1. Chapter 3 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. Learning Objectives (Short List)
Strategic Vision
Competitiveness
Information

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

5. 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?

6. 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?

7. 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?

8. 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?

9. 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

10. Competitive Service Strategies
Overall Cost Leadership
Differentiation
Focus

11. 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

12. 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.

13. 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)

14. 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.

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

16. 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.

17. 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)

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

19. 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)

20. 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?

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

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

23. 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.

24. 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.