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Strategic Positioning. Chapter 2. 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. Strategic Service Vision.

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strategic service vision
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

Strategic Service Vision

Chapter 2 - Strategic Positioning


strategic service vision3
Strategic Service Vision
  • 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.

Chapter 2 - Strategic Positioning


strategic service vision4

Target Market

Service Concept

Operating Strategy

Service Delivery System

Strategic Service Vision
  • Ideally, a service delivery system should support the operating strategy, which should support the service concept, which supports the target market

Chapter 2 - Strategic Positioning


capacity strategies
Capacity Strategies
  • 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

Chapter 2 - Strategic Positioning


capacity strategies6
Capacity Strategies
  • 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

Chapter 2 - Strategic Positioning


techniques for managing capacity
Techniques for managing capacity
  • 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

Chapter 2 - Strategic Positioning


retail design strategies
Retail Design Strategies
  • 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

Chapter 2 - Strategic Positioning


why larger stores
Why larger stores?
  • 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

Chapter 2 - Strategic Positioning


an alternative a small store strategy
An Alternative: A Small Store Strategy
  • 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

Chapter 2 - Strategic Positioning


managing for growth
Managing for Growth

Multi-site Service Firm Life Cycle






Chapter 2 - Strategic Positioning


managing growth skill sets
Managing Growth – Skill Sets

Chapter 2 - Strategic Positioning


growth strategies
Growth Strategies
  • 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

Chapter 2 - Strategic Positioning


  • 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

Chapter 2 - Strategic Positioning


challenges of franchising
Challenges of Franchising
  • 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

Chapter 2 - Strategic Positioning


franchising agreements
Franchising Agreements
  • 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

Chapter 2 - Strategic Positioning