In service management, Strategy is also important to repair an action plan

1. Service Strategy
服務策略
Chap. 2
A plan to outperform competitors

2. • Strategic service vision is formulated by
addressing questions about
– The target market
– Service concept
– Operating strategy
– Delivery system

3. 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?
2-3

4. Strategic Service Vision
Service 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?
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5. 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?
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6. 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 to ensure quality
standards, differentiate the service from
competition, provide barriers to entry by
competitors?
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7. Southwest Airlines
Strategic Service Vision
Service Delivery
System
Operating Strategy Service Concept Target Market
Segment
• Fun cabin
atmosphere to
differentiate
service
• Use only Boeing
737 aircraft to
control
maintenance and
operating costs
• Hire cabin crew
based on attitude
• Quick turnaround
at gate results in
high utilization of
aircraft
• No assigned
seating rewards
punctuality and
promotes on-time
performance
• Short flights with
frequent
departures
• Serve peanuts and
soft drinks only
• Use of inner-city
or low traffic
airports avoids
congestion
• Carry-on luggage
• State of Texas
residents
• Business traveler
who drives
because of
inadequate service
• Inexpensive family
travel on
weekends
2-7

8. • 10 minutes classroom group exercise
• Develop a strategic service vision of your
entrepreneur firm
– e.g. ABC express grocery services

9. Competitive Environment of Services
• Relatively Low Overall Entry Barriers
– No patent protection
• Innovation can be easily copied
– Not capital-intensive
• Resort hotels (exception)
• Economies of Scale Limited
– Physical customers participations required
– Some logistics possible
• Purchasing (Marriott hotels buy Mattress), advertising, website
• High Traveling Costs
– Teleconference helpful
• Erratic Sales Fluctuations
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10. Competitive Environment of Services
• Erratic Sales Fluctuations
– Service demand varies with random arrivals
• Product Substitutions for Service
– Airlines tickets agency vs. Online tickets
• High Customer Loyalty
– High touch contact create loyal customers
• Strong Exit Barriers
– Marginal service firms may continuously operate
• Family employment
• Intrinsic job satisfaction (antique store, scuba diving shop)
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11. Competitive Service Strategies
(Overall Cost Leadership)
• Requires efficient-scale facilities, tight cost and overhead
control, innovative technology
– McDonald’s, Walmart, Federal express, Amazon.com
• Seeking Out Low-cost Customers (e.g., USAA, 公教信貸)
• Standardizing a Custom Service (e.g., H&R Block)
• Reducing the Personal Element in Service Delivery (e.g.,
promote self-service at airline check-in)
• Reducing Network Costs (e.g., hub and spoke at FedEx)
• Taking Service Operations Offline (e.g., shoe-repair drop-
off)
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12. Competitive Service Strategies
(Differentiation)
being unique in brand image, technology use, features,
or reputation for customer service.
• Making the Intangible Tangible (memorable)
– (e.g., Disney Theme Parks memorabilia)
• Customizing the Standard Product
– (e.g., Ritz Carlton address guest by name)
• Reducing Perceived Risk
– (e.g., FedEx guarantee their work)
• Giving Attention to Personnel Training
– (e.g., McDonald’s Hamburger University)
• Controlling Quality (e.g., Shouldice Hospital, 和信醫院)
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13. 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)
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14. Strategic Analysis
Porter’s Five Forces Model
Potential New Entrants
- Barriers to entry
- Brand equity
- Capital requirements
Competitive Rivalry within
Industry
- Number of competitors
- Rate of industry growth
- Industry capacity
Threat of Substitutes
- Buyer propensity to substitute
- Buyer switching costs
- Product substitution for service
Bargaining Power of
Customers
- Buyer’s price sensitivity
- Customer volume
- Information asymmetry
Bargaining Power of Suppliers
- Presence of substitute inputs
- Threat of forward integration
- Uniqueness of inputs
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15. Strategic analysis
SWOT Analysis
Strengths
• What are your company’s advantages?
• What do you do better than anyone else?
• What unique resources do you have?
• What do people in your market see as your strengths?
Weaknesses
• What could you improve?
• What should you avoid?
• What factors lose sales?
• What are people in your market likely to see as a weakness?
Opportunities
• What are your competitors’ vulnerabilities?
• What are the current market trends?
• Does technology offer new service options?
• Are there niches in the market your organization can fill?
Threats
• What obstacles do you face?
• What are your competitors doing?
• Is your position threatened by changing technology?
• Do you have cash-flow problems?
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16. 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)
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17. Winning Customers in the Marketplace
• Service Qualifier:
– To be taken seriously, a certain level must be attained on the
competitive dimension, as defined by other market players, e.g.,
cleanliness for a fast food restaurant or safe aircraft for an airline.
• Service Winner:
– The competitive dimension that is used to make the final choice
among competitors, e.g., price.
• Service Loser:
– Defined by failure to deliver at or above the expected level for a
competitive dimension, e.g., failure to repair auto (dependability),
rude treatment (personalization), or late delivery of package
(speed).
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18. Sustainability in Services
Motivations:
•Regulations/legislation
• Environmental Protection Agency (EPA)
• Waste Electrical and Electronic Equipment (WEEE)
• Restriction of Hazardous Substances (RoHS)
•Perception/Image Building
• 麥當勞 -- 牛肉 – 巴西雨林, Nike -- 足球 – 童工
•Economic
• Cost savings from waste reduction
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19. Triple Bottom Line Impact
2-19

