1. Service Strategy

2. 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).

3. Strategic Service Vision 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?

4. Strategic Service Vision 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?

5. Strategic Service Vision 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?

6. Strategic Service Vision 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?

7. 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

8. Competitive Service Strategies (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

9. Competitive Service Strategies (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.

10. Competitive Service Strategies (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)

11. Customer Criteria for Selecting a Service Provider
Availability (24 hour ATM)
Convenience (Site location)
Dependability (On-time performance)
Personalization (Know customer’s name)
Price (Quality surrogate)
Quality (Perceptions important)
Reputation (Word-of-mouth)
Safety (Customer well-being)
Speed (Avoid excessive waiting)

12. 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. Examples are cleanliness for a fast food restaurant or safe aircraft for an airline.
Service Winner: The competitive dimension used to make the final choice among competitors. Example is price.

13. Service Purchase Decision (cont.)
Service Loser: Failure to deliver at or above the expected level for a competitive dimension. Examples are failure to repair auto (dependability), rude treatment (personalization) or late delivery of package (speed).

14. 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)

15. The Virtual Value Chain
Marketplace vs Marketspace
Creating New Markets Using Information (Gather, Organize, Select, Synthesize, and Distribute)
Three Stage Evolution • 1st Stage (Visibility): See physical operations more effectively with information – Ex. USAA “paperless operation” • 2nd Stage (Mirroring Capability): Substitute virtual activities for physical – Ex. USAA “automate underwriting” • 3rd Stage (New Customer Relationships): Draw on information to deliver value to customer in new ways – Ex. USAA “event oriented service”

16. 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)

17. Using Information to Categorize Customers
Coding grades customers on how profitable their business is.
Routing is used by call centers to place customers in different queues based on customer code.
Targeting allows choice customers to have fees waived and get other hidden discounts.
Sharing data about your transaction history with other firms is a source of revenue.

18. Stages in Service Firm Competitiveness
1. Available for service Journeyman Distinctive competence 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.

19. Stages in Service Firm Competitiveness
1. Available for service Journeyman Distinctive competence 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.

20. America West Airlines Strategy
Target Strategic Advantage
Low cost Uniqueness
Entire Overall cost Differentiation
Market leadership
Market Focus
Segment

21. America West Winning Customers
Service Qualifiers:
Service Winners:
Service Losers:

22. America West Strategic Service Vision
Target market segments
Service concept
Operating strategy
Service delivery system

23. America West Airlines Positioning
CABIN SERVICE
Full Service
PREFLIGHT SERVICE
Inconvenient Convenient
No Amenities

24. Mrs. Fields Strategic Use of Information
Strategic Focus Competitive Use of Information
On-line Off-line
(Real time) (Analysis)
Creation of barriers to entry: Data base asset:
External
(Customer)
Revenue generation: Productivity enhancement:
Internal
(Operations)

25. Mrs. Fields Management Information System
How might the management information system contribute to a reported 100% turnover of store managers?
Will the management information system support or inhibit the expansion of Mrs. Field’s outlets? Why?

26. Alamo Drafthouse Positioning
FOOD QUALITY
Good
MOVIE SELECTION
Few
Many
Poor

27. Alamo Drafthouse Strategic Service Vision
Target market segments
Service concept
Operating strategy
Service delivery system

28. Alamo Drafthouse Winning Customers
Qualifiers
Service winners
Service losers

29. Alamo Drafthouse Profitability Recommendations

30. Discussion Topics
Give examples of service firms that use both the strategy of focus and differentiation and the strategy of focus and overall cost leadership.
What ethical issues are associated with micro-marketing?
For each of the three generic strategies (i.e., cost leadership, differentiation, and focus) which of the four competitive uses of information is most powerful?
Give an example of a firm that begin as world-class and has remained in that category.
Could firms in the “world-class service delivery” stage of competitiveness be descried as “learning organizations”?

31. Interactive Class Exercise
The class divides and debates the proposition “Frequent flyer award programs are or are not anticompetitive.”