Service Strategy and Market Positioning

Presentation
by
Dr. Mohammad Akhtar

PhD (Strategic Management), GGSIP University, Delhi

B.Tech, M. Tech (Ind. Eng.& Management), IIT(ISM), Dhanbad
PG Diploma in Computer Application, Mumbai University
Certified Project Management Professional (PMP) & OCP
Life member CSI and GIFT

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 Strategy
Planning in Time Horizon:
• Long Term: 1-3 years (earlier 5-10 years): Strategic Plan
• Medium Term: 15 days to 3 months: Aggregate Plans
• Short Term: day to day management: Operations Plans

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 Strategy
Strategy definition:
• Strategy as competitive position, “deliberately choosing a
different set of activities to deliver a unique mix of value
(Michael Porter).
• A business strategy creates a vision and direction for the whole
organisation.
• A strategy can provide this vision and prevent individuals from
losing sight of their company's aims.
• Strategy prepare the organization for the intended future state.
• Strategic planning can therefore help organization develop the
right goals and targets and help everyone focus their efforts into
meeting them.
– Where you want firm to be in the business sector/industry (competitive
Environment)?
– How you want to achieve that?
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Strategy

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 Strategic Planning Processes for Services
.

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 Strategic Planning Processes for Services
Service Strategic Planning Processes:
1. Strategic Positioning
Sets out corporate level mission, objectives and goals.
How it will compete ?
What market it will serve ?
How it will distinguish its service from competitor ? REFER Slide
2. Service Strategy
Translating strategic positioning decisions into operational plan.
Decision on capacity, facility location, size, growth strategy,
employee skills, inventory.
3. Tactical Execution
Execution of service strategy. Decisions are supplier selection,
staff hiring & training, inventory management, franchisee.
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Example: Two Different Strategies and Operating System

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 Strategic Planning Processes for Services …
1. Strategic Positioning:
• Industry and Competitor Analysis Approach to
Strategy:
SWOT, PESTEL, Porter 5-Forces model

• Core Competence / Resource View Based approach to

Strategy:
Core competency must meet 3 conditions:
 Provide access to wide potential markets
 Contribute to customer’s perception of service benefits
 Difficult to imitate (copy) by other competitors

REFER Table 2.2 & Table 2.3 Metters

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Industry/Competitor Analysis approach to Strategic Consistency

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Core Competence/RBS Approach to Strategic Consistency

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 Strategic Planning Processes for Services …
2. Service Strategy:
This involves setting service concept, operating strategy, service
delivery system (same as Strategic Service Vision, Heskett et al).
i. Determine competitive priorities, Order Qualifiers and
Order Winners
Competitive priorities are Cost, Quality (conformance or
high-performance), Time (development and delivery speed,
on-time delivery), Service, Flexibility (volume flexibility and
customisation), natural environment .
ii. Service Concept
iii. Operating Strategy
iv. Service delivery system

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 Strategic Service Vision
Strategic Service Vision: (James L. Heskett, 1986)
It consist of four category elements:
1. Target Market segment
2. Service Concept,
3. Operating Strategy,
4. Service Delivery system,

Strategic Service Vision framework:

REFER Next Slide
Framework is in form of questions to be asked from left to
right.
For start-up, ask question right-Left.
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 Strategic Service Vision …
i. 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?
2-13
 Strategic Service Vision …
ii. 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?

2-14
 Strategic Service Vision …

iii. Operating Strategy

• What are important elements of the strategy: operations,
financing, marketing, organization, human resources, control?

• On which most effort will 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?
2-15
 Strategic Service Vision …
iv. Service Delivery System
• What are important features of the service delivery system
including:
– role of people,
– technology, equipment,
– layout,
– procedures

• What capacity , normally, at peak levels does it provide?

• To what extent does it help to ensure quality standards,

differentiate the service from competition, provide barriers to
entry by competitors?

2-16
Strategic Service Vision Framework

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 Strategic Service Vision Framework
Strategic Service Vision Framework:
Helps in planning to implement Service Vision including Service
Positioning, Leveraging value over cost, and Strategy system
integration.

REFER Next Slide

Framework is in form of questions to be asked from left to right.
For start-up, ask question right-left.

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 Strategic Service Vision Framework …
Table 3.1
 Strategic Service Vision Framework …
Service Positioning:
How firm differentiate from its competitors. Need to understand
customer’s needs, firm’s capabilities, competitor’s capabilities and
offerings, ability of service concept to meet customer’s needs.
Uniqueness may be in terms of cost, service features, advertising &
promotion, delivery system and distribution channel.

