Strategic Positioning Chapter 2

Strategic Service Vision Target market May result in different treatment of different customers All employees must understand target market Service concept Why customers choose a particular firm Motivation can be emotional or physical Chapter 2 - Strategic Positioning 1

Strategic Service Vision Operating strategy How should the firm be structured to produce the service concept? How should resources be allocated? Service delivery system Specific decisions made by the firm regarding personnel, procedures, equipment, capacity, facilities, etc. Chapter 2 - Strategic Positioning 2

Strategic Service Vision Ideally, a service delivery system should support the operating strategy, which should support the service concept, which supports the target market Target Market Service Concept Operating Strategy Service Delivery System Chapter 2 - Strategic Positioning 3

Capacity Strategies Capacity issues in services are: More complex than in manufacturing Timing may be important, for example if there are peaks in demand at different times of day More critical than in manufacturing Often no backorders can occur Excess capacity may be perishable An imbalance in supply and demand can result in lost sales or idle employees Chapter 2 - Strategic Positioning 4

Capacity Strategies Provide: Ensure sufficient capacity at all times High quality/high cost; greater amount of idle time for employees Match: Change capacity as needed Balance quality/cost; part-time workers Influence: Alter demand patterns to fit firm capacity Pricing, marketing and appointment systems Control: Maximize capacity utilization Compete on cost by driving idle time to zero Chapter 2 - Strategic Positioning 5

Techniques for managing capacity Work-shift scheduling Increased customer participation Adjustable (surge) capacity Shared capacity Partitioned demand Price incentives for and promotion of off-peak demand Development of complementary services Yield management Chapter 2 - Strategic Positioning 6

Retail Design Strategies Store sizes have been increasing over the last decade Supermarkets: 50K sq. ft. now vs. 20K in the 1980s 40,000 SKUs vs. 6,000 in the 1980s WalMarts 200K sq. ft. vs. 70K in the 1980s Chapter 2 - Strategic Positioning 7

Why larger stores? Marketing Motivation Operational Motivation Increased revenue/sq. ft. due to a greater pull of customers “One stop shopping” for dual income families Grocery stores have banks, pharmacies, flowers, etc. Operational Motivation Fewer employees per customer are required for a given service quality. Lower inventory carrying costs and distribution costs Chapter 2 - Strategic Positioning 8

An Alternative: A Small Store Strategy Managing stores as a network is critical Blanket a given geographical area Multiple locations reduce travel time for customers Small stores reduce shopping times Distribution costs are low because stores are close to one another Labor can move from location to location Flexible job descriptions reduce idle time Chapter 2 - Strategic Positioning 9

Managing for Growth Multi-site Service Firm Life Cycle Entrepreneurial Multi-site Rationalization Growth Maturity Decline/ Regeneration Chapter 2 - Strategic Positioning 10

Managing Growth – Skill Sets Entrepreneurial Multi-site rationalization Growth Maturity Decline/ Regeneration Charismatic leader Local marketing and PR Innovation and development of service strategy Employees typically underpaid with little stability Selection of dominant paradigm for marketing, operations and HR Standardization or procedures Operations and design are already set Sell concept to consumer and managerial audiences Wider scale advertising Maintaining market position and awareness and keeping concept “fresh” Maintaining standards and operating control Keeping employees motivated Revising service concept and implementing revisions over a large network Requires charismatic leader Chapter 2 - Strategic Positioning 11

Growth Strategies Industry Roll-Ups Use stock to buy up dozens of small firms in a fragmented industry Gain synergies when once-competing firms share facilities, supplies, marketing expenses and operational expertise Chapter 2 - Strategic Positioning 12

Franchising A self-financing growth strategy Franchisees pay an up-front fee and a percentage of gross revenue Can limit profitability because a large portion of the profits go to the franchisee Firms may buy back mature franchises Common in international expansion Bypass “ethical walls”/US Foreign Corrupt Practices Act Chapter 2 - Strategic Positioning 13

Challenges of Franchising Channel conflict For example, retail outlets may oppose the introduction of on-line channels Operational control issues Franchisees may oppose changes initiated at the firm level Franchisers cannot dictate retail prices or require that franchisees purchase supplies from the franchiser Franchisers providing on-going value Chapter 2 - Strategic Positioning 14

Franchising Agreements Passive ownership Franchisees are not actively involved in the operations of the franchise Master franchise agreements Allows an individual or corporate group other than the firm to award franchises Fee structure Average of $20,000 fee + 7% royalties Can affect the ability to monitor free-riders or brand shirkers Geographic protection for franchisees Chapter 2 - Strategic Positioning 15