03 strategy

8/3/2019 03 Strategy

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Service StrategyService Strategy


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Learning ObjectivesLearning 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 ofCategorize a service firm according to its stage ofcompetitiveness.competitiveness.

Conduct a data envelopment analysis (DEA).Conduct a data envelopment analysis (DEA).


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Strategic Service Vision

Target Market Segments


Target Market Segments

What are common characteristics of important marketWhat are common characteristics of important market

segments?segments?

What dimensions can be used to segment the market,What dimensions can be used to segment the market,demographic, psychographic?demographic, psychographic?

How important are various segments?How important are various segments?

What needs does each have?What needs does each have?

How well are these needs being served, in what manner, byHow well are these needs being served, in what manner, bywhom?whom?


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Service Concept


Service Concept

What are important elements of the service to be provided,What are important elements of the service to be provided,

stated in terms of results produced for customers?stated in terms of results produced for customers?

How are these elements supposed to be perceived by theHow are these elements supposed to be perceived by thetarget market segment, by the market in general, bytarget market segment, by the market in general, by

employees, by others?employees, by others?

How do customers perceive the service concept?How do customers perceive the service concept?

What efforts does this suggest in terms of the manner in

What efforts does this suggest in terms of the manner inwhich the service is designed, delivered, marketed?which the service is designed, delivered, marketed?


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Operating Strategy


Operating Strategy

What are important elements of the strategy: operations,What are important elements of the strategy: operations,

financing, marketing, organization, human resources,financing, marketing, organization, human resources,

control?control? On which will the most effort be concentrated?On which will the most effort be concentrated?

Where will investments be made?Where will investments be made?

How will quality and cost be controlled: measures,How will quality and cost be controlled: measures,

incentives, rewards?incentives, rewards? What results will be expected versus competition in termsWhat results will be expected versus competition in terms

of, quality of service, cost profile, productivity,of, quality of service, cost profile, productivity,

morale/loyalty of servers?morale/loyalty of servers?


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Service Delivery System


Service Delivery System

What are important features of the service delivery systemWhat are important features of the service delivery system

including: role of people, technology, equipment, layout,including: role of people, technology, equipment, layout,

procedures?procedures? What capacity does it provide, normally, at peak levels?What capacity does it provide, normally, at peak levels?

To what extent does it, help insure quality standards,To what extent does it, help insure quality standards,

differentiate the service from competition, provide barriersdifferentiate the service from competition, provide barriers

to entry by competitors?to entry by competitors?


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Competitive Environment of ServicesCompetitive Environment of Services

Relatively Low Overall Entry BarriersRelatively Low Overall Entry Barriers

Economies of Scale LimitedEconomies of Scale Limited

High Transportation CostsHigh Transportation Costs

Erratic Sales FluctuationsErratic Sales Fluctuations

No Power Dealing with Buyers or SuppliersNo Power Dealing with Buyers or Suppliers Product Substitutions for ServiceProduct Substitutions for Service

High CustomerLoyaltyHigh CustomerLoyalty

Exit BarriersExit Barriers


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Competitive Service Strategies

(Overall Cost Leadership)


(Overall Cost Leadership) Seeking Out LowSeeking Out Low--cost Customerscost Customers

Standardizing a Custom ServiceStandardizing a Custom Service

Reducing the Personal Element in ServiceReducing the Personal Element in Service

Delivery (promote selfDelivery (promote self--service)service)

Reducing Network Costs (hub and spoke)Reducing Network Costs (hub and spoke)

Taking Service Operations OffTaking Service Operations Off--lineline


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(Differentiation)


(Differentiation) Making the Intangible Tangible (memorable)Making the Intangible Tangible (memorable)

Customizing the Standard ProductCustomizing the Standard Product

Reducing Perceived RiskReducing Perceived Risk

Giving Attention to Personnel TrainingGiving Attention to Personnel Training

Controlling QualityControlling Quality

Note: Differentiation in service means being unique in

brand image, technology use, features, or reputation for

customer service.


