1. 3-1

2. Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Service Strategy 3

3. 3-3  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

4. 3-4 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?

5. 3-5 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?

6. 3-6 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?

7. 3-7 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?

8. 3-8  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 Environment of Services

9. 3-9  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 Competitive Service Strategies (Overall Cost Leadership)

10. 3-10  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. Competitive Service Strategies (Differentiation)

11. 3-11  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) Competitive Service Strategies (Focus)

12. 3-12  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) Customer Criteria for Selecting a Service Provider

13. 3-13  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. Service Purchase Decision

14. 3-14  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). Service Purchase Decision (cont.)

15. 3-15 Competitive Role of Information in Services

16. 3-16  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” 2 nd Stage (Mirroring Capability): Substitute virtual activities for physical – Ex. USAA “automate underwriting” 3 rd Stage (New Customer Relationships): Draw on information to deliver value to customer in new ways – Ex. USAA “event oriented service” The Virtual Value Chain

17. 3-17  Anti-competitive (Barrier to entry)  Fairness (Yield management)  Invasion of Privacy (Micro-marketing)  Data Security (Medical records)  Reliability (Credit report) Limits in the Use of Information

18. 3-18 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.

19. 3-19 Stages in Service Firm Competitiveness

20. 3-20 Stages in Service Firm Competitiveness

21. 3-21 America West Airlines Strategy

22. 3-22  Service Qualifiers  Service Winners  Service Losers America West Winning Customers

23. 3-23  Target market segments  Service concept  Operating strategy  Service delivery system America West Strategic Service Vision

24. 3-24 CABIN SERVICE Full Service PREFLIGHT SERVICE InconvenientConvenient No Amenities America West Airlines Positioning

25. 3-25 Mrs. Fields Strategic Use of Information

26. 3-26  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? Mrs. Fields Management Information System

27. 3-27 Alamo Drafthouse Positioning MOVIE SELECTION FOOD QUALITY ManyFew Poor Good

28. 3-28 Alamo Drafthouse Strategic Service Vision  Target market segments  Service concept  Operating strategy  Service delivery system

29. 3-29 Alamo Drafthouse Winning Customers  Qualifiers  Service winners  Service losers

30. 3-30 Discussion Topics 1.Give examples of service firms that use both the strategy of focus and differentiation and the strategy of focus and overall cost leadership. 2.What ethical issues are associated with micro-marketing? 3.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? 4.Give an example of a firm that begin as world-class and has remained in that category. 5.Could firms in the “world-class service delivery” stage of competitiveness be descried as “learning organizations”?

31. 3-31 Interactive Class Exercise  The class divides and debates the proposition “Frequent flyer award programs are or are not anticompetitive.”