SERVICES OPERATIONS MANAGEMENT

Unit 2

Part A

Give details about retail design strategies.

NEWMANN AND CULLEN (2002) P OINT OUT T HAT RETAILING IS A SERVICE INDUSTRY B ECAUSE RETAILERS ‘
ESSENTIAL ECONOMIC FUNCTION IS T O P ROVIDE T HEIR CUSTOMERS W ITH SEVERAL B ASIC AND IMPORTANT
SERVICES, INCLUDING ACCESSIBILITY O F LOCATION, CONVENIENCE OF T IMING, CHOICE O F P RODUCTS,
INFORMATION ABOUT T HE P RODUCTS AND C ONVENIENCE OF S IZE. RETAIL IS THE P ROCESS OF SELLING
11 CONSUMER GOODS AND/OR SERVICES T O CUSTOMERS T HROUGH MULTIPLE CHANNELS O F D ISTRIBUTION T O
EARN A P ROFIT.
Retail design strategy involves developing the floor space to best appeal to customers, to configure the store, and to
decide the kind of marketing displays to use and to decide the way to display the associated products. The retail design
strategy is meant to inspire clients to spend more time, and more money, in the retail store.

Interpret how to manage service experience.

Pine and Gilmore (1998) describe the changing competitive environment as an ‘experience economy.’ An experience
differs from a normal service in that companies use services as a stage and as props with the goal of engaging individual
customers in a way that creates a memorable event that the customer would want to repeat again and recount to his
friends. In other words, companies must create or stage an ‘experience’.
It is based on three dimensions: Engagement, Context and Time

12

What is vehicle routing?

The vehicle routing problem can be defined as the problem of designing routes for delivery vehicles (of known
13 capacities) which are to operate from a single depot to supply a set of customers with known locations and known
demands for a certain commodity.

What is service blue print?

When a building is designed, the design is captured on architectural drawings called blue prints, as the reproduction is
done on special paper creating blue lines.These blueprints show what the product should look like and all the
specifications needed for its manufacture.
G Lynn Shostack proposed that a service delivery system also can be captured in a visual diagram (a service blueprint)
14 and used in a similar manner for the design of services.Service blue print is a map or flowchart of all the transactions
constituting the service delivery process.

How would you show your understanding on divergence of services?

15
 The amount of freedom an employee or a server has to customize the service is the represented by
degree of divergence  Example: Call center agents are given standard instructions to answer routine
questions whereas a hair styling salon may provide customized hair styles to the customers  Services can
be classified as processes with Low-divergence and Highdivergence
 Low-divergence: Standard services generally involved routine task. It does not require specialized skill
and hence provide consistent quality and reduced
 High-divergence: It can be viewed as niche strategy where customer is willing to pay extra money for
the personalized value perceived and received by the service

Compare vehicle routing and scheduling.

When services travel to a particular location, vehicle routing is aimed at developing a route that minimises
16 time and distance travelled.. The objective of most scheduling problems is to minimize the total cost of
providing the service. Routing and scheduling problems are often presented as graphical networks.

Define value of customer.

Customer Value is the level of satisfaction of your customer towards your business. The word “Value” can have a
number of definitions or meanings. It’s often related to price for those in business, as well as for many consumers –
like if I were to ask you the value of your home when you purchased it. It could also be interpreted as the worth of
something, not necessarily tangible products either. Both products and services have value.
What do you mean by customer value equation.
Results produced + Process Quality
Value to customer = --------------------------------------------------------------
Price to the customer + Cost of acquiring the service
 Results produced for the customer: It must satisfy the need for which it was purchased

 Process quality: Since customer is a part of the process of service delivery, therefore improvement
17 in service quality will be appreciated by the customer

 Price to the customer: Greater consistency in service quality should lower cost – because that allows
greater alignment between customer perceptions and expectations; resulting in lower price being
offered to customer

 Cost of acquiring the service: Total cost of acquiring the service is important to customers

Differentiate vehicle routing and scheduling

Routing is defined as the process of creating the most cost effective route through minimization of distance or
travel time necessary in order to reach a set of planned stops. Routing is a crucial process of logistics systems,
especially due to the high competition and narrowing margins in the global market. Routing of goods and
services incurs huge costs for vehicle operation, fuel, labor, and maintenance.
18 Scheduling - is the process of assigning an arrival and service time for each stop, with drivers being assigned
shifts that adhere to working hours. The entire objective of both routing and route scheduling is to effectively
cut down on your expenses, such as mileage and vehicle capital costs.

What do you mean by customer value equation.

