Service Strategy

服務策略Chap. 2

A plan to outperform competitors

• Strategic service vision is formulated by addressing questions about– The target market– Service concept– Operating strategy– Delivery system

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?

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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?

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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?

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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 to ensure quality standards, differentiate the service from competition, provide barriers to entry by competitors?

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Southwest Airlines Strategic Service Vision

Service Delivery System

Operating Strategy Service Concept Target Market Segment

• Fun cabin atmosphere to differentiate service

• Use only Boeing 737 aircraft to control maintenance and operating costs

• Hire cabin crew based on attitude

• Quick turnaround at gate results in high utilization of aircraft

• No assigned seating rewards punctuality and promotes on-time performance

• Short flights with frequent departures

• Serve peanuts and soft drinks only

• Use of inner-city or low traffic airports avoids congestion

• Carry-on luggage

• State of Texas residents

• Business traveler who drives because of inadequate service

• Inexpensive family travel on weekends

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• 10 minutes classroom group exercise• Develop a strategic service vision of your

entrepreneur firm– e.g. ABC express grocery services

Competitive Environment of Services

• Relatively Low Overall Entry Barriers– No patent protection

• Innovation can be easily copied

– Not capital-intensive• Resort hotels (exception)

• Economies of Scale Limited– Physical customers participations required– Some logistics possible

• Purchasing (Marriott hotels buy Mattress), advertising, website

• High Traveling Costs– Teleconference helpful

• Erratic Sales Fluctuations 2-9

Competitive Environment of Services

• Erratic Sales Fluctuations– Service demand varies with random arrivals

• Product Substitutions for Service– Airlines tickets agency vs. Online tickets

• High Customer Loyalty– High touch contact create loyal customers

• Strong Exit Barriers – Marginal service firms may continuously operate

• Family employment • Intrinsic job satisfaction (antique store, scuba diving shop)

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Competitive Service Strategies

(Overall Cost Leadership)• Requires efficient-scale facilities, tight cost and overhead

control, innovative technology– McDonald’s, Walmart, Federal express, Amazon.com

• Seeking Out Low-cost Customers (e.g., USAA, 公教信貸 )• Standardizing a Custom Service (e.g., H&R Block)• Reducing the Personal Element in Service Delivery (e.g.,

promote self-service at airline check-in)• Reducing Network Costs (e.g., hub and spoke at FedEx)• Taking Service Operations Offline (e.g., shoe-repair drop-

off)

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Competitive Service Strategies

(Differentiation)being unique in brand image, technology use, features, or reputation for customer service.

• Making the Intangible Tangible (memorable) – (e.g., Disney Theme Parks memorabilia)

• Customizing the Standard Product – (e.g., Ritz Carlton address guest by name)

• Reducing Perceived Risk – (e.g., FedEx guarantee their work)

• Giving Attention to Personnel Training – (e.g., McDonald’s Hamburger University)

• Controlling Quality (e.g., Shouldice Hospital, 和信醫院 )

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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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Strategic Analysis

Porter’s Five Forces ModelPotential New Entrants

- Barriers to entry- Brand equity- Capital requirements

Competitive Rivalry within Industry

- Number of competitors- Rate of industry growth- Industry capacity

Threat of Substitutes- Buyer propensity to substitute- Buyer switching costs- Product substitution for service

Bargaining Power of Customers

- Buyer’s price sensitivity- Customer volume- Information asymmetry

Bargaining Power of Suppliers- Presence of substitute inputs- Threat of forward integration- Uniqueness of inputs

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Strategic analysis

SWOT AnalysisStrengths• What are your company’s advantages?• What do you do better than anyone else?• What unique resources do you have?• What do people in your market see as your strengths?Weaknesses• What could you improve?• What should you avoid?• What factors lose sales?• What are people in your market likely to see as a weakness?Opportunities• What are your competitors’ vulnerabilities?• What are the current market trends?• Does technology offer new service options?• Are there niches in the market your organization can fill?Threats• What obstacles do you face?• What are your competitors doing?• Is your position threatened by changing technology?• Do you have cash-flow problems?

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Customer Criteria for

Selecting a Service Provider• 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)

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Winning Customers in the Marketplace• Service Qualifier:

– To be taken seriously, a certain level must be attained on the competitive dimension, as defined by other market players, e.g., cleanliness for a fast food restaurant or safe aircraft for an airline.

• Service Winner: – The competitive dimension that is used to make the final choice

among competitors, e.g., price.

• Service Loser: – Defined by failure to deliver at or above the expected level for a

competitive dimension, e.g., failure to repair auto (dependability), rude treatment (personalization), or late delivery of package (speed).

