Service Strategy

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?

Strategic Service VisionService 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?

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?

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?

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 Environment of Services

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)

Customer Criteria for Selectinga 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)

Service Purchase DecisionService 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)

External

(Customer)

Creation of barriers to entry: Reservation system Frequent user club Switching costs

Data base asset: Selling information Development of services Micro-marketing

Internal

(Operations)

Revenue generation: Yield management Point of sale Expert systems

Productivity enhancement: Inventory status Data envelopment analysis (DEA)

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”

The Virtual Value Chain

Anti-competitive (Barrier to entry)

Fairness (Yield management)

Invasion of Privacy (Micro-marketing)

Data Security (Medical records)

Reliability (Credit report)

Limits in the Use of Information

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.

Chase and Hayes’ Framework for Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery

Customers patronize service firm for reasons other than performance.

Customers neither seek out nor avoid the firm.

Customers seek out the firm on the basis of its sustained reputation for meeting customer expectations

The company’s name is synonymous with service excellence. Its service doesn’t just satisfy customers; it delights them and thereby expands customer expectations to levels its competitors are unable to fulfill.

Operations is reactive, at best.

Operations functions in a mediocre, uninspired fashion.

Operations continually excels, reinforced by personnel management and systems that support an intense customer focus.

Operations is a quick learner and fast innovator; it masters every step of the service delivery process and provides capabilities that are superior to competitors.

SERVICE QUALITY

Is subsidiary to cost, highly variable.

Meets some customer expectations; consistent on one or two key dimensions.

Exceeds customer expectations; consistent on multiple dimensions.

Raises customer expectations and seeks challenge; improves continuously.

Stages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery

BACK OFFICE

Counting room. Contributes to service, plays an important role in the total service, is given attention, but is still a separate role.

Is equally valued with front office; plays integral role.

Is proactive, develops its own capabilities, and generates opportunities.

CUSTOMER

Unspecified, to be satisfied at minimum cost.

A market segment whose basic needs are understood.

A collection of individuals whose variation in needs is understood.

A source of stimulation, ideas, and opportunity.

INTRODUCTION OF NEW TECHNOLOGY

When necessary for survival, under duress.

When justified by cost savings. When promises to enhance service.

Source of first-mover advantages, creating ability to do things your competitors can’t do.

WORKFORCE

Negative constraint. Efficient resource; disciplined; follows procedures.

Permitted to select among alternative procedures.

Innovative; creates procedures.

FRONT-LINE MANAGEMENT

Controls workers. Controls the process. Listens to customers; coaches and facilitates workers. Works to enhance their career.

Is listened to by top management as a source of new ideas. Mentors

Stages in Service Firm Competitiveness

America West Airlines

Target Strategic Advantage

Low cost Uniqueness

Entire Market

Overall cost leadership

Differentiation

Market Segment

Focus

America West Airlines Strategy

America West Airlines StrategyAmerica West chose a focused differentiation strategy. In order to have an effective differentiation strategy, a company must at least achieve cost parity with its rivals.

America West differentiated on convenience and price when compared to the major airlines, and on "extra" service when compared to Southwest.

The focus is geographical – both America West and Southwest are regional carriers.

It is interesting to note that by expanding to 60 cities including Honolulu and Boston, America West may unintentionally lose its focus and suffer the consequences.

Michael Porter warns of the danger of being caught in the middle. As shown in the market position map developed and presented in the next slide, America West does indeed fall in the middle.

Market position map

Inconvenient

Full Service

No A menit ies

Convenient

American

Delta

America

West

Southwest

PREFLIGHT SERVICE

CABIN SERVICE

America West Winning CustomersService Qualifiers:

The ability to make reservations using the SABRE system could be an important qualifier for the business traveler. Air safety is an obvious qualifier that is sometimes in question for small commuter airlines flying twin engine light aircraft with inexperienced pilots.

Service Winners:

With respect to the major airlines America West could win customers based on ticket price and convenience for travel in the southwest. With respect to Southwest airlines, winning customers for itself would be based on perceived higher in-flight quality, more pleasant terminal waiting areas, and newer aircraft with 5-across seating versus 6-across seating.