Results produced + Process Quality
Value to customer = --------------------------------------------------------------
19 Price to the customer + Cost of acquiring the service
 Results produced for the customer: It must satisfy the need for which it was purchased
  Process quality: Since customer is a part of the process of service delivery, therefore improvement
in service quality will be appreciated by the customer

 Price to the customer: Greater consistency in service quality should lower cost – because that allows
greater alignment between customer perceptions and expectations; resulting in lower price being
offered to customer

 Cost of acquiring the service: Total cost of acquiring the service is important to customers

What is experience economy?

The experience economy is the idea that products and services can outcompete by creating an experience that
customers value. In an economy where many products and services have become a commodity, experience is
20
a valuable competitive advantage. The following are illustrative examples of the experience economy

Part B
Part B 8th question and 10 th Question

Outline the design consideration for high and low contact operation.

There can be different ways a customer can come in contact with service system as shown in Figure
3.13.

Direct customer contact

A customer is physically present throughout the service encounter andmay interact

directly with service provider or have no interaction with service provider such as
in self-service case.

Indirect customer contact

Customer can contact a service provider via email.

No customer contact

Service is performed without any contact with customer such as calculating and
crediting interest on saving accounts in the banks does not need customer contact
but service is being performed for the client.
LOW MODERATE AND HIGH CONTACT
 PART B : 9th
How would you show your understanding on “Managing Service
Experience” and its link with
i)Context (4marks)
ii) Customer engagement (5 marks)
iii)Time ( 4 marks)

PROCESS OF CUSTOMER EXPERIENCE

An experience occurs when any sensation or knowledge acquisition results from a customer’s interaction with
different elements of a context created by a service provider. Successful experiences are those that the customer
finds unique, memorable, and sustainable over time; would want to repeat and build upon; and enthusiastically
promotes via word of mouth.

i.Customer engagement
In order to feel the sensation or acquire the knowledge, customer must become engaged in creating
the experience. Happens at the personal level and the environment level
One can sort experiences into four broad categories according to where they fall along the spectra of
the two dimensions. (See the exhibit “The Four Realms of an Experience.”)
The kinds of experiences most people think of as entertainment—watching television, attending a
concert—tend to be those in which customers participate more passively than actively; their
connection with the event is more likely one of absorption than of immersion.
Educational events—attending a class, taking a ski lesson—tend to involve more active
participation, but students (customers, if you will) are still more outside the event than immersed in
the action
Escapist experiences can teach just as well as educational events can, or amuse just as well as
entertainment, but they involve greater customer immersion. Acting in a play, playing in an
orchestra, or descending the Grand Canyon involve both active participation and immersion in the
experience. If you minimize the customers’ active participation, however, an escapist event becomes
an experience of the fourth kind—the esthetic.
Estheticcustomers or participants are immersed in an activity or environment, but they themselves
have little or no effect on it—like a tourist who merely views the Grand Canyon from its rim or like a
visitor to an art gallery.

ii)Context : Context is the physical setting, particular selection and arrangement of products, the
world of objects and social actors, and the rules and procedures for social interactions with other
customers and service facilitators
 It is the physical setting
 6 elements
1. Theme: The experience should have an explicit or implicit theme. A coherent theme ties
together all elements of the context into a unified story that captivates the customer.
2. Learnable and usable: The context should be designed so that the experience is easy to learn
and use
3. Mutable (flexible): Because experiences should be inherently personal (to be meaningful), a
good expe rience context has mutability. Mutability means incorporating flexibility in the
system to allow different customers to create their own use environment during their inter
action with the service.
4. Layout: Physical layout and organization of objects (tools, equipment, utensils, accessories,
and other paraphernalia) should encourage active participation. The theme should be
 reflected in the arrangement of these objects and the organization of space. Layout should
satisfy accessibility and visibility criteria, promote participation, and avoid chaos
5. Sensory: Sensory stimulants not only increase immersion in an experience but support and
enhance the theme. Popular sensory items are bakery smells, misting, lighting, and
pyrotechnics; the more engaged senses the better.
6. Social interaction: Organizations need to look at how their experience design helps or hinders
social interaction. For new customers who encounter difficulties in understanding the
procedures or rituals of new experiences, assigned guides explain, enable customers to learn
by doing, facilitate, or encourage customers to engage in novel activities and social
interaction.
iii)Time
 Experiences are an emergent phenomenon. They should be designed for enhance ment over
time, with new and constant learning. Good experiences are hard to copy and discourage
switching
 3 elements
1. Memorabilia: turning event into a memorable one Memorabilia serve several purposes for
experience design. First, a physical reminder of an experience extends the memory of it long
after the actual encounter occurred. Second, it generates dialog about the experience,
encouraging wordofmouth. Third, it provides additional revenue to the organization and free
advertising. It is important to tie the memorabilia in with the theme of the organization.
2. Continuity: Service providers need to examine ways to build an experience for a
customer over time.
3. Dynamic: There is a preferred or most desirable pattern for good experiences
to reveal them selves over a specific time frame. Like good plays, movies, and musical scores,
they begin at a lowlevel, increase in intensity to reach a climax, and then gradually sub side.

