coaches Is listened to by top management and facilitates workers. as a source of new ideas. Mentors works to enhance their career.