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Service Strategy. Learning Objectives. Formulate a strategic service vision. Discuss the competitive environment of services. Describe how a service competes using the three generic service strategies. Discuss the service purchase decision.

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Service Strategy

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learning objectives
Learning Objectives
  • Formulate a strategic service vision.
  • 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 in services.
  • Explain the role of the virtual value chain in service innovation.
  • Discuss the limits in the use of information.
  • Categorize a service firm according to its stage of competitiveness.
strategic service vision target market segments
Strategic Service VisionTarget 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 concept
Strategic Service VisionService Concept
  • 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
Strategic Service VisionOperating 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
Strategic Service VisionService 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?
competitive environment of services
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
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
Competitive Service Strategies (Differentiation)
  • Making the Intangible Tangible (memorable)
  • Customizing the Standard Product
  • Reducing Perceived Risk
  • Giving Attention to Personnel Training
  • Controlling QualityNote: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service.
competitive service strategies focus
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
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 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.
  • Service Winner: The competitive dimension used to make the final choice among competitors. Example is price.
service purchase decision cont
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 Role of Information in Services

Strategic Focus Competitive Use of Information

On-line Off-line

(Real time) (Analysis)

Creation of barriers to entry: Data base asset:

External Reservation system Selling information

(Customer) Frequent user club Development of services

Switching costs Micro-marketing

Revenue generation: Productivity enhancement:

Internal Yield management Inventory status

(Operations) Point of sale Data envelopment

Expert systems analysis (DEA)

the virtual value chain
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
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)
using information to categorize customers
Using Information to Categorize Customers
  • Coding grades customers on how profitable their business is.
  • Routing is used by call centers to place customers in different queues based on customer code.
  • Targeting allows choice customers to have fees waived and get other hidden discounts.
  • Sharing data about your transaction history with other firms is a source of revenue.
stages in service firm competitiveness
Stages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery

Customers patronize service Customers neither seek Customers seek out the firm The company’s name is synonymous

firm for reasons other than out nor avoid the firm. on the basis of its sustained with service excellence. Its service

performance. reputation for meeting doesn’t just satisfy customers; it

customer expectations delights them and thereby expands

customer expectations to levels its

competitors are unable to fulfill.

Operations is reactive, Operations functions in a Operations continually excels, Operations is a quick learner and fast

at best. mediocre, uninspired reinforced by personnel innovator; it masters every step of the

fashion. management and systems service delivery process and provides

that support an intense capabilities that are superior to

customer focus. competitors.


Is subsidiary to cost, Meets some customer Exceeds customer Raises customer expectations and

highly variable. expectations; consistent expectations; consistent seeks challenge; improves

on one or two key on multiple dimensions. continuously.


stages in service firm competitiveness1
Stages in Service Firm Competitiveness

1. Available for service 2. Journeyman 3. Distinctive competence 4. World-class service delivery


Counting room. Contributes to service, plays Is equally valued with front Is proactive, develops its own

an important role in the total office; plays integral role. capabilities, and generates

service, is given attention, opportunities.

but is still a separate role.


Unspecified, to be A market segment whose A collection of individuals A source of stimulation, ideas,

satisfied at minimum cost. basic needs are understood. whose variation in needs is and opportunity.



When necessary for When justified by cost When promises to enhance Source of first-mover advantages,

survival, under duress. savings. service. creating ability to do things your

competitors can’t do.


Negative constraint. Efficient resource; disciplined; Permitted to select among Innovative; creates procedures.

follows procedures. alternative procedures.


Controls workers. Controls the process. Listens to customers; coaches Is listened to by top management

and facilitates workers. as a source of new ideas. Mentors works to enhance their career.

america west airlines strategy
America West Airlines Strategy

TargetStrategic Advantage

Low cost Uniqueness

Entire Overall cost Differentiation

Market leadership

Market Focus


america west winning customers
America West Winning Customers
  • Service Qualifiers:
  • Service Winners:
  • Service Losers:
america west strategic service vision
America West Strategic Service Vision
  • Target market segments
  • Service concept
  • Operating strategy
  • Service delivery system
america west airlines positioning
America West Airlines Positioning


Full Service


Inconvenient Convenient

No Amenities

mrs fields strategic use of information
Mrs. Fields Strategic Use of Information

Strategic Focus Competitive Use of Information

On-line Off-line

(Real time) (Analysis)

Creation of barriers to entry: Data base asset:



Revenue generation: Productivity enhancement:



mrs fields management information system
Mrs. Fields Management Information System
  • How might the management information system contribute to a reported 100% turnover of store managers?
  • Will the management information system support or inhibit the expansion of Mrs. Field’s outlets? Why?
alamo drafthouse positioning
Alamo Drafthouse Positioning







alamo drafthouse strategic service vision
Alamo Drafthouse Strategic Service Vision
  • Target market segments
  • Service concept
  • Operating strategy
  • Service delivery system
alamo drafthouse winning customers
Alamo Drafthouse Winning Customers
  • Qualifiers
  • Service winners
  • Service losers
discussion topics
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.
  • 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?
  • Give an example of a firm that begin as world-class and has remained in that category.
  • Could firms in the “world-class service delivery” stage of competitiveness be descried as “learning organizations”?
interactive class exercise
Interactive Class Exercise
  • The class divides and debates the proposition “Frequent flyer award programs are or are not anticompetitive.”