PART B 11 th Question

Explain the production line approach and information empowerment.

3.6 Various Approaches to Service System Design

Production line approach

Customer as co-producer

Information intensity

3.6.1 Production Line Approach

Emphasis on control of the process.

This control comes from breaking a job into groups of small tasks. Dedicatespecialized skills to
these small tasks.

The employees performing the tasks have limited discretion. The employees are not
empowered enough to customize the service because production line approach focus on
standardization and consistency in each service product. This approach is analogous to a
typical assembly line in manufacturing system where the output is machine paced and
jobs are designed with explicit tasks utilizing special tools to produce consistent and
uniform products.
 Such approach improves the productivity and helps in achieving costleadership strategy.

3.6.2 ProductionLineApproach: ServiceProcess

Classification

We know that products produced in factory are more uniform in quality and features. Same
output can be seen in the services by applying production- line approach

In the service process classification categories, production line approach canbe seen as
presented in table 3.1.
ABLE 3.1: LINKING PRODUCTION LINE APPROACH WITH SERVICE PROCESS CLASSIFICATION

Service process classification Production line approach

Discretion Low

Can be high or low but in case of high the jobs

Complexity
are divided into small tasks

Customer contact Mostly direct and indirect

Mostly customer receives facilitating goods

Actual recipient of service
from service provider

3.6.3 Production Line Approach: Examples

McDonalds
 Controlled execution of each process: Rapid delivery of uniform and high quality prepared burgers
in a clean environment

No discretion: Size, quality and raw material consistency is preplanned pre prepared, which cannot
be changed by any employee. McDonalds provide pre cut and partially cooked potatoes for
making the french fries on the spot

Size of equipment: Size of fryer is optimum so that at any point of timenumber of french fries to be
fried are neither too much to avoid sogginess nor too small to avoid costly and frequent frying.

In such approach customer’s perceptions about service quality are improved.

3.

3.6.4 Information Intensity

Some of the services have information as a main contributor of value generation. The information
is very essential component to make decisions.

In such services documents, databases, software applications, or otherexplicit repositories are

ubiquitous and essential to meeting the goals of the client.

Such services have empowered service providers or employees and

customers in making decisions as well choices utilizing information systems.

Part b
12 th question

1.Structural and Managerial elements in Service design

3.1 SERVICE DESIGN SYSTEM

 Service design process is comprised of service system elements which form a blueprint
to communicate the service concept to customers and employees.Service system
elements can be categorized as structural and managerial elements which should be
in place to offer services that achieve strategic service vision as shown in Figure 3.1
 Service Design system

Comprised of

Structural Elements Managerial Elements

Delivery Location Capacity Service Information

System Planning Encounter

Facility Quality
Design

Managerial
Capacity &
Demand

To achieve strategic service vision

FIGURE 3.1 SERVICE DESIGN SYSTEM ELEMENTS

3.1.1 Structural Elements
Delivery System

 Front & back office operations ,Automation like self-service technologies

 Customer participation: element of involvement by customer

Facility Design

 Size of facility: Whether the facility isa big or small

 Aesthetics & ambience: Display arrangements

 Layout & expansion consideration : Type of layout and how to expand

Facility Location

 Customer demographics: AGE, GENDER,Eeducation and likes and dislikes of

customers

 Single versus multiple sites: Service at one or many sites

 Site characteristics: Features available at location

 Service concepts & objectives of service delivery

Capacity Planning

 Managing waiting lines: how to manage queues

 Accommodating average & / or peak demand: What is max ,minimum and average
demand

 Service –line balancing

 3.1.2 Managerial Elements
Service Encounter

 Characteristics of service provider, employees & customer

Quality

 Reducing gaps between customer expectation and perceptions

Managing capacity & demand: Strategies to manage demand and capacity

Information: Information regarding customer

Part b 13 and 14 Question

ways of retail stores are designed and maintained.

