STRATEGIC SERVICE VISION
 Successful service firms often start with an entrepreneur’s innovative idea and an unmet need
 To meet this unmet need and make the firm successful, the firm must have a vision of the place
and purpose of the enterprise
 The purpose of the and place of a service firm in the market begins with an entrepreneur’s idea
and an unmet need.
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The company needs a strategic service vision
 Service strategy is the set of plans and policies by which a service organization aims to meet its
service objectives
 Strategic service vision is about establishing a focused vision of what a firm wants to
do and thence, focusing on this vision to deliver the best to their customers.
 Service strategy is a deliberate search for a plan of action that will develop a business’s
competitive advantage and compound it.
Why an organization needs service strategy
 To draw a route to desired outcomes on service to defend itself against competitors and to remain
competitive
 To focus its activities and energies
 To help to define service it offers
 To provide consistency in service and help reduce uncertainty
1) Target market segment
Entrepreneurs employing a strategic service vision target their market very carefully, both in
demographic and in psychographic terms
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Determine common characteristics
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Identify dimensions to segment market
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Develop demographic, geographic or psychographic basis
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Determine importance and needs of segmentation as perceived by the organization
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Monitor how well the needs are being served?
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Identify who is responsible to serving the needs
EXAMPLE SOUTH WEST AIRLINES
Short flights (Less than an hour)
Interstate business travelers w/ carryon luggage
Driving by auto and/or frustrated by poor service of the major airlines serving Texas
2) Service Concept
Service concept is set of competitive priorities that target market values
Focus is on results that must be produced
It describes how the target market, employees and market as a whole perceive the
service elements
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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?
Southwest Airlines:
On-time performance & frequent departures are Critical
Meals are unnecessary - only peanuts and soft drinks
Carry on luggage
Short flight with frequent departures
3) Operating Strategy –measures to reduce cost and improve efficiency
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
Southwest Airlines:
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Airport gate turnaround fast (keep aircraft in the air)
Standard Aircraft (737)
Customers enjoy the relaxed flying experience
Employees see Southwest as an enjoyable place to work
4) Service Delivery System –design, facility, working environment
 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?
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Workers, technology, layout, systems and procedures
Workers, procedures••
Normal and peak service capacity
Normal capacity••
Southwest Airlines:
Cabin Crew to Create a “Fun” atmosphere
No Assigned Seating
Quality Measures– On-time Performance, Lost Luggage
Hire cabin crew based on attitude
Competitive Environment of Services
In general, service environment compete in a difficult economic environment and there are many reasons
for this difficulty
 Relatively Low Overall Entry Barriers-non patentable and not capital intensive, innovation
can be easily copied , but can be overcome by differentiating,
Economies of Scale Limited- Two areas where the big companies get a massive benefit from economies
of scale are branding (just look at how much the major consumer brands spend on advertising and
imagine having to compete) and innovation/development (e.g. drugs companies, computer software).
Economies of scale arise where costs of a certain level of service are largely fixed. The more units of sale,
the lower the unit cost. It is a simple matter of arithmetic.
 Erratic Sales Fluctuations – Service demand varies according to the time of the day
 No Power Dealing with Buyers or Suppliers-due to small size,disadvantage in bargaining
power with buyers and suppliers, exception to mcd or marriot
 Product Substitutions for Service- product innovation can be a substitute for service, haor
dressing industry and health industry, home pregnancy test, thermometer , blood pressure
device
 High Customer Loyalty-consistent repurchase behavior , by retailers having loyalty cards,
throwing an event, competition
 Exit Barriers –some family owned service business continue to operate despite low
profits,toher service industry like diving shops, florist have a hobby appeals that provides
the owner with job satisfaction despite not earning profit, it’s very hard for profit oriented
firm to drive out this this privately held companies
Competitive service strategies
Competitive advantage is very important for firms to be successful in the marketplace.
A competitive advantage is an advantage over competitors gained by offering consumers greater value,
either by means of lower prices or by providing greater benefits and service that justifies higher prices.
Following on from his work analysing the competitive forces in an industry, Michael Porter suggested
three "generic" business strategies that could be adopted in order to gain competitive advantage.
Strategy - Cost Leadership
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An overall cost leadership strategy requires tight cost and overhead control, efficient scalable
processes, and innovative technology. Maintaining a low-cost position provides a defence against
competition. This strategy is usually associated with large-scale businesses offering "standard"
products with relatively little differentiation that are perfectly acceptable to the majority of
customers. Occasionally, a low-cost leader will also discount its product to maximise sales,
particularly if it has a significant cost advantage over the competition and, in doing so, it can
further increase its market share. Service firms have been able to achieve low cost leadership using
a variety of approaches such as targeting those customers who cost less to serve, standardising a
custom service and reducing the personal element in service delivery.Example, Mc Donalds,
Walmart (ELDP) ,Air Asia,Dell. In order to achieve EDLP, Wal-Mart began developing close
relationships with its suppliers and vendors. These relationships allowed Wal-Mart to achieve cost
savings through large volume purchases. EDLP also helped Wal-Mart drive up the total dollar
amount customers spent on trips to the store. Access to the capital needed to invest in technology
that will bring costs down.