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(Focus)


(Focus) Buyer Group: (e.g. USAA insurance andBuyer Group: (e.g. USAA insurance and

military officers)military officers)

Service Offered: (e.g. Shouldice HospitalService Offered: (e.g. Shouldice Hospital

and hernia patients)and hernia patients)

Geographic Region: (e.g. Austin CableGeographic Region: (e.g. Austin Cable

Vision and TV watchers)Vision and TV watchers)


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Customer Criteria for Selecting

a Service Provider

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 DecisionService Purchase Decision

Service QualifierService Qualifier: To be taken seriously a: To be taken seriously a

certain level must be attained on thecertain level must be attained on the

competitive dimension, as defined by othercompetitive dimension, as defined by other

market players.market players. ExamplesExamples are cleanlinessare cleanliness

for a fast food restaurant or safe aircraft forfor a fast food restaurant or safe aircraft for

an airline.an airline. Service WinnerService Winner: The competitive: The competitive

dimension used to make the final choicedimension used to make the final choice

among competitors.among competitors. ExampleExample is price.is price.


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Service Purchase Decision (cont.)Service Purchase Decision (cont.)

Service LoserService Loser: Failure to deliver at or: Failure to deliver at or

above the expected level for a competitiveabove the expected level for a competitive

dimension.dimension. ExamplesExamples are failure to repairare failure to repair

auto (dependability), rude treatmentauto (dependability), rude treatment

(personalization) or late delivery of package(personalization) or late delivery of package

(speed).(speed).


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Competitive Role of Information

in Services

Strategic Focus Competitive Use of InformationStrategic Focus Competitive Use of Information

OnOn--line Offline Off--lineline

(Real time) (Analysis)(Real time) (Analysis)

Creation of barriers to entry: Data base asset:Creation of barriers to entry: Data base asset:External Reservation system Selling informationExternal Reservation system Selling information

(Customer) Frequent user club Development of services(Customer) Frequent user club Development of services

Switching costs MicroSwitching costs Micro--marketingmarketing

Revenue generation: Productivity enhancement: Revenue generation: Productivity enhancement:

Internal Yield management Inventory statusInternal Yield management Inventory status(Operations) Point of sale Data envelopment(Operations) Point of sale Data envelopment

Expert systems analysis (DEA)Expert systems analysis (DEA)


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The Virtual Value Chain

MarketMarketplaceplace vs Marketvs Marketspacespace

Creating New Markets Using Information (Gather,Creating New Markets Using Information (Gather,Organize, Select, Synthesize, and Distribute)Organize, Select, Synthesize, and Distribute)

Three Stage EvolutionThree Stage Evolution 1st Stage (Visibility): See physical operations more effectively 1st Stage (Visibility): See physical operations more effectivelywith informationwith information Ex. USAA paperless operationEx. USAA paperless operation 2 2ndnd Stage (Mirroring Capability): Substitute virtual activitiesStage (Mirroring Capability): Substitute virtual activities

for physicalfor physical Ex. USAA automate underwritingEx. USAA automate underwriting 3 3rdrd Stage (New Customer Relationships): Draw onStage (New Customer Relationships): Draw oninformation to deliver value to customer in new waysinformation to deliver value to customer in new ways Ex.Ex.USAA event oriented serviceUSAA event oriented service


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Limits in the Use of Information

AntiAnti--competitive (Barrier to entry)competitive (Barrier to entry)

Fairness (Yield management)Fairness (Yield management)

Invasion of Privacy (MicroInvasion of Privacy (Micro--marketing)marketing)

Data Security (Medical records)Data Security (Medical records)

Reliability (Credit report)Reliability (Credit report)


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Using Information to Categorize CustomersUsing Information to Categorize Customers

CodingCoding grades customers on how profitable theirgrades customers on how profitable their

business is.business is.

RoutingRouting is used by call centers to place customersis used by call centers to place customersin different queues based on customer code.in different queues based on customer code.

