Service Strategy

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Service Strategy
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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

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Strategic Service VisionTarget 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?

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Strategic Service VisionService 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?

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Strategic Service VisionOperating 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?

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Strategic Service VisionService 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?

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Service Design Elements

• Structural Delivery system (front back
  office) Facility design (aesthetics,
  layout) Location (competition, site
  characteristics) Capacity planning (number of
  servers)
• Managerial Service encounter (culture,
  empowerment) Quality (measurement,
  guarantee) Managing capacity and demand
  (queues) Information (data collection, resource)

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Staying Focused

• Crotts, Dickson and Ford, Aligning
  Organizational Processes with Mission The case
  of service Excellence, Academy of Management
  Executive, 2005 193.
• Communications
• Top Management Walks the Service Mission Talk
• Departmental and Unit Goals are Aligned with
  Service Mission
• Performance Standards are Aligned with Service
  Mission
• Environmental Setting and Physical Design
  Communicate Service Mission
• Service Excellence Stories are Told and Successes
  Celebrated
• HR
• Job Descriptions Include Service Mission
• Job Ads Include Service Mission
• Interviews Include Questions about Service
  Mission
• Orientation Programs Stress Mission
• Performance Appraisals Include and Reward Service
  Mission
• Annual Training in Service Mission

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Staying Focused (cont.)

• Processes and Measurement
• Service Quality Systematically Measured
• Feedback on Service Quality Systematically
  Provided to All
• Service Delivery System Design Reflects Service
  Mission

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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

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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

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Competitive Service Strategies Differentiation

• Making the Intangible Tangible (memorable)
• Customizing the Standard Product
• Reducing Perceived Risk
• Giving Attention to Personnel Training
• Controlling QualityNote Differentiation in
  service means being unique in brand image,
  technology use, features, or reputation for
  customer service.

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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)

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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)

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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.

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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).

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Competitive Role of Information in Services
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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

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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)

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America West Airlines Strategy
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America West Winning Customers

• Service Qualifiers
• Service Winners
• Service Losers

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America West Strategic Service Vision

• Target market segments
• Service concept
• Operating strategy
• Service delivery system

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America West Airlines Positioning

• 
  
• 
  

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Alamo Drafthouse Positioning
FOOD QUALITY
Good
MOVIE SELECTION
Many
Few
Poor
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Alamo Drafthouse Strategic Service Vision

• Target market segments
• Service concept
• Operating strategy
• Service delivery system

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Alamo Drafthouse Winning Customers

• Qualifiers
• Service winners
• Service losers

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Alamo Drafthouse Profitability Recommendations

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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?

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Interactive Class Exercise

• Divide into two groups and debate the following
  proposition
• Frequent flyer award programs are or are not
  anticompetitive