Leveraging Value over Cost:

A well-designed service provide unique benefit to customer and
hence creates more value to customer than competitors. A firm
value is leveraged over cost when perceived additional value in
dollar terms far exceeds cost of creating it. It can be achieved by
customising certain features valued by customer, standardisation,
service process quality, managing demand & supply.
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 Strategic Service Vision Framework …
Strategy System Integration:
Operating strategy must be consistent with delivery
system. It can be achieved by hiring policies, service
processes, and facilities, employee compensation &
reward.

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 EX: Southwest Airlines Strategic Service Vision
Service Delivery Operating Strategy Service Concept Target Market
System Segment

• Fun cabin • Quick turnaround • Short flights with • State of Texas

atmosphere to at gate results in frequent departures residents
differentiate high utilization of
service aircraft (more • Serve peanuts and • Business traveler
sorties) soft drinks only who drives by road
• Use only Boeing because of
737 aircraft to • No assigned • Use of inner-city or inadequate service
control seating rewards low traffic airports
maintenance and punctuality and avoids congestion • Inexpensive family
operating costs promotes on-time travel on weekends
performance • Carry-on luggage
• Hire cabin crew
based on attitude

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 Strategic Service Vision
Strategic Service Vision for South West Airlines.
Target Market Segments:
Inter-state travellers with carry-on luggage who are currently driving by
car &/or frustrated by poor service of major airlines to Texas.
Service Concept:
On-time performance and frequent departure are critical. Meals
unnecessary as short flight (<= 1 hr).
Operating Strategy:
Airport gate turnaround must be fast to make use of aircraft and
provide frequent departure.
Service Delivery System: Cabin crew interpersonal skills to create fund
atmosphere aboard aircraft. No assigned seat => ticket sale simple and
seating quick thus reducing gate turnaround. On-time performance and
luggage lost (no luggage) attainable.

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 Service Design Elements
Structural:
• Delivery system
• Facility location
• Facility design
• Capacity planning

Managerial:
• Service Encounter
• Quality
• Managing capacity and demand
• Information

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 Competitive Environment of Services
i. Relatively Low Entry Barrier:
Services not capital intensive in most cases and not patentable
(hence copied easily). However location can be entry barrier
(Hotel on best beach).

ii. Minimal Opportunity for Economy of Scale (EOS):

Necessary travel of customer or service limits market area.

iii. Erratic Sales Fluctuations:

Service demand varies with time of day / day of week,
seasonal, and random arrival.

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 Competitive Environment of Services …
iv. No Power dealing with Buyers/ Suppliers:
Small size of many service firms puts in disadvantage in
bargaining power with Buyer/Supplier.

v. Product Substitution:
Anticipate potential product substitution that might make
services obsolete.

vi. High Transportation Cost

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 Competitive Environment of Services …
vii. High Customer Loyalty:
Personalised services create loyal customer which may become
barrier to entry by new service.

viii. Strong Exit Barriers:

Marginal service firms may continue to operate despite low
profit. Viz. Antique shop, family business.

NEW Entrant must develop service strategy that will address

important competitive environment in that industry.

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 Competitive Service Strategies
Porter generic competitive strategies application in Service:
I. Overall Cost Leadership
II. Differentiation
III. Focus

I. Service Cost Leadership strategy:

It require efficient facilities, tight cost control, innovative
technology.
Require high capital investment in state-of-art equipment,
aggressive pricing, start-up losses to capture market share.

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 Competitive Service Strategies …
Ways to Achieve Overall Service Cost Leadership:
1. Seeking out Low-Cost Customers. Viz. Low end hospital, hotel

2. Standardising Customer service. Viz. family healthcare, Income Tax

filing for Employee service.

3. Reducing Personal Elements in Service Delivery:

Convenient use of ATM rather Teller in bank branches.

4. Reducing Network Costs:

Viz. FedEx use hub-and spoke network in reducing network cost

5. Taking Service Operations Offline:

Viz. Tailoring shop for taking order but major work done for stitching at
off-site tailoring factory.
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 Competitive Service Strategies …
II. Service Differentiation Strategy:
Creating a service that is perceived as unique at additional cost
(that customer is willing to pay) to create customer loyalty.
Differentiation in Service means being unique in :
• Brand image (McDonald’s golden arches).
• Technology (Airtel fiber optics network)
• Features
• Customer Service

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 Competitive Service Strategies …
How to Create Differentiation of Service:

• Making the Intangible Tangible (memorable) (e.g., Disney

Theme Parks; Adventure Island: Theme Amusement Park in
Delhi).

