Service Strategy

Week 2

Learning Objectives

Formulate a strategic service vision. Describe how a service has addressed each element in the strategic service concept. 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 Explain the role of the virtual value chain in service innovation. Discuss the limits in the use of information

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?

Strategic Service Vision

Service Concepts

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?

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?

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?

Southwest example

Service Design Elements

Structural: 1.Delivery system (front & back office)

2.Facility design (aesthetics, layout) 3.Location (competition, site characteristics) 4.Capacity planning (number of servers)

Managerial 5.Service encounter (culture, empowerment)

6.Quality (measurement, guarantee) 7.Managing capacity and demand (queues) 8.Information (data collection, resource)

Shouldice Hospital example

A successful hospital located in Toronto, Canada, that perform only inguinal hernia operations, is privately owned and uses a special operating procedure to correct inguinal hernias that has resulted in an excellent reputation. Its success is measured by the recurrence rate, which is 12 times lower than that of its competitors.

Shouldice Hospital example

Shouldice Hospital example

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)

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 (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.

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)

Market Position of Generic Strategies

Strategic Advantage Low Cost Uniqueness

Entire Market

Overall Cost Leadership

Differentiation

Target
Market Segment

Focus

Customer Criteria for Selecting a Service Provider

Availability (24 hour ATM) Convenience (Site location) Dependability (On-time performance) Personalization (Know customers name) Price (Quality surrogate) Quality (Perceptions important) Reputation (Word-of-mouth) Safety (Customer well-being) Speed (Avoid excessive waiting)

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.

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).

Competitive Role of Information in Services

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

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

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)

America West Airlines Generic Competitive Strategy

Strategic Advantage Low Cost Uniqueness

Entire Market

Overall Cost Leadership

Differentiation

Target
Market Segment

Focus

America West Airlines Competitive Features

Service Qualifiers:

Service Winners:

Service Losers:

America West Airlines Service Concept

Strategic

Delivery System: Location: Facility Design: Capacity Planning

America West Airlines Strategic Service Concept (cont.)

Service Encounter: Quality: Managing Capacity and Demand: Information:

America West Airlines Positioning

CABIN SERVICE
Full Service

PREFLIGHT SERVICE
Inconvenient Convenient

No Amenities

Mrs. Fields Strategic Use of Information

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

enhancement: Internal (Operations)

Mrs. Fields Management Information System

Advantages

Disadvantages

Mrs. Fields Questions

How might the MIS contribute to a reported 100% turnover of store managers? Will the MIS support or inhibit the growth of outlets (domestic and overseas)?

Alamo Drafthouse Positioning

FOOD QUALITY
Good

MOVIE SELECTION
Few Many

Poor

Alamo Drafthouse Strategic Service Vision

Target market segments Service concept Operating strategy Service delivery system

Alamo Drafthouse Winning Customers

Qualifiers Service winners Service losers

Alamo Drafthouse Profitability Recommendations

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. Use the service design elements for a service of your choice to illustrate how all eight elements support the service strategy. 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?

Interactive Class Exercise

The class divides and debates the proposition Frequent flyer award programs are or are not anticompetitive.

New Service Development and Process Design

Learning Objectives

Discuss the new service development process. Prepare a blueprint for a service operation. Describe a service process using the dimensions of divergence and complexity. Use the taxonomy of service processes to classify a service operation. Compare and contrast the generic approaches to service system design. Place an example of service automation in it proper category. Discuss the managerial issues associated with the adoption of new technology.

Customer Benefit Package

Hierarchy Level Category First Second Element Business Core Peripheral Good Peripheral Service Third Variant Core Good Example Custom clothier Business suits Garment bag Core Service Example Business hotel Room for the night Bath robe

Deferred payment plans Coffee lounge

In house restaurant Airport shuttle

Levels of Service Innovation

Radical Innovations

Major Innovation: new service driven by information and computer based technology Start-up Business: new service for existing market New Services for the Market Presently Served: new services to customers of an organization

Incremental Innovations

Service Line Extensions: augmentation of existing service line (e.g. new menu items) Service Improvements: changes in features of currently offered service Style Changes: modest visible changes in appearances

New Service Development Cycle

Full-scale launch Post-launch review

Full Launch
ga n Co izatio nte na l xt

Enablers

Development
Formulation of new services objective / strategy Idea generation and screening Concept development and testing

Service design and testing Process and system design and testing Marketing program design and testing Personnel training Service testing and pilot run Test marketing

