Service Strategy,
New Service Development,
and Technology in Services
MD254
Service Operations
Professor Joy Field
Strategic Service Vision
Target Market Segments
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What are common characteristics of
important market segments?
What dimensions can be used to segment
the market (e.g. demographic,
psychographic)?
How important are various segments?
What needs does each have?
How well are these needs being served, in
what manner, by whom?
Strategic Service Vision
Service Concept
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What are important elements of the service to be
provided, stated in terms of results produced for
customers (i.e., how is value created for the
customer)?
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?
Strategic Service Vision
Operating Strategy
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What are important elements of the strategy:
structural and managerial decisions and interfaces
with other functional areas?
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,
etc.?
Strategic Service Vision
Service Delivery System
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How is the service delivery system
implemented, including: role of people,
technology, equipment, layout, procedures?
What capacity does it provide, normally, at
peak levels?
To what extent does the service delivery
system help insure quality standards,
differentiate the service from competition,
provide barriers to entry by competitors?
Competitive Environment of Services
How do each of these factors affect the
competitiveness of service firms?
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Entry Barriers
Economies of Scale
Sales Fluctuations
Power Dealing with Buyers or Suppliers
Product Substitutions for Service
Customer Loyalty
Exit Barriers
Examples of Competitive Priorities
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Availability
Convenience
Dependability
Customization
Price
Quality
Reputation
Safety
Speed
(24 hour ATM)
(Site location)
(On-time performance)
(Personalization)
(Quality surrogate)
(Perceptions important)
(Word-of-mouth)
(Customer well-being)
(Avoid excessive waiting)
Winning Customers in the Marketplace
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Service Qualifier
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Service Winner
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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.
The competitive dimension used to make the final choice
among competitors. Example is price.
Service Loser
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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
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Creation of barriers to
entry
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Reservation systems
Frequent use club
Switching costs
Revenue generation
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Yield management
Point of sale
Expert systems
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Database asset
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Selling information
Developing services
Micromarketing
Productivity
enhancement
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Inventory status
Determining relative
efficiency and
productivity
improvement levers
Limits in the Use of Information
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Anti-competitive (e.g. barrier to entry)
Fairness (e.g. yield management)
Invasion of Privacy (e.g. micro-marketing)
Data Security (e.g. medical records)
Reliability (e.g. credit report)
Service Design Elements
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Structural
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Delivery system: Process structure, service blueprint, strategic
positioning
Facility design: Servicescapes, architecture, process flows, layout
Location: Geographic demand, site selection, location strategy
Capacity planning: Strategic role, queuing models, planning
criteria
Managerial
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Information: Technology, scalability, use of Internet
Quality: Measurement, design quality, recovery, tools, Six Sigma
Service encounter: Encounter triad, culture, supply relationships,
outsourcing
Managing capacity and demand: Strategies, yield management,
queue management
Customer Value Equation
Results produced for the customer  Process quality
Value 
Price to the customer  Costs of acquiring the service
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Results produced for the customer
Process quality
Price to the customer
Cost of acquiring the service
Hotel Service Blueprint
Strategic Positioning through
Process Structure
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Degree of Complexity
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Measured by the number of steps in the service
blueprint. For example, a medical clinic is less
complex than a general hospital.
Degree of Divergence
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Amount of discretion permitted the server to
customize the service. For example, a high-end
vs. low-end hotel has more personalized services.
Generic Approaches to Service Design
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Production Line
 Limit Discretion of Personnel
 Division of Labor
 Substitute Technology for People
 Standardize the Service (low divergence)
Customer as Co-Producer
 Self-Service (matching capacity with demand)
 Smoothing Service Demand (appointments, reservations,
waiting)
 Customer-Generated Content
Customer Contact
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Degree of Customer Contact
Separation of High and Low Contact Operations
Sales Opportunity and Service Delivery Options (channels)
Information Empowerment
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Employee empowerment
Customer empowerment
Role of Technology in the Service Encounter
Technology
Customer
Technology
Server
A. Technology-Free
Service Encounter
Customer
Technology
Server
B. Technology-Assisted
Service Encounter
Technology
Customer
Customer
C. Technology-Facilitated
Service Encounter
Technology
Server
D. Technology-Mediated
Service Encounter
Customer
Server
Server
E. Technology-Generated
Service Encounter
Technology Convergence
Enabling E-Business
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Internet
Global telephone system
Communications standard TCP/IP
Addressing system of URLs
Personal computers and cable TV
Customer databases
Sound and graphics
User-friendly free browser
Uses for Websites
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Retail channel (amazon.com)
Supplemental channel (Barnes & Noble)
Technical support (Dell Computer)
Embellish existing service (HBS Press)
Process orders (Delta Airline)
Convey information (Kelly Blue Book)
Communicate with membership (POMS.org)
Play games (addictinggames.com)
E-Business Models
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Content Provider: Reuters
Direct-to-Customer: Dell
Full-Service Provider: GE Supply Co.
Intermediary: eBay
Shared Infrastructure: SABRE
Value Net Integrator: 7-Eleven Japan
Virtual Community: Monster.com
Whole-of-Enterprise: Government
Economics of E-Business
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Sources of Revenue
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Transaction fees
Information and advice
Fees for services and commissions
Advertising and listing fees
Ownership of customer data
Sources of Cost Reduction
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Efficiencies (self-service)
Scalability
Network effects
Challenges of Adopting
New Technologies in Services
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Loss of personal attention
Customer acceptance
Customer skills
Tradeoffs (e.g. convenience vs. cost or time)
Standardization (e.g. RFID)
Lack of patent protection impedes innovation