TargetingTargeting allows choice customers to have feesallows choice customers to have fees

waived and get other hidden discounts.waived and get other hidden discounts.

SharingSharing data about your transaction history withdata about your transaction history with

other firms is a source of revenue.other firms is a source of revenue.


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Stages in Service Firm CompetitivenessStages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World1. Available for service 2. Journeyman 3. Distinctive competence 4. World--clasclass service deliverys service delivery

Customers patronize service Customers neither seek Customers seek out the firm The compaCustomers patronize service Customers neither seek Customers seek out the firm The companys name is synonymousnys name is synonymous

firm for reasons other than out nor avoid the firm. on the basis of its sustainedfirm for reasons other than out nor avoid the firm. on the basis of its sustained with service excellence. Its servicewith service excellence. Its service

performance. reputation for meetin performance. reputation for meeting doesnt just satisfy customers; itg doesnt just satisfy customers; it

customer expcustomer expectationsectations delightsdelights them and thereby expandsthem and thereby expandscustomer expectations to levels itscustomer expectations to levels its

competitors are unable to fulfill.competitors are unable to fulfill.

Operations is reactive, Operations functions in a Operations continually excels, OperaOperations is reactive, Operations functions in a Operations continually excels, Operations is a quick learner and fasttions is a quick learner and fast

at best. mediocre, uninspired reinforced by personnelat best. mediocre, uninspired reinforced by personnel innovator; it masters every step of theinnovator; it masters every step of the

fashion. management and syfashion. management and systems service delivery process and providesstems service delivery process and provides

that supportthat support an intense capabilities that are superior toan intense capabilities that are superior to

customer foccustomer focus. competitors.us. competitors.

SERVICE QUALITYSERVICE QUALITY

Is subsidiary to cost, Meets some customer Exceeds customerIs subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations andRaises customer expectations and

highly variable. expectations; consistent expectations; consistenthighly variable. expectations; consistent expectations; consistent seeks challenge; improvesseeks challenge; improves

on one or two key on multiple dimensions.on one or two key on multiple dimensions. continuously.continuously.

dimensions.dimensions.


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Stages in Service Firm CompetitivenessStages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World1. Available for service 2. Journeyman 3. Distinctive competence 4. World--classclass service deliveryservice delivery

BACK OFFICEBACK OFFICE

Counting room. Contributes to service, plays Is equally valued with front Is proactivCounting room. Contributes to service, plays Is equally valued with front Is proactive,e, develops its owndevelops its own

an important role in the total office; plays integral role.an important role in the total office; plays integral role. capabilities, and generatescapabilities, and generates

service, is given attention,service, is given attention, opportunities.opportunities.but is still a separate role.but is still a separate role.

CUSTOMERCUSTOMER

Unspecified, to be A market segment whose A collection of individuals A source ofUnspecified, to be A market segment whose A collection of individuals A source of stistimulation, ideas,mulation, ideas,

satisfied at minimum cost. basic needs are understood. whose variation in needs is and opportunity.satisfied at minimum cost. basic needs are understood. whose variation in needs is and opportunity.

understood.understood.

INTRODUCTION OF NEW TECHNOLOGYINTRODUCTION OF NEW TECHNOLOGY

When necessary for When justified by cost When promises to enhance Source of firsWhen necessary for When justified by cost When promises to enhance Source of firstt--mmover advantages,over advantages,

survival, under duress. savings. service.survival, under duress. savings. service. creating ability to do things yourcreating ability to do things your

competitors cant do.competitors cant do.

WORKFORCEWORKFORCE

Negative constraint. Efficient resource; disciplined; Permitted to select among Innovative; c Negative constraint. Efficient resource; disciplined; Permitted to select among Innovative; creareates procedures.tes procedures.

follows procedures. alternative procedures.follows procedures. alternative procedures.

FRONTFRONT--LINE MANAGEMENTLINE MANAGEMENT

Controls workers. Controls the process. Listens to customers; coaches Is listenedControls workers. Controls the process. Listens to customers; coaches Is listened toto by top managementby top management

and facilitates workers. as a source of new ideas. Mentorsand facilitates workers. as a source of new ideas. Mentorsworks to enhance their career.works to enhance their career.


