Service Strategy,

New Service Development,

and Technology in Services
MD254
Service Operations
Professor Joy Field

Strategic Service Vision

Target Market Segments

What are common characteristics of

important market segments?
What dimensions can be used to segment
the market (e.g. 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

What are important elements of the service to be

provided, stated in terms of results produced for
customers (i.e., how is value created for the
customer)?
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:

structural and managerial decisions and interfaces
with other functional areas?
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,
etc.?

Strategic Service Vision

Service Delivery System

How is the service delivery system

implemented, including: role of people,
technology, equipment, layout, procedures?
What capacity does it provide, normally, at
peak levels?
To what extent does the service delivery
system help insure quality standards,
differentiate the service from competition,
provide barriers to entry by competitors?

Competitive Environment of
Services

How do each of these factors affect the

competitiveness of service firms?

Entry Barriers
Economies of Scale
Sales Fluctuations
Power Dealing with Buyers or Suppliers
Product Substitutions for Service
Customer Loyalty
Exit Barriers

Examples of Competitive
Priorities

Availability
(24 hour ATM)
Convenience (Site location)
Dependability (On-time performance)
Customization
(Personalization)
Price
(Quality surrogate)
Quality (Perceptions important)
Reputation (Word-of-mouth)
Safety (Customer well-being)
Speed (Avoid excessive waiting)

Winning Customers in the

Marketplace

Service Qualifier

Service Winner

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.
The competitive dimension used to make the final choice
among competitors. Example is price.

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

Creation of barriers to
entry

Reservation systems
Frequent use club
Switching costs

Revenue generation

Yield management
Point of sale
Expert systems

Database asset

Selling information
Developing services
Micromarketing

Productivity
enhancement

Inventory status
Determining relative
efficiency and
productivity
improvement levers

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. medical records)
Reliability (e.g. credit report)

Service Design Elements

Structural

Delivery system: Process structure, service blueprint, strategic

positioning
Facility design: Servicescapes, architecture, process flows,
layout
Location: Geographic demand, site selection, location strategy
Capacity planning: Strategic role, queuing models, planning
criteria

Managerial

Information: Technology, scalability, use of Internet

Quality: Measurement, design quality, recovery, tools, Six Sigma
Service encounter: Encounter triad, culture, supply relationships,
outsourcing
Managing capacity and demand: Strategies, yield management,
queue management

Customer Value Equation

Results produced for the customer Process quality
Value
Price to the customer Costs of acquiring the service

Results produced for the customer

Process quality
Price to the customer
Cost of acquiring the service

Hotel Service Blueprint

Strategic Positioning through

Process Structure

Degree of Complexity

Measured by the number of steps in the service

blueprint. For example, a medical clinic is less
complex than a general hospital.

Degree of Divergence

Amount of discretion permitted the server to

customize the service. For example, a high-end
vs. low-end hotel has more personalized services.

Generic Approaches to Service

Production Line
Design

Limit Discretion of Personnel

Division of Labor
Substitute Technology for People
Standardize the Service (low divergence)
Customer as Co-Producer
Self-Service (matching capacity with demand)
Smoothing Service Demand (appointments, reservations, waiting)
Customer-Generated Content

Customer Contact

Degree of Customer Contact

Separation of High and Low Contact Operations
Sales Opportunity and Service Delivery Options (channels)

Information Empowerment

Employee empowerment
Customer empowerment

Role of Technology in the Service

Encounter
Technology

Customer

Technology

Server

A.Technology-Free
ServiceEncounter

Customer

Technology

Server

B.Technology-Assisted
ServiceEncounter

Technology

Customer

Customer

C.Technology-Facilitated
ServiceEncounter

Technology

Server

D.Technology-Mediated
ServiceEncounter

Customer

Server

Server

E.Technology-Generated
ServiceEncounter

Technology Convergence
Enabling E-Business

Internet
Global telephone system
Communications standard TCP/IP
Addressing system of URLs
Personal computers and cable TV
Customer databases
Sound and graphics
User-friendly free browser

Uses for Websites

Retail channel (amazon.com)

Supplemental channel (Barnes & Noble)
Technical support (Dell Computer)
Embellish existing service (HBS Press)
Process orders (Delta Airline)
Convey information (Kelly Blue Book)
Communicate with membership (POMS.org)
Play games (addictinggames.com)

E-Business Models

Content Provider: Reuters

Direct-to-Customer: Dell
Full-Service Provider: GE Supply Co.
Intermediary: eBay
Shared Infrastructure: SABRE
Value Net Integrator: 7-Eleven Japan
Virtual Community: Monster.com
Whole-of-Enterprise: Government

Economics of E-Business

Sources of Revenue

Transaction fees
Information and advice
Fees for services and commissions
Advertising and listing fees
Ownership of customer data

Sources of Cost Reduction

Efficiencies (self-service)
Scalability
Network effects

Challenges of Adopting
New Technologies in Services

Loss of personal attention

Customer acceptance
Customer skills
Tradeoffs (e.g. convenience vs. cost or time)
Standardization (e.g. RFID)
Lack of patent protection impedes innovation