2 Learning 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 of competitiveness.Conduct a data envelopment analysis (DEA).
3 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?
4 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?
5 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?
6 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 insure quality standards, differentiate the service from competition, provide barriers to entry by competitors?
7 Competitive Environment of Services Relatively Low Overall Entry BarriersEconomies of Scale LimitedHigh Transportation CostsErratic Sales FluctuationsNo Power Dealing with Buyers or SuppliersProduct Substitutions for ServiceHigh Customer LoyaltyExit Barriers
8 Competitive Service Strategies (Overall Cost Leadership) Seeking Out Low-cost CustomersStandardizing a Custom ServiceReducing the Personal Element in Service Delivery (promote self-service)Reducing Network Costs (hub and spoke)Taking Service Operations Off-line
9 Competitive Service Strategies (Differentiation) Making the Intangible Tangible (memorable)Customizing the Standard ProductReducing Perceived RiskGiving Attention to Personnel TrainingControlling Quality Note: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service.
10 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)
11 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)
12 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.
13 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).
14 Competitive Role of Information in Services Strategic Focus Competitive Use of InformationOn-line Off-line(Real time) (Analysis)Creation of barriers to entry: Data base asset:External Reservation system Selling information(Customer) Frequent user club Development of servicesSwitching costs Micro-marketingRevenue generation: Productivity enhancement:Internal Yield management Inventory status(Operations) Point of sale Data envelopmentExpert systems analysis (DEA)
15 The Virtual Value Chain Marketplace vs MarketspaceCreating 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”
16 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)
17 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.
18 Stages in Service Firm Competitiveness 1. Available for service Journeyman Distinctive competence World-class service deliveryCustomers patronize service Customers neither seek Customers seek out the firm The company’s name is synonymousfirm for reasons other than out nor avoid the firm on the basis of its sustained with service excellence. Its serviceperformance reputation for meeting doesn’t just satisfy customers; itcustomer expectations delights them and thereby expandscustomer expectations to levels itscompetitors are unable to fulfill.Operations is reactive, Operations functions in a Operations continually excels, Operations is a quick learner and fastat best mediocre, uninspired reinforced by personnel innovator; it masters every step of thefashion management and systems service delivery process and providesthat support an intense capabilities that are superior tocustomer focus competitors.SERVICE QUALITYIs subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations andhighly variable expectations; consistent expectations; consistent seeks challenge; improveson one or two key on multiple dimensions continuously.dimensions.
19 Stages in Service Firm Competitiveness 1. Available for service Journeyman Distinctive competence World-class service deliveryBACK OFFICECounting room Contributes to service, plays Is equally valued with front Is proactive, develops its ownan important role in the total office; plays integral role capabilities, and generatesservice, is given attention, opportunities.but is still a separate role.CUSTOMERUnspecified, to be A market segment whose A collection of individuals A source of stimulation, ideas,satisfied at minimum cost. basic needs are understood whose variation in needs is and opportunity.understood.INTRODUCTION OF NEW TECHNOLOGYWhen necessary for When justified by cost When promises to enhance Source of first-mover advantages,survival, under duress savings service creating ability to do things yourcompetitors can’t do.WORKFORCENegative constraint Efficient resource; disciplined; Permitted to select among Innovative; creates procedures.follows procedures alternative procedures.FRONT-LINE MANAGEMENTControls workers Controls the process Listens to customers; coaches Is listened to by top managementand facilitates workers as a source of new ideas. Mentors works to enhance their career.
20 America West Airlines Strategy Target Strategic AdvantageLow cost UniquenessEntire Overall cost DifferentiationMarket leadershipMarket FocusSegment
21 America West Winning Customers Service Qualifiers:Service Winners:Service Losers:
22 America West Strategic Service Vision Target market segmentsService conceptOperating strategyService delivery system
23 America West Airlines Positioning CABIN SERVICEFull ServicePREFLIGHT SERVICEInconvenient ConvenientNo Amenities
24 Mrs. Fields Strategic Use of Information Strategic Focus Competitive Use of InformationOn-line Off-line(Real time) (Analysis)Creation of barriers to entry: Data base asset:External(Customer)Revenue generation: Productivity enhancement:Internal(Operations)
25 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?
30 Discussion TopicsGive examples of service firms that use both the strategy of focus and differentiation and the strategy of focus and overall cost leadership.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?Give an example of a firm that begin as world-class and has remained in that category.Could firms in the “world-class service delivery” stage of competitiveness be descried as “learning organizations”?
31 Interactive Class Exercise The class divides and debates the proposition “Frequent flyer award programs are or are not anticompetitive.”