• Customizing the Standard Product (e.g., Burger King’s effort to

made-to-order policy, Javed Habib Hair salon personal styling)

• Reducing Perceived Risk (e.g., FedEx)

• Giving Attention to Personnel Training (e.g., McDonald’s

Hamburger University at Illinois)

• Controlling Quality
• (e.g., Shankar Netralaya Hospital)

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 Competitive Service Strategies …
III: FOCUS Strategy:
 Focused Cost leadership
 Focused Differentiation
• Serving a particular target market very well by addressing customer’s specific needs.

• Firm with focus strategy can serve its narrow target market more efficiently and
effectively than other firms trying to serve broad market. As a result firm achieve
differentiation in narrow market segments by meeting customer needs better &/or
lowering costs.

• It is application of Cost leadership &/or Differentiation to a particular market segment

Service Market Segments could be:

• Buyer Group: (e.g. USAA insurance and military officers)

• Service Offered: (e.g. Tata Memorial Cancer Hospital)

• Geographic Region: (e.g. Southwest airlines)

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 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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 Porter’s Five Forces Model

Potential New Entrants

- Barriers to entry
- Brand equity
- Capital requirements

Bargaining Power of Suppliers Competitive Rivalry Bargaining Power of

- Presence of substitute inputs within Industry Customers
- Threat of forward integration - Number of competitors - Buyer’s price sensitivity
- Uniqueness of inputs - Rate of industry growth - Customer volume
- Industry capacity - Information asymmetry

Threat of Substitutes
- Buyer propensity to substitute
- Buyer switching costs
- Product substitution for service

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Customer’s Criteria/Attributes for selecting a
Service Provider
CRITERIA EXAMPLE
• Availability (24 hour ATM) (8-10)

• 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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 Winning Customer in Marketplace
• Service Competitive Attributes:
i. Quality: The ability to provide service in accordance with
specification and without error.
ii. Speed: The ability to meet customer demands quickly. That is
offer short lead times between a customer and service received
(Responsiveness)
iii. Dependability: The ability to deliver services in accordance with
promises made to customers (e.g. in a quotation or other
published information).
iv. Cost: The ability to provide at low cost.
v. Flexibility: The ability to change service operations.
– The ability to change the volume of service.
– The ability to change the time taken to deliver.
– The ability to change the mix of different services offered.
– The ability to innovate and introduce new services.
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 Winning Customer in Marketplace
i. Service Qualifier Attribute:
The necessary attributes that allow a firm to compete in a
market.
ii. Service Winner Attribute:
Those attributes that differentiate a company’s products.
iii. Service Loser:
Defined by failure to deliver at or above the expected level for a
competitive dimension

Note: Service winner attribute can become industry qualifier

(changes over time).

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 Changing Competitive Priorities for World Class Manufacturing

1986 1996

Quality Quality
Flexibility

Flexibility
Competitive Competitive

Value
Cost
Priorities of Priorities of
WCM WCM

Delivery Speed
Weak companies are plagued by Trade-off obstacles.
WCMs have gained an upper hand over the trade-off obstacles.
 Winning Customer in Marketplace
• Service Qualifier attributes:
To be taken seriously, a certain level must be attained on the
competitive dimension, as defined by other market players,
Example:
 Cleanliness for a fast food restaurant
 Safe aircraft for an airline, Rating of pilots

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 Winning Customer in Marketplace
• Service Winner attributes:
The competitive dimension that is used to make the final choice
among competitors, e.g., price, convenience, reputation.
Example:
 Drive-in window for a fast food restaurant.
 For lunch, convenience can be convenience but for dinner
reputation of restaurant.

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 Winning Customer in Marketplace …
• Service Loser attributes:
Defined by failure to deliver at or above the expected level for a
competitive dimension, Example:
 Failure to repair auto (dependability),
 Rude treatment by a Doctor (personalization), or
 Late delivery of package by courier (speed).

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 Market Segmentation, Positioning and Targeting
i. Market Segment
• A market segment is a group of customer who have same/similar characteristics,
needs, buying behaviour.

• Identify customer group that has much similarity within group but dis-similarity
with other group w.r.t. relevant characteristics.
• Govt Hospital (free)
• Private Multi-Specialty Clinic (Rs. 300-500)
• Private Hospitals (Rs. 500-700)
• Branded Pvt. Hospital (Apollo, Sir Ganga Ram) (Rs. 1500-2000)

• High End SUV (15-25 lacs)

• Medium cars (6-9 lacs)
• Low end cars (Alto, 3-4 lacs)

Exh 6.4 Haksever

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 Market Segmentation Criteria
Market Segment

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Market Segmentation, Positioning and Targeting …
ii. Target Market:
Decide which group/groups of customers the firm is
equipped to serve with profit.

iii. Market Positioning

The firm should decide how to position its services in
minds of current and potential customers.

Service Management by Fitzsimmon and Fitzsimmon

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