Very efficient logistics.
A low cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of
other competitors
Kaizen-continuous improvement
Differentiation
The second generic strategy, differentiating the product or service, requires a firm to create something
about its product or service that is perceived as unique throughout the industry. Whether the features are
real or just in the mind of the customer, customers must perceive the product as having desirable features
not commonly found in competing products. The customers also must be relatively price-insensitive.
Adding product features means that the production or distribution costs of a differentiated product may be
somewhat higher than the price of a generic, non-differentiated product. Customers must be willing to pay
more than the marginal cost of adding the differentiating feature if a differentiation strategy is to succeed.
Differentiation may lead to customer brand loyalty and result in reduced price elasticity. Differentiation
may also lead to higher profit margins and reduce the need to be a low-cost producer. Since customers see
the product as different from competing products and they like the product features, customers are willing
to pay a premium for these features. As long as the firm can increase the selling price by more than the
marginal cost of adding the features, the profit margin is increased.Fedex.
Focus or Niche strategy.
The focus strategy is also known as a 'niche' strategy. Where an organization can afford neither a wide
scope cost leadership nor a wide scope differentiation strategy, a niche strategy could be more suitable.
Here an organization focuses effort and resources on a narrow, defined segment of a market. Competitive
advantage is generated specifically for the niche. A niche strategy is often used by smaller firms. A
company could use either a cost focus or a differentiation focus. Motel-budget travellers, FEDEX-overn
ight delivery
Strategic Analysis
Porter's Five Forces is a framework for industry analysis and business strategy development formed by
Michael E. Porter of Harvard Business School in 1979.
Michael Porter's model of Five Forces can be used to better understand the industry context in which the
firm operates. Porter's Five Forces model is a strategy tool that is used to analyze attractiveness of an
industry structure.
Porter’s Five Forces Model
Potential New Entrants
- Barriers to entry
- Brand equity
- Capital requirements
Bargaining Power of
Suppliers
- Presence of substitute inputs
- Threat of forward integration
- Uniqueness of inputs
Competitive Rivalry
within Industry
- Number of competitors
- Rate of industry growth
- Industry capacity
Bargaining Power of
Customers
- Buyer’s price sensitivity
- Customer volume
- Information asymmetry
Threat of Substitutes
- Buyer propensity to substitute
- Buyer switching costs
- Product substitution for service
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SWOT Analysis
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Strengths
What are your company’s advantages?
What do you do better than anyone else?
What unique resources do you have?
What do people in your market see as your strengths?
Weaknesses
What could you improve?
What should you avoid?
What factors lose sales?
What are people in your market likely to see as a weakness?
Opportunities
What are your competitors’ vulnerabilities?
What are the current market trends?
Does technology offer new service options?
Are there niches in the market your organization can fill?
Threats
What obstacles do you face?
What are your competitors doing?
Is changing technology threatening your position?
Do you have cash-flow problems?
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New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely
depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very
easy to enter (e.g. estate agency, restaurants). Key barriers to entry include
- Economies of scale
- Capital / investment requirements
- Customer switching costs
- Access to industry distribution channels
- The likelihood of retaliation from existing industry players.
Threat of New Entrants - there are many "universities" being set up today, primarily because
education is now a profitable business, so competition has increased. Further, because of
globalization, universities compete with each other around the globe, but I guess the most serious
competition is between the US and the UK.
Threat of Substitutes - I guess this is applicable in terms of the courses and specialisations offered by
different institutions. As mentioned above, newer universities are being set up, that offer highly
specialised courses, because existing courses at established universities are often too broad in scope.
Bargaining Power of Buyers & Suppliers - Well-established and prominent universities like Harvard etc,
as suppliers of education, are more powerful....because they have limited seats and students globally
competing to get in. Newer or lesser known universities have to work harder to attract buyers
(students) because now there's so much choice in education.
Bargaining power of suppliers
This will be high or strong where there are relatively few individuals holding the power, where the costs of changing suppliers are
high, or if the supplier has a strong brand.
Bargaining powers of buyers
Several factors determine Porter's Five Forces buyer bargaining power. If buyers are concentrated
compared to sellers – if there are few buyers and many sellers – buyer power is high. If switching costs
– the cost of switching from one seller’s product to another seller’s product – are low, the bargain
power of buyers is high.Bargaining power is high for students, there are many students compared to
the number of university.Switching cost for student are low, they can always look for substitutes.
