Service strategy

Service strategy 1 chose a service or product a explain what is the service or the product? Leung/MS4353/MS5423/Fall2015 1 MS 4353 / 5423 Service Strategy and Competitiveness Competitive Factors in Service Business In the previous lecture, we discussed the service classification scheme (i.e., the service process/positioning matrix) and how to apply it efficiently (in terms of cost and operation) and effectively (toward our customer base and co rporate expansion or downsizing).  We also examined various factors associated with the degree of labor-capital intensity and level of interaction. This should help us to allocate the financial resources in order to achieve our expected goals for service quality. In this lecture, we use the concepts and implementation ideas learned in previous classes to develop or enhance our service business strategies.  Remember, our basic objective is to gain competitive advantage over our competitors.  First of all, let us examine the factors a service business may face in a competitive environment.  Please keep in mind that some of these factors may or may not be applicable to a certain business.  You have to use your own judgment to determine the relevancy. Demand uncertainty Service operations usually suffer a higher degree of uncertainty but some businesses may see a more (or less) prominent effect than the others.  Given this inevitable issue, the idea is how to hedge against a highly uncertain or unexpected demand. Erratic sales fluctuation Even demand is roughly predictable to a certain extent, the sales may still experience wide fluctuation, not to mention that demand may not completely translate into sales (revenue). Again, this stems from the basic characteristics of “service” in that customers are co-producer and part of the service operating system.  Erratic fluctuation is more difficult to manage than uncertain demand because a matching of supply level with demand is hard to achieve. Low entry barrier Some generic services can be easily replaced by rivals’ while specialized or customized services cannot.  It has a connection to the relative locations of the company and its rivals on the service process matrix.  Application of proper service strategies can alleviate this issue. This is basically “weeding” tactic. Leung/MS4353/MS5423/Fall2015 2 Potentially high exit barrier The nature of some services lead to higher exit barrier.  However, it can be used as a strategic advantage against potential rivals if properly applied. This is essentially scare tactic. Service substitution Service substitution means how easily the service(s) can be replaced by others. For services which experience high degree of substitution, being able to meet demand is very crucial to the business.  Creating customization or specialization is another way to reduce the detrimental impact.  Again, it is related to the relative positions on the service process matrix. Customer loyalty Customer loyalty is more of the counter measure to alleviate demand uncertainty, erratic sales fluctuation, and the negative impact of easy service substitution. Minimal economies of scale Certain service operations are not efficient or cost effective unless they attain a certain minimum level of economy of scale.  Usually, they belong to service factory and service shop on the service process matrix.  What are the implications?  From an accounting perspective, it means a high fixed to variable ratio and a lower contribution margin. Be aware that a contribution margin is not the same as a profit margin.