America West Winning Customers

America West Winning CustomersService Losers:

Potential service losers include dependability of on-time arrivals and avoidance of lost luggage. A perception of declining in-flight service quality owing to poor meals, discontinuing the free papers, or rushed cabin service could be service losers.

Target market segments

Service concept

Operating strategy

Service delivery system

America West Strategic Service Vision

America West Strategic Service Vision

The Best Little Cookie House Around

Mrs. Fields Strategic Use of Information

One of the main reasons for Mrs. Fields's success is her implementation of a sophisticated management information system that she has used to position herself one step ahead of her competition.

Competitive Use of Information Strategic Focus On-line

(Real time) Off-line

(Analysis)

External (Customer)

Creation of barriers to entry: Data base asset:

Internal (Operations)

Revenue generation: Productivity enhancement:

Mrs. Fields Strategic Use of Information

Mrs. Fields Strategic Use of Information

Mrs. Fields Strategic Use of InformationMrs. Fields creates a barrier to entry by installing and implementing a personal computer in each store. A sophisticated information system can create a barrier also because competitors must incur great expense to assemble and maintain their own databases.

The second strategic role of information, that is, revenue generation, can be seen in Mrs. Fields's operation. Her expert system considers the factors that will influence the day's sales and then instructs employees on which cookies to make and when to make them. This kind of control ensures the quality of the cookies that translates directly into generation of revenue.

Mrs. Fields Strategic Use of InformationMrs. Fields could use her database asset, which is the third role of information, as a micromarketing tool to evaluate the spending patterns as well as the cookie preferences of her customers. A final role of information is productivity enhancement. Cookies are a perishable product and the information system can be used to monitor the status of the cookie inventory. A system that coordinates cookie production closely with cookie consumption ensures a fresh supply of cookies at all times while it avoids the waste of having to discard unsold stale cookies (or selling them at reduced prices).

The information system at Mrs. Fields improves the productivity of the managers by providing them with daily reports that allow them to spot and resolve problems and also to identify strategies that are successful at different stores.

How might the management information system contribute to a reported 100% turnover of store managers?

Will the management information system support or inhibit the expansion of Mrs. Field’s outlets? Why?

Mrs. Fields Management Information System

How might the management information system contribute to a reported 100% turnover of store managers?

Will the management information system support or inhibit the expansion of Mrs. Field’s outlets? Why?

We believe that a management information system is essential to the expansion of Mrs. Fields Cookies. But, we also recognize the potential for problems when a sophisticated system is not used carefully. Therefore we make the following suggestions:

Provide managers with incentives to make decisions and give them an opportunity to feel that they are more than button-pushers. If the computer makes all decisions, there is no need for managers. Also, a completely computerized operation may lose a "personal" appeal that attracts customers.

Use micromarketing to create a database that will give Mrs. Fields another competitive advantage. Such a database would allow Mrs. Fields to adapt to the tastes and preferences of local communities.

Implement a program to eliminate or prevent abuses of the system. The abuses could include invasion of privacy and manipulation of the system by applicants who respond according to their perceptions of what would be "politically correct."

Alamo Drafthouse

Market position mapMarketing analysts use market position maps to display visually the customers’ perceptions of a firm in relation to its competitors regarding two attributes.

A market position map for Alamo Drafthouse is prepared using “food quality” and “movie selection” as axes.

Alamo Drafthouse PositioningAlamo is in fourth quadrantMultiplex is in second quadrant

MOVIE SELECTION

FOOD QUALITY

ManyFew

Poor

Good(+)

Alamo Drafthouse Strategic Service VisionTarget market segments

Service concept

Operating strategy

Service delivery system

Strategic service vision

Alamo Drafthouse Winning CustomersQualifiers

Service winners

Service losers

Qualifiers, service winners and service losersQualifiers include good sound system, reasonable prices for the meals, availability of beer and wine, and menu selection.

A service winner is the unique “date” experience including the special events and film showing.

Service losers include a poor meal value and movie projection and sound that does not meet minimal standards.

For the multiplex movie theater market the qualifier is the desired movie showing, a winner would be convenient location and available time of showing, and the loser would be a long waiting line at the box office.

The difference in the criteria would lead us to conclude that Alamo does not compete in the multiplex movie market.