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.

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.