20. Competitive Role of Information
in Services
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21. • Create of barriers to entry
– Reservation systems
• United Airline, SABRE
– Frequent User Club
• United Airline, reward free trips, Create brand loyalty
– Switching cost
• Create a cost in the form of inconvenience if switched
• Medical supplies company provides order entry
terminal for hospitals

22. • Revenue generation
– Yield management
• System to improve the revenue of time-perishable
resources
• Airlines make adjustment on price and allocation on
unsold seats
– Supersaver
– Full fare
• Marriott hotels

23. – Point of sale
• VideOcart of Walmart, China
– Display items on sale as shopping cart pass
• Order of restaurants customers
– Direct link to kitchen and cashier
– Expert systems
• Otis Elevator company
– Data on the behavior of its elevator over the years
» Quick diagnosis, less maintenance staff

24. • Database asset
– Selling information
• Maintenance records of appliance can be sold to
manufacturers
• Credit cards billing records can be sold to retailers
– Developing service
• Study members characteristics
– Single, become married, with children
– Senior (cruise)
– Lifestyle relationship

25. – Micromarketing
• American Express can tell when their member get
married
– Analyze their customer’s changing spending pattern
• Walmart’s shopping cart analysis
– Beers and Diaper

26. • Productivity enhancement
Retailer can make better use of shelves space by
matching displaced products
– Inventory status
• The daily updates of sales, manufacturing and
distribution keep fresh products moving through the
system
– Data Envelopment Analysis
• A linear programming can optimize multiple inputs and
multiple outputs

27. Exploiting the Virtual Value Chain
Production Distribution Retailing Customer
Physical Value Chain
Apply the generic value-
adding steps of the
information world:
- Gather
- Organize
- Select
- Synthesize
- Distribute
to each physical activity
to create virtual value.
Virtual Value ChainNew New New New
Processes Knowledge Products Relationships
(Stage 1) (Stage 2) (Stage 3) (Stage 4)
2-27
eCommerce Implementation

28. The Virtual Value Chain
• Marketplace vs Marketspace
• Creating New Markets Using Information (Gather, Organize, Select,
Synthesize, and Distribute)
Four Stage Evolution
• 1st Stage (New Processes): See physical operations more effectively
with information (USAA “paperless operation”).
• 2nd Stage (New Knowledge): Substitute virtual activities for physical
(USAA “automate underwriting”).
• 3rd Stage (New Products): Use information to deliver value to
customers in new ways (USAA “event oriented service”).
• 4th Stage (New Relationships): Seek customer collaboration in co-
creation of value (USAA “online financial planning service”).
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29. • Economics of Scalability
– Scalability: ability to improve contribution margin
(revenue – variable cost) as sales volume increase
• Conduct only information or data transfer service
– Google, Facebook, online encyclopedia
• Allow customers to serve themselves
– Online reservation, 線上選課系統
• Let customers serve customers
– Online auctions

30. Dimensions High Scalability Low
E-commerce
continuum
Selling
information (e-
service)
Selling value-
added service
Selling
services with goods
Selling goods
(e-commerce)
Information vs.
goods content
Information
dominates
Information with
some service
Goods with support
services
Goods dominate
Degree of customer
content
Self-service Call center
backup
Call center support Call center order
processing
Standardization vs.
customization
Mass
distribution
Some
personalization
Limited
customization
Fill individual orders
Shipping and
handling costs
Digital asset Mailing Shipping Shipping, order
fulfillment, and
warehousing
After-sales service None Answer questions Remote maintenance Returns possible
Example service Used car prices Online leisure
travel agent
Computer/IT support Online retailer
Example firm Kbb.com InfoHub.com Everdream.com Amazon.com
Economics of Scalability
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31. Limits in the Use of Information
• Anti-competitive (e.g. Barrier to entry)
• Fairness (e.g. Yield management)
• Invasion of Privacy (e.g. Micro-marketing)
• Data Security (e.g. Home Depot, Target,
Turbotax hacked)
• Reliability (e.g. Credit report)
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32. 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.
2-32

33. Stages in Service Firm Competitiveness
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社工 義務教育
連鎖超商
常春藤盟校
Apple Inc.
Google

34. Stages in Service Firm Competitiveness
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35. • Mini Cases
– Case 2.1 United Commercial Bank and El Banco
– Case 2.2 The Alamo Drafthouse