• Target market
– May result in different treatment of different customers
– All employees must understand target market
• Service concept
– Why customers choose a particular firm
• Motivation can be emotional or physical
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• Operating strategy
– How should the firm be structured to produce the service concept?
– How should resources be allocated?
• Service delivery system
– Specific decisions made by the firm regarding personnel, procedures, equipment, capacity, facilities, etc.
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• Ideally, a service delivery system should support the operating strategy, which should support the service concept, which supports the target market
Target Market
Service Concept
Operating Strategy
Service Delivery System
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• Capacity issues in services are:
– More complex than in manufacturing
• Timing may be important, for example if there are peaks in demand at different times of day
– More critical than in manufacturing
• Often no backorders can occur
• Excess capacity may be perishable
– An imbalance in supply and demand can result in lost sales or idle employees
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• Provide: Ensure sufficient capacity at all times
– High quality/high cost; greater amount of idle time for employees
• Match: Change capacity as needed
– Balance quality/cost; part-time workers
• Influence: Alter demand patterns to fit firm capacity
– Pricing, marketing and appointment systems
• Control: Maximize capacity utilization
– Compete on cost by driving idle time to zero
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• Work-shift scheduling
• Increased customer participation
• Adjustable (surge) capacity
• Shared capacity
• Partitioned demand
• Price incentives for and promotion of off-peak demand
• Development of complementary services
• Yield management
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• Store sizes have been increasing over the last decade
– Supermarkets:
• 50K sq. ft. now vs. 20K in the 1980s
• 40,000 SKUs vs. 6,000 in the 1980s
– WalMarts
• 200K sq. ft. vs. 70K in the 1980s
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• Marketing Motivation
– Increased revenue/sq. ft. due to a greater pull of customers
– “One stop shopping” for dual income families
• Grocery stores have banks, pharmacies, flowers, etc.
• Operational Motivation
– Fewer employees per customer are required for a given service quality.
– Lower inventory carrying costs and distribution costs
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• Managing stores as a network is critical
– Blanket a given geographical area
– Multiple locations reduce travel time for customers
– Small stores reduce shopping times
– Distribution costs are low because stores are close to one another
– Labor can move from location to location
– Flexible job descriptions reduce idle time
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Multi-site Service Firm Life Cycle
Entrepreneurial Multi-site
Rationalization
Growth
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Maturity Decline/
Regeneration
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Entrepreneurial Multi-site rationalization
Charismatic leader
Local marketing and PR
Innovation and development of service strategy
Employees typically underpaid with little stability
Selection of dominant paradigm for marketing, operations and
HR
Standardization or procedures
Growth
Operations and design are already set
Sell concept to consumer and managerial audiences
Wider scale advertising
Maturity
Maintaining market position and awareness and keeping concept “fresh”
Maintaining standards and operating control
Keeping employees motivated
Decline/
Regeneration
Revising service concept and implementing revisions over a large network
Requires charismatic leader
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• Industry Roll-Ups
– Use stock to buy up dozens of small firms in a fragmented industry
– Gain synergies when once-competing firms share facilities, supplies, marketing expenses and operational expertise
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• A self-financing growth strategy
– Franchisees pay an up-front fee and a percentage of gross revenue
• Can limit profitability because a large portion of the profits go to the franchisee
– Firms may buy back mature franchises
• Common in international expansion
– Bypass “ethical walls”/US Foreign Corrupt
Practices Act
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• Channel conflict
– For example, retail outlets may oppose the introduction of on-line channels
• Operational control issues
– Franchisees may oppose changes initiated at the firm level
– Franchisers cannot dictate retail prices or require that franchisees purchase supplies from the franchiser
• Franchisers providing on-going value
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• Passive ownership
– Franchisees are not actively involved in the operations of the franchise
• Master franchise agreements
– Allows an individual or corporate group other than the firm to award franchises
• Fee structure
– Average of $20,000 fee + 7% royalties
– Can affect the ability to monitor free-riders or brand shirkers
• Geographic protection for franchisees
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