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1、ADDING VALUE THROUGH SERVICE:STRATEGIES FOR COMPETITIVE ADVANTAGEDr Christopher LovelockYale UniversityBeijingOverview Success factors in service-driven businesses Creating value for customers through service The Flower of Service: core and supplementary elements Customer loyalty creates value for t

2、he firm Some strategies to improve successWhy Effective Management of Services Will Become More Important for China More demand for services from domestic consumers as per capita income rises Tourism stimulates demand for many services Increased sophistication in manufacturing may involve emphasis o

3、n value-added services Entry of international service firms into Chinese market transfers expertise Government economic and social policies often emphasise improved services The Many Faces of ServiceService is the core product of the industry (e.g., insurance, transport, hotels, banking)Service supp

4、lements and adds value to a manufactured good manufacturer provides service to end users intermediary provides the service (e.g., retailer) Service to intermediaries - help them to do a better job selling products to end usersService to suppliers - builds relationships and makes purchaser an attract

5、ive customerInternal services - within firm to other departments, branches, employees (e.g. legal, accounting, human resources)Ten Characteristics of Successful Service BusinessesClear statement of market position relative to competitors and target customersEasy to do business with for customers and

6、 suppliersFocus on building customer loyalty by creating valueOpen to innovation and new ways of workingSeek continuous improvements on quality and productivityTen Characteristics of Successful Service Businesses (cont)Make intelligent use of technologyInvest in recruitment, training, and motivation

7、 of employeesActively seek feedback from employees and customersExceptional at anticipating and resolving problemsTake a long term view2 Success factors in service-driven businesses Creating value for customers through service The Flower of Service: core and supplementary elements Customer loyalty c

8、reates value for the firm Some Strategies to Improve SuccessCreating and Keeping Customers:Value is the Key “There can be no corporate strategy that is not marketing oriented.The purpose of a business is to create and keep a customer. To do that you have to do those things that will make people want

9、 to do business with you.” THEODORE LEVITT THE MARKETING IMAGINATIONHow Perceived Value Affects Customer Choice Customers relate value of benefits received from a good or service to the costs of acquisition/usage “Bad value” or “good value” assessments relate to net value after deducting costs from

10、benefits Customers choices are shaped by:what they can afford (more than just money)how well benefits offered match their needswhich competing alternative offers the highest perceived net value Perceived BenefitsPerceivedCostsTimeeEffortCustomers Weigh Perceived Benefits against Perceived Costs to A

11、ssess “Net Value”Five Types of CostsMoney TimePhysical effortMental effort and negative feelingsSensory burdensUnattractive sightsUnwanted noisesUncomfortable feelNasty tasteUnpleasant smell“Time is Money”There are no time billionairesBusy people have less disposable timeWe use the same verbs for ti

12、me and money:SpendSaveInvestLoseWasteAre you stealing your customers time?Net Value = (Benefits - Costs)Net value drives relationships Net value is a function of both costs and benefitsValue can be added or lost at each step in service deliveryIn a competitive market, higher financial prices must be

13、 justified by: more benefits and/or better quality of benefits and/or lower time, effort, and sensory costsUnderstanding the Customer Experience:Flowcharting a Hotel Visit Customer Actions Employee Actions Face-to-face Front stage Phone ContactBackstage MakereservationRep. records, confirmsArriveChe

14、ck-in at reception Doorman greets, valet takes carEnter data Valet Parks CarMake up Room Register guest data Receptionist verifies, gives key to roomGo to roomBellhop leadsway to room with bag,Increasing Net Value by Reducing Non-financial Costs of ServiceConsider each step in delivery of serviceRed

15、uce time costs of service at each step where customer sees passage of time as a burdenMinimize unwanted psychological costs of service Eliminate unwanted physical costs of serviceDecrease unpleasant sensory costs of service3 Success factors in service-driven businesses Creating value for customers t

16、hrough service The Flower of Service: core and supplementary elements Customer loyalty creates value for the firm Some strategies to improve successTwo Definitions of Service“A service is an act, a deed, a performance, rather than an object or a thing” LEONARD BERRY“Service is all actions and reacti

17、ons that customers perceive they have purchased” FEDERAL EXPRESSCore Products and Supplementary ServicesMost firms offer customers a package of benefits:core product (a good or a service)supplementary services that add valueIn mature industries, core products often become commoditiesSupplementary se

18、rvices help to differentiate core products and create competitive advantageWell-designed supplementary services may:facilitate use of core productenhance core product and add benefitsThe Flower of Service:Eight Groups of Supplementary ServicesCoreInformationConsultationOrder-TakingHospitalityPayment

19、BillingExceptionsSafekeeping Facilitating EnhancingKEY:How Well-Executed Supplementary ServicesAdd Value for CustomersEnable customers to obtain maximum benefits from core productAdd new benefitsReduce unwanted costs (e.g. time and effort) associated with purchase and use of core productMake seller