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AmericaWest Airlines StrategyAmericaWest Airlines Strategy

TargetTarget Strategic AdvantageStrategic Advantage

Low cost UniquenessLow cost Uniqueness

Entire Overall cost DifferentiationEntire Overall cost Differentiation

Market leadershipMarket leadership

Market FocusMarket Focus

SegmentSegment


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AmericaWestWinning CustomersAmericaWestWinning Customers

Service Qualifiers:Service Qualifiers:

ServiceWinners:ServiceWinners:

Service Losers:Service Losers:


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AmericaWest Strategic Service VisionAmericaWest Strategic Service Vision

Target market segmentsTarget market segments

Service conceptService concept

Operating strategyOperating strategy

Service delivery systemService delivery system


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AmericaWest Airlines PositioningAmericaWest Airlines Positioning

CABIN SERVICECABIN SERVICE

Full ServiceFull Service

PREFLIGHT SERVICEPREFLIGHT SERVICE

Inconvenient CInconvenient Convenientonvenient

No AmenitiesNo Amenities


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Mrs. Fields Strategic Use of Information

Strategic Focus Competitive Use of InformationStrategic Focus Competitive Use of Information

OnOn--line Offline Off--lineline

(Real time) (Analysis)(Real time) (Analysis)

Creation of barriers to entry: Data base asset:Creation of barriers to entry: Data base asset:

ExternalExternal

(Customer)(Customer)

Revenue generation: Productivity enhancement: Revenue generation: Productivity enhancement:

InternalInternal

(Operations)(Operations)


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Mrs. Fields Management Information System

How might the management informationHow might the management information

system contribute to a reported 100%system contribute to a reported 100%

turnover of store managers?turnover of store managers?

Will the management information systemWill the management information system

support or inhibit the expansion of Mrs.support or inhibit the expansion of Mrs.Fields outlets?Why?Fields outlets?Why?


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Alamo Drafthouse PositioningAlamo Drafthouse Positioning

MOVIE SELECTIONMOVIE SELECTION

FOOD QUALITYFOOD QUALITY

ManyManyFewFew

PoorPoor

GoodGood


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Alamo Drafthouse Strategic Service VisionAlamo Drafthouse Strategic Service Vision

Target market segmentsTarget market segments

Service conceptService concept

Operating strategyOperating strategy

Service delivery systemService delivery system


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Alamo DrafthouseWinning CustomersAlamo DrafthouseWinning Customers

QualifiersQualifiers

Service winnersService winners

Service losersService losers


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Alamo Drafthouse Profitability RecommendationsAlamo Drafthouse Profitability Recommendations


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Discussion TopicsDiscussion Topics

1.1. Give examples of service firms that use both the strategyGive examples of service firms that use both the strategyof focus and differentiation and the strategy of focus andof focus and differentiation and the strategy of focus andoverall cost leadership.overall cost leadership.

2.2. What ethical issues are associated with microWhat ethical issues are associated with micro--marketing?marketing?

3.3. For each of the three generic strategies (i.e., costFor each of the three generic strategies (i.e., costleadership, differentiation, and focus) which of the fourleadership, differentiation, and focus) which of the fourcompetitive uses of information is most powerful?competitive uses of information is most powerful?

4.4. Give an example of a firm that begin as worldGive an example of a firm that begin as world--class andclass andhas remained in that category.has remained in that category.

5.5. Could firms in the worldCould firms in the world--class service delivery stage ofclass service delivery stage ofcompetitiveness be descried as learning organizations?competitiveness be descried as learning organizations?


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Interactive Class ExerciseInteractive Class Exercise

The class divides and debates theThe class divides and debates the

proposition Frequent flyer award programsproposition Frequent flyer award programs

are or are not anticompetitive.are or are not anticompetitive.

03 strategy

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