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Chapter 3 Service Strategy

Chapter 3 Service Strategy. Learning Objectives. 1. Formulate a strategic service vision. 2. Competitive environment of services. 3. Three generic service strategies. 4. Service purchase decision. 5. Competitive role of information. 6. Using Information to Categorize Customers

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Chapter 3 Service Strategy

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  1. Chapter 3Service Strategy

  2. Learning Objectives 1. Formulate a strategic service vision. 2. Competitive environment of services. 3. Three generic service strategies. 4. Service purchase decision. 5. Competitive role of information. 6. Using Information to Categorize Customers 7. 4 Stages in Competitiveness

  3. 1. Strategic Service Vision • Target Market Segments • Service Concepts • Operating Strategy • Service Delivery System ex. Southwest Airlines

  4. Southwest Airlines StrategicService Vision

  5. 2. Competitive Environment of Services (1) Relatively Low Overall Entry Barriers (2) Economies of Scale Limited (3) Erratic Sales Fluctuations (4) No Power Dealing with Buyers or Suppliers (5) Product Substitutions for Service (6) High Customer Loyalty (7) High Exit Barriers

  6. 3. Competitive Service Strategies (1) 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

  7. 3. Competitive Service Strategies (2) Differentiation • Making the Intangible Tangible (memorable) • Customizing the Standard Product • Reducing Perceived Risk • Giving Attention to Personnel Training • Controlling Quality

  8. 3. Competitive Service Strategies (3) Focus • Buyer Group (USAA insurance and military officers) • Service Offered (Shouldice Hospital and hernia patients) • Geographic Region (Austin Cable Vision and TV watchers)

  9. Target Strategic Advantage Low cost Uniqueness Entire Overall cost Differentiation Market leadership Market Focus Segment

  10. 4. 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)

  11. 4. Service Purchase Decision (1) Service Qualifier: To be taken seriously a certain level must be attained on the competitive dimension, as defined by other market players. (cleanliness for a fast food restaurant, safe aircraft for an airline) (2) Service Winner: The competitive dimension used to make the final choice among competitors. (price)

  12. 4. Service Purchase Decision (3) Service Loser: Failure to deliver at or above the expected level for a competitive dimension. (failure to repair auto: dependability, rude treatment: personalization, late delivery of package: speed)

  13. 5. Competitive Role of Information in Services Strategic Focus Competitive Use of Information On-line (Real time) Off-line (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)

  14. 5. The Virtual Value Chain 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”

  15. 5. 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)

  16. 6. Using Information to Categorize Customers • Coding grades customers. • Routing is used by call centers. • 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.

  17. 7. 4 Stages in Competitiveness 1. Available for service 2. Journeyman 3. Distinctive competence achieved 4. World-class service delivery

  18. 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. • 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?

  19. Interactive Class Exercise • The class divides and debates the proposition “Frequent flyer award programs are or are not anticompetitive.”

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