1 Chapter 5 Defining Service Strategies 1 Chapter 5 DEFINING SERVICE STRATEGIES McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

2 Chapter 5 Defining Service Strategies 2 LEARNING OBJECTIVES Explain how competition among service firms differs from competition among manufacturing companies. Describe why barriers to entry are low in service environments. Introduce several strategy models that enable service managers to formulate clear, focused strategies. Explain how the degree of customer contact affects decisions about workforce configuration. Describe how the complexity of the service and the degree of service customization interact to affect workforce decisions.

3 Chapter 5 Defining Service Strategies 3 STRATEGIC MARKETING DECISIONS Product Price Place Promotion People Physical Evidence Process The Marketing Mix The Traditional Marketing Mix The Expanded Marketing Mix for Services

4 Chapter 5 Defining Service Strategies 4 STRATEGIC OPERATING DECISIONS Location Capacity Vertical Integration Process Technology Structural Decisions Infrastructural Decisions Workforce Quality Management Policies and Procedures Organizational Structure

5 Chapter 5 Defining Service Strategies 5 STRATEGY MODELS Strengths Weaknesses Opportunities Threats SWOT Analysis

6 Chapter 5 Defining Service Strategies 6 Exhibit 5.2 SWOT ANALYSIS

7 Chapter 5 Defining Service Strategies 7 STRATEGY MODELS The risk of new competitors entering the industry. The threat of potential substitutes. The bargaining power of buyers. The bargaining power of suppliers. The degree of rivalry between the existing competitors Five Forces Model Porter, Michael E., Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free Press, 1985.

8 Chapter 5 Defining Service Strategies 8 Exhibit 5.3 THE FIVE FORCES MODEL Potential New Entrants Substitutes Suppliers Buyers Industry Competitors (existing) Threat of new entrants Bargaining power of buyers Threat of substitutes Bargaining power of suppliers

9 Chapter 5 Defining Service Strategies 9 THE CUSTOMER CONTACT MODEL Types of Services Pure Services Mixed Services Quasi-Manufacturing Services

10 Chapter 5 Defining Service Strategies 10 Exhibit 5.4 THE SERVICE PROCESS MATRIX Source: Schmenner, Roger W. “How Can Service Businesses Survive and Prosper?”, Sloan Management Review, Vol. 27, No. 3, Spring 1986, p. 25.

11 Chapter 5 Defining Service Strategies 11 Exhibit 5.5 THE SERVICE PROCESS MATRIX Source: Schmenner, Roger W. “ How Can Service Businesses Survive and Prosper? ”, Sloan Management Review, Vol. 27, No. 3, Spring 1986, p. 27. Low Labor Intensity Challenges: Capital Decisions Keeping up with Technology Managing Demand Scheduling service delivery Low Interaction/ Customization Challenges: Differentiating in market Making service “warm” Managing physical surroundings Developing operating procedures High Labor Intensity Challenges: Hiring workers Training workers Developing methods and controls Assuring employee welfare Scheduling workers Controlling distant operations Starting new units Managing growth High Interaction/ Customization Challenges: Managing costs Maintaining quality Reacting to customers in process Managing people in process Gaining employee loyalty Service Factory Low labor, low interaction/customization Service Shop Low labor, high Interaction/customization Mass Service High labor, low interaction/customization Professional Service High labor, high interaction/customization

12 Chapter 5 Defining Service Strategies 12 Exhibit 5.6 CUSTOMIZATION AND JUDGEMENT IN SERVICES Source: Lovelock, Christopher H., "Classifying Services to Gain Strategic Marketing Insights," Journal of Marketing, Vol. 47 (Summer 1983), pp

13 Chapter 5 Defining Service Strategies 13 KEY TERMS Business Unit Strategy Competitive Factors Corporate Strategy Customer Contact Model Direct Customer Contact Five Forces Model Functional Strategy Indirect Customer Contact Infrastructural Decisions Marketing Mix Mass Service Professional Service Service Factory Service Shop Structural Decisions SWOT Analysis