Buyers are more concentrated than sellers
• Buyer switching costs are low
• Threat of backward integration is high
• Buyer is price sensitive
• Buyer is well-educated regarding the product
• Buyer purchases product in high volume
• Buyer purchases comprise large portion of seller sales
• Product is undifferentiated
• Substitutes are available
WINNING CUSTOMERS IN THE MARKETPLACE
Depending on the competition and personal needs, customers select a service provider using criteria
listed here. This list is not intended to be complete, because the very addition of a new dimension by a
firm represents an attempt to engage in a strategy of differentiation. For example, initiation of the
frequent flyer program "AAdvantage" by American Airlines was an attempt to add the dimension of
customer loyalty to competition among airlines.
· Availability. How accessible is the service? The use of ATMs by banks has created 24-hour
availability of some banking services (i.e., service beyond the traditional "banker's hours"). Use of 800numbers by many service firms facilitates access after normal working hours.
·Convenience. The location of the service defines convenience for customers who must travel to that
service. Gasoline stations, fast-food restaurants, and dry cleaners are examples of services that must
select locations on busy streets if they are to succeed.
·Dependability. How reliable is the service? For example, once the exterminator is gone, how soon do
the bugs return? A major complaint regarding automobile repair services is the failure to fix the problem
on the first visit. For airlines, on-time performance is a statistic collected by the FAA.
· Personalization. Are you treated as an individual? For example, hotels have discovered that repeat
customers respond to being greeted by their name. The degree of customization allowed in providing the
service, no matter how slight, can be viewed as more personalized service.
·Price. Competing on price is not as effective in services as it is with products, because it often is
difficult to compare the costs of services objectively. It may be easy to compare costs in the delivery of
routine services such as an oil change, but in professional services, competition on price might be
considered counterproductive because price often is viewed as being a surrogate for quality.
·Quality. Service quality is a function of the relationship between a customer's prior expectations of the
service and his or her perception of the service experience both during and after the fact. Unlike product
quality, service quality is judged by both the process of service delivery and the outcome of the service.
·Reputation. The uncertainty that is associated with the selection of a service provider often is resolved
by talking with others about their experiences before a decision is made. Unlike a product, a poor
service experience cannot be exchanged or returned for a different model. Positive word-of-mouth is the
most effective form of advertising.
· Safety. Well-being and security are important considerations, because in many services, such as air
travel and medicine, the customers are putting their lives in the hands of the service provider.
·Speed. How long must I wait for service? For emergency services such as fire and police protection,
response time is the major criterion of performance. In other services, waiting sometimes may be
considered a tradeoff for receiving more personalized services, such as reduced rates.
Writing about manufacturing strategy, Terry Hill used the term order-winning criteria to refer to
competitive dimensions that sell products.6 He further suggested that some criteria could be called
qualifiers, because the presence of these dimensions is necessary for a product to enter the marketplace.
Finally, Hill said that some qualifiers could be considered order-losing sensitive.
We will use a similar logic and the service criteria listed earlier to describe the service purchase
decision. The purchase decision sequence begins with qualifying
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Terry Hill, Manufacturing Strategy, Irwin, Homewood, 111., 1989, pp. 36-46.
potential service firms (e.g., must the doctor be on my PPO list?), followed by making a final selection
from this subset of service firms using a service winner (e.g., which of the PPO doctors has the best
reputation?). After the initial service experience, a return will be based on whether a "service loser" has
occurred (e.g., the doctor was cold and impersonal).
Qualifiers
Before a service firm can be taken seriously as a competitor in the market, it must attain a certain level
for each service-competitive dimension, as defined by the other market players. For example, in airline
service, we would name safety, as defined by the air-worthiness of the aircraft and by the rating of the
pilots, as an obvious qualifier. In a mature market such as fast foods, established competitors may define
a level of quality, such as cleanliness, that new entrants must at least match to be viable contenders. For
fast food, a dimension that once was a service winner, such as a drive-in window, over time could
become a qualifier, because some customers will not stop otherwise.
Service Winners
Service winners are dimensions such as price, convenience, or reputation that are used by a customer to
make a choice among competitors. Depending on the needs of the customer at the time of the purchase,
the service winner may vary. For example, seeking a restaurant for lunch may be based on convenience,
but a dinner date could be influenced by reputation. Note that a service winner can become an industry
qualifier (e.g., ATM use by banks).
Service Losers
Failure to deliver at or above the expected level for a competitive dimension can result in a dissatisfied
customer who is lost forever. For various reasons, the dimensions of dependability, personalization, and
speed are particularly vulnerable to becoming service losers. Some examples might be failure of an auto
dealer to repair a mechanical problem (i.e., dependability), rude treatment by a doctor (i.e.,
personalization), or failure of an overnight service to deliver a package on time (i.e., speed).
What characteristics must my service have just to be able to compete?
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Fast food--- speed
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Package delivery---- packaging design(safe at destination)
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Air travel------- time
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Gourmet restaurant-------- environment
What characteristics should I emphasize to convince the customer to buy my service instead of
my customers
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Mariott hotels, Hiltons, ----- Luxury
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Jet Airways--- price
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Shatabdi travel----- time