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
 Structural:
Delivery system (front & back office)
Facility design (aesthetics, layout)
Location (competition, site characteristics)
Capacity planning (number of servers)
 Managerial
Service encounter (culture, empowerment)
Quality (measurement, guarantee)
Managing capacity and demand (queues)
Information (data collection, resource)

Competitive Environment of
Services
 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
Delivery
 Reducing Network Costs
 Taking Service Operations Off-line

Competitive Service Strategies
(Differentiation)
 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
(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 Selecting a Service Provider
 Availability
 Convenience
 Dependability
 Personalization
 Price
 Quality
 Reputation
 Safety
 Speed
(24 hour ATM)
(Site location)
(On-time performance)
(Know customer’s name)
(Quality surrogate)
(Perceptions important)
(Word-of-mouth)
(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
(speed).

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
Segment

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:
 Information:

America West Airlines
Positioning
CABIN SERVICE
Full Service
PREFLIGHT SERVICE
Inconvenient Convenient
No Amenities