RETAIL DESIGN STRATEGIES

NEWMANN AND CULLEN (2002) POINT OUT THAT RETAILING IS A SERVICE INDUSTRY BECAUSE RETAILERS‘
ESSENTIAL ECONOMIC FUNCTION IS T O PROVIDE THEIR CUSTOMERS WITH SEVERAL BASIC AND IMPORTANT
SERVICES, INCLUDING ACCESSIBILITY OF LOCATION , CONVENIENCE OF TIMING, CHOICE OF PRODUCTS,
INFORMATION A BOUT THE PRODUCTS AND C ONVENIENCE OF SIZE. RETAIL IS THE PROCESS OF SELLING C ONSUMER
GOODS AND/OR SERVICES TO CUSTOMERS THROUGH MULTIPLE CHANNELS OF DISTRIBUTION TO EARN A PROFIT.

A retailer’ marketing strategy or retail strategy is concerned with two aspects:

1. a target market, and

2. Developing a retailing mix to satisfy the needs of the targeted market.

Thus, the retailing strategy has following seven components:

(a) Selecting a Target Market:

Before determining marketing mix, a retailer has to decide about the target market to be served.
Target market selection depends upon the size of the market, profit potential of the market and level
of competition. Retailers base their target market on demographics, geographic and psychographic
factors. Ultimately the retailers decide their target market on the basis of neighbourhood.

(b) Merchandising Strategy:

Merchandising strategy refers to decision about the product lines, specific items within lines and the
depth. While deciding about the merchandise mix, the retailer has to evaluate Market Activity
(Market Share, Revenue Trends, Geographic and Demographic Trends), review Product Category
Performance (Sales, Margin, and Inventory Turnover), understand Company Objectives ( Market
Penetration, Revenue Growth, and EPS commitments), develop Annual Merchandising Strategy
(Market Shifts, Product Mix, High Level Space, Margin Goal Shifts), and discuss Merchandising
Strategy with Business Leaders (reconcile with Business Goals, Financial Commitments).

Nathu’s sweets shop retailer has not only sweets, but also namkins and chat. Very recently it has
added chocolates as well. Your area’s chemist keeps medicines according to type of doctors in the
vicinity, the medicines prescribed by them and the other packed skin-care and hare-care items. In
India, the retailers do not demand ‘slotting fee’ to secure shelf space for new products, but in the US
it is quite common.

(c) Customer Service Strategy:

Some of the retailers design their marketing strategy around the services for shoppers. Home
delivery, credit, return privilege, delivery and installation, and teleshopping are few such services.
Basic objective of all customer services is to attract and retain target customers.

(d) Pricing Strategy:

Pricing strategy depends upon a retailer’s marketing objectives and policies. We as customers often
have the perceptions that a particular retailer in the locality charges reasonably and the other retailer
charges higher for the same product.

One retailer gives a branded bread packet for Rs 20, and the other one for Rs. 21, though both of
them are located nereby Delhi border in Ghaziabad and the source of procurement is the same.
Whatever the retailer adds to the cost of a product to determine selling price is known as markup and
when the retailer gives rebate or discount to lower down the price the retailer is engaged in
markdown.

(e) Location/Distribution Strategy:

Location is often held responsible for the retailer’s success or failure. Location depends upon type of
merchandise, the retailer’s finances, characteristics of target market and the availability of site. A
retailer may select pavement, residential areas, central market area, or planned shopping centres.

Planned shopping centres can be of five types neighbourhood shopping centre (especially for
convenience stores and total number of shops around 15 with a few shopping goods stores),
Community shopping centre (shops around 30 to serve a population of around

(f) Promotional Strategy:

To lure customers retailers use different techniques of promotion. While the neighbourhood retailers
depend on word-of-mouth communication, the larger retail stores go in for advertising, still bigger
stores especially Big Bazaar buys full page in national newspapers and provide different facilities to
attract footfalls.

(g) Store Atmospherics:

With the passage of time the consumers have changed. Today, they prefer to shop at a retailer whose
exterior and the interior attract them. A store’s exterior depends upon architectural design, window
displays, and entryways. Interior atmospherics include store layout, merchandise presentation,
lighting, air conditioning, colour combination, sounds, scents and cleanliness.

