Service Strategy

Learning Objectives
 Formulate a strategic service vision.
 Describe how a service has addressed each element
in the strategic service concept.
 Discuss the competitive environment of services.
 Describe how a service competes using the three
generic service strategies.
 Discuss the service purchase decision.
 Discuss the competitive role of information
 Explain the role of the virtual value chain in service
innovation.
 Discuss the limits in the use of information
Strategic Service Vision
Target Market Segments
 What are common characteristics of important market
segments?
 What dimensions can be used to segment the market,
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 Concepts
 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?
Strategic Service Vision
Operating Strategy
 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?
Strategic Service Vision
Service Delivery System
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?
Service Design Elements
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)
Staying Focused
Crotts, Dickson and Ford, “Aligning Organizational Processes with Mission: The case of
service Excellence, Academy of Management Executive, 2005 19:3.

 Communications:
◦ Top Management Walks the Service Mission Talk
◦ Departmental and Unit Goals are Aligned with Service Mission
◦ Performance Standards are Aligned with Service Mission
◦ Environmental Setting and Physical Design Communicate Service Mission
◦ Service Excellence Stories are Told and Successes Celebrated
 HR:
◦ Job Descriptions Include Service Mission
◦ Job Ads Include Service Mission
◦ Interviews Include Questions about Service Mission
◦ Orientation Programs Stress Mission
◦ Performance Appraisals Include and Reward Service Mission
◦ Annual Training in Service Mission
Staying Focused (cont.)
 Processes and Measurement:
◦ Service Quality Systematically Measured
◦ Feedback on Service Quality Systematically Provided to All
◦ Service Delivery System Design Reflects Service Mission
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 (promote self-service)
Reducing Network Costs (hub and spoke)
Taking Service Operations Off-line
Competitive Service Strategies
Differentiation
Making the Intangible Tangible (memorable)
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 (24 hour ATM)
Convenience (Site location)
Dependability (On-time performance)
Personalization (Know customer’s name)
Price (Quality surrogate)
Quality (Perceptions important)
Reputation (Word-of-mouth)
Safety (Customer well-being)
Speed (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.
ServiceWinner: 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
Competitive use of Information
Online (Real time) Offline (Analysis)

Creation of barriers to entry: Database asset:

External Reservation system Selling information
(Customer) Frequent user club Development of services
Switching costs Micromarketing

Revenue generation: Productivity enhancement:

Internal Yield management Inventory Status
(Operations) Point of sales Data envelopment analysis (DEA)
Expert systems
The Virtual Value Chain
Marketplace vs Marketspace
Creating New Markets Using Information (Gather,
Organize, Select, Synthesize, and Distribute)
Three Stage Evolution
• 1st Stage (Visibility): See physical operations more
effectively with information – Ex. USAA “paperless
operation”
• 2nd Stage (Mirroring Capability): Substitute virtual
activities for physical – Ex. USAA “automate
underwriting”
• 3rd Stage (New Customer Relationships): Draw on
information to deliver value to customer in new ways – Ex.
USAA “event oriented service”
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)

America West Airlines Strategy

Target Strategic Advantage

Low cost Uniqueness

Entire Overall cost
Differentiation
Market leadership

Market
Focus
Segment
America West Winning Customers
Service Qualifiers

Service Winners

Service Losers
America West Strategic Service
Vision
Target market segments

Service concept

Operating strategy

Service delivery system

 America West Airlines Positioning
CABIN SERVICE
Full Service

PREFLIGHT SERVICE
Inconvenient Convenient

No Amenities
 Alamo Drafthouse Positioning

FOOD QUALITY

Good

MOVIE SELECTION Few Many

Poor
Alamo Drafthouse Strategic
Service Vision
Target market segments

Service concept

Operating strategy

Service delivery system

Alamo Drafthouse Winning
Customers
Qualifiers

Service winners

Service losers
Alamo Drafthouse Profitability
Recommendations



Discussion Topics
 Give examples of service firms that use both the strategy
of focus and differentiation and the strategy of focus and
overall cost leadership.
 Use the service design elements for a service of your
choice to illustrate how all eight elements support the
service strategy.
 What ethical issues are associated with micro-
marketing?
 For each of the three generic strategies (i.e., cost
leadership, differentiation, and focus) which of the four
competitive uses of information is most powerful?
Interactive Class Exercise
Divide into two groups and debate the
following proposition:

Frequent flyer award programs are or are

not anticompetitive