People

am Te s

Or

Product

Technology
Tools

Systems

Design

Analysis
Business analysis Project authorization

Technology Driven Service Innovation

Power/energy - International flights with jet aircraft Physical design - Enclosed sports stadiums Materials - Astroturf Methods - JIT and TQM Information - E-commerce using the Internet

Classification of Service Automation

Fixed-sequence (F) - parking lot gate Variable-sequence (V) - ATM Playback (P) - answering machine Numerical controlled (N) - animation Intelligent (I) - autopilot Expert system (E) - medical diagnosis Totally automated system (T) - EFT

Adoption of New Technology in Services

Challenges of Adopting New Technology The Process is the Product Back Office vs Front Office Changes Need for Standardization Managing the New Technology Adoption Process Ten step process with concern for employees and customers

Ten Step Planning Guide

1. 2. 3. 4. 5.

Orientation and education Technology opportunity analysis Application requirements analysis Functional specification Design specification.

Ten Step Planning Guide

6. 7.

8. 9. 10.

Implementation planning Equipment selection and contract commitments Implementation Testing of technology Review of results

Service Blueprinting

Developing a new service based on the subjective ideas in the service concept can lead to costly trial-and-error efforts to make the concept a real thing. The service delivery system can be captured in a visual diagram, as in the case of buildings.

Service Blueprint of Luxury Hotel

Service Blueprinting

A blueprint is a precise definition of the service delivery system that allows management to test the service concept on paper before any final commitments are made. It also facilitates problem solving and creative thinking by identifying potential points of failure and highlighting opportunities to enhance customers perceptions of the service.

Strategic Positioning Through Process Structure

Degree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital. Degree of Divergence: Amount of discretion permitted the server to customize the service. For example the activities of an attorney contrasted with those of a paralegal.

Structural Positioning of Financial Services

Complexity
High
Investment banking

Discount brokerage

Financial planner

Divergence
Low (Standardized)
Life insurance Real state

High (Customized)

Low

Structural Alternatives for a Restaurant

LOWER COMPLEXITY/DIVERGENCE No Reservations Self-seating. Menu on Blackboard Eliminate Customer Fills Out Form Pre-prepared: No Choice Limit to Four Choices Sundae Bar: Self-service Coffee, Tea, Milk only Serve Salad & Entree Together: Bill and Beverage Together Cash only: Pay when Leaving CURRENT PROCESS TAKE RESERVATION SEAT GUESTS, GIVE MENUS SERVE WATER AND BREAD TAKE ORDERS PREPARE ORDERS Salad (4 choices) Entree (15 choices) Dessert (6 choices) Beverage (6 choices) SERVE ORDERS COLLECT PAYMENT HIGHER COMPLEXITY/DIVERGENCE Specific Table Selection Recite Menu: Describe Entrees & Specials Assortment of Hot Breads and Hors Doeuvres At table. Taken Personally by Maltre d Individually Prepared at table Expand to 20 Choices: Add Flaming Dishes; Bone Fish at Table; Prepare Sauces at Table Expand to 12 Choices Add Exotic Coffees; Sherbet between Courses; Hand Grind Pepper Choice of Payment. Including House Accounts; Serve Mints

Generic Approaches to Service Design

Production-line Limit Discretion of Personnel Division of Labor Substitute Technology for People Standardize the Service Customer as Coproducer Substitution of Customer Labor for Provider Smoothing Service Demand Customer Contact Degree of Customer Contact Separation of High and Low Contact Operations Information Empowerment Employee and Customer

Discussion Questions

What ethical issues are raised in the promotion of sales during a service transaction? What are some drawbacks of customer participation in the service delivery process? What are the limits in the production-line approach to service? Give an example of a service in which isolation of the technical core would be inappropriate.

100 Yen Sushi House Questions

Prepare a service blueprint for the 100 Yen Sushi House What features differentiate 100 Yen Sushi House and how do they create a competitive advantage? How has the 100 Yen Sushi House incorporated the just-in-time system into its operations? Suggest other services that could adopt the 100 Yen Sushi House service delivery concept.

100 Yen Sushi House Layout

Dishwashing Counter in Back CONVERSATION AREA Miso and Tea Station CONVEYOR BELT

CONVERSATION AREA

TAKE-OUT POSITION ENTRANCE = CHEF

100 Yen Sushi House Service Package

Supporting Facility Facilitating Goods Information Explicit Service Implicit Service

INTERACTIVE CLASS EXERCISE The class breaks into small groups and prepares a service blueprint for Village Volvo.