Recently Adopted strategies :

1. The storefront
The storefront is your first priority. If you don't get people in the store, then the rest of your
strategies and efforts won't matter much.
In order to design and execute a flawless storefront, you need to understand who your target
customer is and what motivates them to shop with you.
Are they looking for a quick experience where they can pop in and make a purchase without much
effort? Or is the process of shopping actually part of the experience? Are customers already familiar
with your products and know what you sell? Or do you have to take the time to educate shoppers on
your products?
Your storefront should speak to your target customers and give them a reason to step inside.
2. Use wayfinding signs strategically
Few retail store design elements are as important as in-store signage. It helps people find what
they're looking for and visually breaks the larger store down into individual arrangements and
sections.
3. Encourage impulse purchases
Research shows that some 60 percent of shoppers succumb to spontaneous purchases on an
occasional basis. Many of these impulse buys come while customers are waiting in line at the
checkout counter.
For brick-and-mortar retailers, the checkout line is a huge opportunity for increasing purchases. It's
why you'll commonly see retailers like TJ Maxx create long checkout queues that are lined with
inexpensive, appealing products. They know that customers will throw an item or two in their baskets
if they stand there long enough.
Part of your in-store design strategy needs to focus on increasing impulse buys.this can be done both
at checkout and throughout the store.
4. Place popular items at the back of the store
Have you ever ordered an item from Walmart.com and selected the option to pick it up in the store?
If so, then you know that you have to walk all the way to the back of the store to pick the item up.
They don't do this to frustrate you. Instead, they know that you're more likely to see something you
want to buy if you have to walk all the way from the front of the store to the back. Using this same
strategy, you can benefit from placing popular products in the back of the store.
PART C 3 rd Question

The strategy of customer as co-producer is prevalent these days. -Comment

3.6.5 Customer As Co-producer

Customer as co-producer means customer can also provide productivelabour while service
is being performed. In such approach some of the service activities or all activities are
shifted from service provider to the customer

Customer as a co-producer can customize the service as per his/ herconvenience and
requirements, hence participates in service production and delivery. Customers mostly
prefer self service activities when they perceive monetary and time savings.

In case of all activities being shifted to the customer like self service approach, service
provider save on the operating cost. Customer substitutes for service employee and
hence service provider can earn savings by not hiring physical labor or employee

Customer can also create capacity for service provider by making priorappointments and
reservations during non peak hours (or during idle time of service provider) of service and
hence helps in proper utilization of service capacity.
 In such approach customer’s perceptions about service quality are improved.

In Service Process Classification customer as co-producer can be seen as in Table 3.2.

3.2: LINKING CUSTOMER AS CO-PRODUCER WITH SERVICE PROCESS CLASSIFICATION

Service process classification Customer as co-producer

Discretion High as customer can customize the service

Customer contact Direct or indirect contact

Actual recipient of service Mostly a bundle of service product

3.6.6 Customer As Co-producer: Examples

Self-service facility in many fast food outlets or restaurants

Services over the Internet, such as Federal Express package tracking

Online brokerage services

PART C 4 th question
Compare various dimensions of experience economy.

EXPERIENCE ECONOMY : Pine and Gilmore (1998) describe the changing competitive environment as an
‘experience economy.’An experience differs from a normal service in that companies use services as a stage
and as props with the goal of engaging individual customers in a way that creates a memorable event that
the customer would want to repeat again and recount to his friends. In other words, companies must
create or stage an ‘experience’.
An experience is not an amorphous construct; it is as real an offering as any service, good, or commodity. In
today’s service economy, many companies simply wrap experiences around their traditional offerings to sell
them better. To realize the full benefit of staging experiences, however, businesses must deliberately design
engaging experiences that command a fee. This transition from selling services to selling experiences will be
no easier for established companies to undertake and weather than the last great economic shift, from the
industrial to the service economy. Unless companies want to be in a commoditized business, however, they
will be compelled to upgrade their offerings to the next stage of economic value.

An experience occurs when a company intentionally uses services as the stage, and goods as props, to engage
individual customers in a way that creates a memorable event. Commodities are fungible, goods tangible,
services intangible, and experiences memorable. (See the chart “Economic Distinctions.”) Buyers of
experiences—we’ll follow the lead of experience-economy pioneer Walt Disney and call them “guests”—
value what the company reveals over a duration of time. While prior economic offerings—commodities,
goods, and services—are external to the buyer, experiences are inherently personal, existing only in the mind
of an individual who has been engaged on an emotional, physical, intellectual, or even spiritual level. Thus, no
two people can have the same experience, because each experience derives from the interaction between
the staged event (like a theatrical play) and the individual’s state of mind.
Experiences have always been at the heart of the entertainment business—a fact that Walt Disney and the
company he founded have creatively exploited. But today the concept of selling an entertainment experience
is taking root in businesses far removed from theaters and amusement parks. New technologies, in particular,
encourage whole new genres of experience, such as interactive games, Internet chat rooms and multi-player
games, motion-based simulators, and virtual reality.