Service Strategy


Service Strategy

Learning Objectives

Identify strategic opportunities available in the design of the service concept.

 Understand the competitive environment of services.

 Explore the dimensions of service competition.

Identify methods of winning customers in the marketplace

Discuss the limits in the use of information

 Discuss the competitive role of information in services.

The Strategic Service Concept


Delivery system (front & back office)

Facility design (aesthetics, layout)

Location (competition, site characteristics)

Capacity planning (number of servers)


Service encounter (culture, empowerment)

Quality (measurement, guarantee)

Managing capacity and demand (queues)

Information (data collection, resource)

Competitive Environment of


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 Service Strategies

(Overall Cost Leadership)

Seeking Out Low-cost Customers

Standardizing a Custom Service

Reducing the Personal Element in Service


Reducing Network Costs

Taking Service Operations Off-line

Competitive Service Strategies


Making the Intangible Tangible

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


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 Selecting a Service Provider


 Convenience


 Personalization


 Quality


 Safety


(24 hour ATM)

(Site location)

(On-time performance)

(Know customer’s name)

(Quality surrogate)

(Perceptions important)


(Doing things to people)

(Avoid excessive waiting)

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.

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


Competitive Role of Information in Services

Strategic Focus Competitive Use of Information

On-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 services

Switching costs Micro-marketing

Revenue generation: Productivity enhancement:

Internal Yield management Inventory status

(Operations) Point of sale Data envelopment

Expert systems analysis (DEA)

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)

Discussion Topics

 What are the characteristics of service that will be affected by the emerging electronic and communications technology?

When does information collected through service membership become an invasion of privacy?

Discuss the concept of service ‘winners’ and service

‘losers’ for a service you are familiar with.

 What are the implications of the growing use of personal computers for the customization of services and elimination of human interactions?

America West Airlines

Generic Competitive Strategy

Target Strategic Advantage

Low cost Uniqueness

Entire Overall cost Differentiation

Market leadership

Market Focus


America West Airlines

Competitive Features

Service Qualifiers:

Service Winners:

 Service Losers:

America West Airlines

Strategic Service Concept

Delivery System:

 Location:

 Facility Design:

Capacity Planning

America West Airlines

Strategic Service Concept (cont.)

Service Encounter:

 Quality:

 Managing Capacity and Demand:


America West Airlines



Full Service


Inconvenient Convenient

No Amenities