Service Strategy

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Service Strategy
Competitive Environment
 Competitive Strategies
 Role of Information

Competitive Environment of Services

Relatively Low Overall Entry Barriers
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Economies of Scale Limited

Erratic Sales Fluctuations

No Power Dealing with Buyers or Suppliers
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Product Substitutions for Service

High Customer Loyalty

Hobby or job satisfaction  High Exit Barriers
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Service Strategy: Overall Cost Leadership
There is usually a segment of the market
that buys solely on the basis of low price.
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Standardizing a Custom Service (fast haircut)
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Reducing the Personal Element in Service
Delivery (promote self-service)

Reducing Network Costs (hub and spoke)

Taking Service Operations Off-line (drop-off/pick-up)
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Service Strategy: Differentiation
Differentiation in service means being unique in
brand image, technology use, features, or
reputation for customer service.
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Making the Intangible Tangible (complimentary towels)
Customizing the Standard Product (Burger King)
Reducing Perceived Risk (service guarantee)
Giving Attention to Personnel Training (southwest)
Controlling Quality
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2
Service Strategy: Focus
Cost and differentiation for a particular target
market, not the entire market.

Buyer Group: (USAA insurance and military officers)

Service Offered: (Shouldice Hospital and hernia
patients)
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Geographic Region: (neighborhood restaurant)
Target market could be too small.
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How Customers Select a Service Provider
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Price
Availability
Speed
Convenience
Dependability
Personalization
Quality
Reputation
Safety
(Quality surrogate)
(24 hour ATM)
(Avoid excessive waiting)
(Site location)
(On-time performance)
(Know customer’s name)
(Perceptions important)
(Word-of-mouth)
(Air travel)
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3
Winning Customers in the Marketplace

Service Qualifier: To be taken seriously a
certain level must be attained on the competitive
dimension, as defined by other market players.

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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.
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Examples are price or reputation.
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Southwest Airlines
Limited Service
Productive
ground crews
Selected routes
between midsize cities
Lean and effective
flight crews
Frequent,
reliable departures
Standardized
737 aircraft
High
aircraft utilization
Consistent Quality, Low Cost
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4
Southwest Airlines Strategic Service Vision
Service Delivery
System
• Fun cabin
atmosphere to
differentiate
service
Operating
Strategy
• Quick
turnaround at
gate results in
high utilization
of aircraft
• Use only
• No assigned
Boeing 737
seating rewards
aircraft to
punctuality and
control
maintenance and promotes ontime
operating costs
performance
• Hire cabin crew
based on attitude
Service Concept
• Short flights
with frequent
departures
• Serve peanuts
and soft drinks
only
Target Market
Segment
• State of Texas
residents
• Business traveler
who drives
because of
inadequate
service
• Use of inner-city
• Inexpensive
or low traffic
family travel on
airports avoids
weekends
congestion
• Carry-on
luggage
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Operation Strategy: Sushi bar vs. Sushi train
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5
Competitive Role of Information in Services
Online (Real time)
External
(Customer)
Internal
(Operations)
Creation of barriers to
entry:
Reservation system
Frequent user club
Switching costs
Offline (Analysis)
Database asset:
Selling information
Development of services
Micromarketing
Revenue generation:
Productivity enhancement:
Yield management
Point of sales
Expert systems
Inventory Status
Data envelopment analysis
(DEA)
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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.
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Limits in the Use of Information

Anti-competitive (membership, frequent flyers)

Fairness (yield management)
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Invasion of Privacy (selling database)
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Data reliability (credit report)
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Homework 1: The Alamo Drafthouse
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