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Sustainability in ServicesMotivations:•Regulations/legislation

• Environmental Protection Agency (EPA)• Waste Electrical and Electronic Equipment (WEEE)• Restriction of Hazardous Substances (RoHS)

•Perception/Image Building•麥當勞 -- 牛肉 – 巴西雨林 , Nike -- 足球 – 童工

•Economic• Cost savings from waste reduction

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Triple Bottom Line Impact

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Competitive Role of Information in Services

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• Create of barriers to entry– Reservation systems• United Airline, SABRE

– Frequent User Club• United Airline, reward free trips, Create brand loyalty

– Switching cost• Create a cost in the form of inconvenience if switched• Medical supplies company provides order entry

terminal for hospitals

• Revenue generation– Yield management• System to improve the revenue of time-perishable

resources• Airlines make adjustment on price and allocation on

unsold seats– Supersaver– Full fare

• Marriott hotels

– Point of sale• VideOcart of Walmart, China

– Display items on sale as shopping cart pass

• Order of restaurants customers– Direct link to kitchen and cashier

– Expert systems• Otis Elevator company

– Data on the behavior of its elevator over the years» Quick diagnosis, less maintenance staff

• Database asset– Selling information• Maintenance records of appliance can be sold to

manufacturers• Credit cards billing records can be sold to retailers

– Developing service• Study members characteristics

– Single, become married, with children– Senior (cruise)– Lifestyle relationship

– Micromarketing• American Express can tell when their member get

married– Analyze their customer’s changing spending pattern

• Walmart’s shopping cart analysis– Beers and Diaper

• Productivity enhancementRetailer can make better use of shelves space by matching displaced products

– Inventory status• The daily updates of sales, manufacturing and

distribution keep fresh products moving through the system

– Data Envelopment Analysis• A linear programming can optimize multiple inputs and

multiple outputs

Exploiting the Virtual Value Chain

Production Distribution Retailing CustomerPhysical Value Chain

Apply the generic value-adding steps of the information world:- Gather- Organize- Select- Synthesize- Distributeto each physical activity to create virtual value.

Virtual Value Chain New New New New Processes Knowledge Products Relationships (Stage 1) (Stage 2) (Stage 3) (Stage 4)

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eCommerce Implementation

The Virtual Value Chain• Marketplace vs Marketspace• Creating New Markets Using Information (Gather, Organize, Select,

Synthesize, and Distribute)Four Stage Evolution

• 1st Stage (New Processes): See physical operations more effectively with information (USAA “paperless operation”).

• 2nd Stage (New Knowledge): Substitute virtual activities for physical (USAA “automate underwriting”).

• 3rd Stage (New Products): Use information to deliver value to customers in new ways (USAA “event oriented service”).

• 4th Stage (New Relationships): Seek customer collaboration in co-creation of value (USAA “online financial planning service”).

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• Economics of Scalability– Scalability: ability to improve contribution margin

(revenue – variable cost) as sales volume increase• Conduct only information or data transfer service

– Google, Facebook, online encyclopedia

• Allow customers to serve themselves– Online reservation, 線上選課系統

• Let customers serve customers– Online auctions

Dimensions High Scalability Low

E-commerce continuum

Sellinginformation (e-service)

Selling value-added service

Sellingservices with goods

Selling goods(e-commerce)

Information vs. goods content

Information dominates

Information with some service

Goods with support services

Goods dominate

Degree of customer content

Self-service Call center backup

Call center support Call center order processing

Standardization vs. customization

Mass distribution

Some personalization

Limited customization

Fill individual orders

Shipping and handling costs

Digital asset Mailing Shipping Shipping, order fulfillment, and warehousing

After-sales service None Answer questions Remote maintenance Returns possible

Example service Used car prices Online leisure travel agent

Computer/IT support Online retailer

Example firm Kbb.com InfoHub.com Everdream.com Amazon.com

Economics of Scalability

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Limits in the Use of Information• Anti-competitive (e.g. Barrier to entry)• Fairness (e.g. Yield management)• Invasion of Privacy (e.g. Micro-marketing)• Data Security (e.g. Home Depot, Target,

Turbotax hacked)• Reliability (e.g. Credit report)

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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.

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Stages in Service Firm Competitiveness

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社工 義務教育連鎖超商

常春藤盟校

Apple Inc.

Google

Stages in Service Firm Competitiveness

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• Mini Cases– Case 2.1 United Commercial Bank and El Banco– Case 2.2 The Alamo Drafthouse