20、“easy to do business with”Distinguish core product from competitionFacilitating Services - Information CoreCustomers often requireinformation about how toobtain and use a product orservice. They may alsoneed reminders anddocumentationFacilitating Services - Order-TakingMany goods and services must b

21、e ordered or reservedin advance. Customers need to know what is available andmay want to secure commitment to deliveryCoreFacilitating Services - Billing“How much do I owe you?”Customers deserve clear, accurate and intelligiblebills and statements CoreFacilitating Services - PaymentCoreCustomers may

22、 pay faster and more cheerfully if youmake transactions simpleand convenient for themEnhancing Services - Consultation Value can be added to goods and services by offering advice and consultation that are tailored to each customers needs and situationCoreEnhancing Services - HospitalityCustomers who

23、 invest time and effort in visiting abusiness and using itsservices deserve to betreated as welcome guests (after all, marketing invitedthem there!)CoreEnhancing Services - SafekeepingCustomers prefer not to worryabout the personal possessions that they bring with them to aservice site. They also ex

24、pect firms to helpthem gain full advantage fromgoods that they purchase or rent.CoreSafekeeping: Examples of Supplementary Services for Manufactured Goods Caring for customers new purchasesPackagingTransport, deliveryInstallationWork under warranty Caring for customers existing possessionsCleaning,

25、trouble-shooting, repairUpgradesStorageDisposal Enhancing Services - ExceptionsCustomers appreciate some flexibility in a businesswhen they make special requests. They expect helpwhen not everything goesaccording to planCoreOpportunities to UseInformation TechnologyExceptionsBillingPaymentInformatio

26、nProcessesInformationConsultationSafekeepingPhysical ProcessesOrder-TakingCoreHospitalityKey Roles for IT in Delivering Supplementary ServicesSpeed processes to save customers timePermit access from anywhere (convenience) Simplify processes to reduce mental effortFacilitate self-service Leverage emp

27、loyee knowledge, skillsRemember customer preferencesReduce problems, correct them faster Streamline billing and payment systems4 Success factors in service-driven businesses Creating value for customers through service The Flower of Service: core and supplementary elements Customer loyalty creates v

28、alue for the firm Some strategies to improve successThe Value of a Customer“The value of a customer lies not in the purchase that he makes at any given time, but in the the discounted cash flow of all future purchases made during his life cycle as a customer-if he remains loyal. All this, multiplied

29、 by the number of friends to whom, if satisfied, he may recommend the product.” ERIC MEYER LEntrepriseProfits Generated by a Loyal Customer Industrial Distribution ServicesSource: Reichheld and Sasser$0$50$100$150$200Annual Profit per Customer12345Year of PatronageProfits Generated by a Loyal Custom

30、erCredit CardSource: Reichheld and Sasser($60)($40)($20)$0$20$40$60Annual Profit per Customer123456Year of patronageProfits Generated by a Loyal Customer:Car Maintenance and Repair ServicesSource: Reichheld and SasserWhat Makes Loyal Customers More Profitable?Tend to spend more as relationship devel

31、opsbusiness customers may grow largermay consolidate purchases from one supplierCost less to serveless need for information and assistancemake fewer mistakes Recommendations win new customers for firm (act as unpaid sales people)Trust leads to willingness to pay regular prices vs. shopping for disco

32、untsWhy Customers Are More Profitable over TimeSource: Reichheld and SasserCalculating Customer ValueValue at Acquisitionrevenues (application fee + initial purchase)less costs (marketing +credit check + account set up)Annual Value (calculate each year)revenues (annual account fee + sales + service

33、fees + value of referrals)less costs (account management + cost of sales + write-offs)Are YOU loyal? If So, Why?Think of a small business, retail shop, or professional office that you have patronised for some time.Now, complete the following sentence:“ I stick with my- hairdresser/barber- dry cleane

34、r/laundry- service garage- accountant or dentist because _” or “I left them for another provider, because.”How Customers See Relational Benefits in Service IndustriesConfidence benefitsless risk of something going wrong, less anxietyability to trust providerknow what to expectget firms best service

35、levelSocial benefitsmutual recognition, known by namefriendship, enjoyment of social aspectsSpecial treatment benefitsbetter prices, discounts, extra serviceshigher priority with waits, faster service Source: Gwinner, Gremler and Bitner 5 Success factors in service-driven businesses Creating value f

36、or customers through service The Flower of Service: core and supplementary elements Customer loyalty creates value for the firm Some strategies to improve successLearning More about CustomersWhat costs do customers incur to use our products? (money, time, effort, etc?)What supplementary services sur

37、round each of our core products? How do our offerings (and the costs to customers) compare to our competition? How might we best add value for customers?Which will appeal more to each of our customer segments: greater benefits or lower costs? Improving Value by Educating Employees and Customers to Be Better

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