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ADDINGVALUETHROUGHSERVICE:
STRATEGIESFORCOMPETITIVEADVANTAGE
DrChristopherLovelockYaleUniversityBeijingOverview
Successfactorsinservice-drivenbusinessesCreatingvalueforcustomersthroughserviceTheFlowerofService:coreandsupplementaryelementsCustomerloyaltycreatesvalueforthefirmSomestrategiestoimprovesuccessWhyEffectiveManagementofServices
WillBecomeMoreImportantforChina
MoredemandforservicesfromdomesticconsumersaspercapitaincomerisesTourismstimulatesdemandformanyservicesIncreasedsophisticationinmanufacturingmayinvolveemphasisonvalue-addedservicesEntryofinternationalservicefirmsintoChinesemarkettransfersexpertiseGovernmenteconomicandsocialpoliciesoftenemphasiseimprovedservicesTheManyFacesofServiceServiceisthecoreproductoftheindustry(e.g.,insurance,transport,hotels,banking)Servicesupplementsandaddsvaluetoamanufacturedgoodmanufacturerprovidesservicetoendusersintermediaryprovidestheservice(e.g.,retailer)Servicetointermediaries--helpthemtodoabetterjobsellingproductstoendusersServicetosuppliers--buildsrelationshipsandmakespurchaseranattractivecustomerInternalservices--withinfirmtootherdepartments,branches,employees(e.g.legal,accounting,humanresources)TenCharacteristicsofSuccessful
ServiceBusinessesClearstatementofmarketpositionrelativetocompetitorsandtargetcustomersEasytodobusinesswithforcustomersandsuppliersFocusonbuildingcustomerloyaltybycreatingvalueOpentoinnovationandnewwaysofworkingSeekcontinuousimprovementsonqualityandproductivityTenCharacteristicsofSuccessfulServiceBusinesses(cont)MakeintelligentuseoftechnologyInvestinrecruitment,training,andmotivationofemployeesActivelyseekfeedbackfromemployeesandcustomersExceptionalatanticipatingandresolvingproblemsTakealongtermview2
Successfactorsinservice-drivenbusinessesCreatingvalueforcustomersthroughservice
TheFlowerofService:coreandsupplementaryelementsCustomerloyaltycreatesvalueforthefirm
SomeStrategiestoImproveSuccessCreatingandKeepingCustomers:
ValueistheKey“Therecanbenocorporatestrategythatisnotmarketingoriented.Thepurposeofabusinessistocreateandkeepacustomer.Todothatyouhavetodothosethingsthatwillmakepeoplewanttodobusinesswithyou.”
THEODORELEVITT
THEMARKETINGIMAGINATIONHowPerceivedValueAffects
CustomerChoice
Customersrelatevalueofbenefitsreceivedfrom agoodorservicetothecostsofacquisition/usage“Badvalue”or“goodvalue”assessmentsrelateto netvalue
afterdeductingcostsfrombenefits
Customers’choicesareshapedby:whattheycanafford
(morethanjustmoney)howwellbenefitsofferedmatchtheirneedswhichcompetingalternativeoffersthehighestperceivednetvalue
PerceivedBenefitsPerceivedCostsTimeeEffortCustomersWeighPerceivedBenefitsagainstPerceivedCoststoAssess“NetValue”FiveTypesofCostsMoneyTimePhysicaleffortMentaleffortandnegativefeelingsSensoryburdensUnattractivesightsUnwantednoisesUncomfortablefeelNastytasteUnpleasantsmell“TimeisMoney”TherearenotimebillionairesBusypeoplehavelessdisposabletimeWeusethesameverbsfortimeandmoney:SpendSaveInvestLoseWasteAreyoustealingyourcustomers’’time?NetValue=(Benefits-Costs)NetvaluedrivesrelationshipsNetvalueisafunctionofbothcostsandbenefitsValuecanbeaddedorlostateachstepinservicedeliveryInacompetitivemarket,higherfinancialpricesmustbejustifiedby:morebenefitsand/orbetterqualityofbenefitsand/orlowertime,effort,andsensorycostsUnderstandingtheCustomerExperience:FlowchartingaHotelVisitCustomerActionsEmployeeActionsFace-to-faceFrontstagePhoneContactBackstageMakereservationRep.records,confirmsArriveCheck-inatreceptionDoormangreets,valettakescarEnterdataValetParksCarMakeupRoomRegisterguestdataReceptionistverifies,giveskeytoroomGotoroomBellhopleadswaytoroomwithbag,IncreasingNetValuebyReducingNon-financialCostsofServiceConsidereachstepindeliveryofserviceReducetimecostsofserviceateachstepwherecustomerseespassageoftimeasaburdenMinimizeunwantedpsychologicalcostsofserviceEliminateunwantedphysicalcostsofserviceDecreaseunpleasantsensorycostsofservice3Successfactorsinservice-drivenbusinessesCreatingvalueforcustomersthroughserviceTheFlowerofService:coreandsupplementaryelementsCustomerloyaltycreatesvalueforthefirmSomestrategiestoimprovesuccessTwoDefinitionsofService“Aserviceisanact,adeed,aperformance,ratherthananobjectorathing”LEONARDBERRY“Serviceisallactionsandreactionsthatcustomersperceivetheyhavepurchased”FEDERALEXPRESSCoreProductsandSupplementaryServicesMostfirmsoffercustomersapackageofbenefits:coreproduct(agoodoraservice)supplementaryservicesthataddvalueInmatureindustries,coreproductsoftenbecomecommoditiesSupplementaryserviceshelptodifferentiatecoreproductsandcreatecompetitiveadvantageWell-designedsupplementaryservicesmay:facilitateuseofcoreproductenhancecoreproductandaddbenefitsTheFlowerofService:
EightGroupsofSupplementaryServicesCoreInformationConsultationOrder-TakingHospitalityPaymentBillingExceptionsSafekeepingFacilitatingEnhancingKEY:HowWell-ExecutedSupplementaryServicesAddValueforCustomersEnablecustomerstoobtainmaximumbenefitsfromcoreproductAddnewbenefitsReduceunwantedcosts(e.g.timeandeffort)associatedwithpurchaseanduseofcoreproductMakeseller“easytodobusinesswith”DistinguishcoreproductfromcompetitionFacilitatingServices-InformationCoreCustomersoftenrequireinformationabouthowtoobtainanduseaproductorservice.TheymayalsoneedremindersanddocumentationFacilitatingServices-Order-TakingManygoodsandservicesmustbeorderedorreservedinadvance.CustomersneedtoknowwhatisavailableandmaywanttosecurecommitmenttodeliveryCoreFacilitatingServices-Billing“HowmuchdoIoweyou?””Customersdeserveclear,accurateandintelligiblebillsandstatementsCoreFacilitatingServices-PaymentCoreCustomersmaypayfasterandmorecheerfullyifyoumaketransactionssimpleandconvenientforthemEnhancingServices-ConsultationValuecanbeaddedtogoodsandservicesbyofferingadviceandconsultationthataretailoredtoeachcustomer’sneedsandsituationCoreEnhancingServices-HospitalityCustomerswhoinvesttimeandeffortinvisitingabusinessandusingitsservicesdeservetobetreatedaswelcomeguests(afterall,marketinginvitedthemthere!)CoreEnhancingServices-SafekeepingCustomersprefernottoworryaboutthepersonalpossessionsthattheybringwiththemtoaservicesite.Theyalsoexpectfirmstohelpthemgainfulladvantagefromgoodsthattheypurchaseorrent.CoreSafekeeping:ExamplesofSupplementaryServicesforManufacturedGoodsCaringforcustomers’’newpurchasesPackagingTransport,deliveryInstallationWorkunderwarrantyCaringforcustomers’’existingpossessionsCleaning,trouble-shooting,repairUpgradesStorageDisposalEnhancingServices-ExceptionsCustomersappreciatesomeflexibilityinabusinesswhentheymakespecialrequests.TheyexpecthelpwhennoteverythinggoesaccordingtoplanCoreOpportunitiestoUseInformationTechnologyExceptionsBillingPaymentInformationProcessesInformationConsultationSafekeepingPhysicalProcessesOrder-TakingCoreHospitalityKeyRolesforITinDeliveringSupplementaryServicesSpeedprocessestosavecustomerstimePermitaccessfromanywhere(convenience)SimplifyprocessestoreducementaleffortFacilitateself-serviceLeverageemployeeknowledge,skillsRemembercustomerpreferencesReduceproblems,correctthemfasterStreamlinebillingandpaymentsystems4Successfactorsinservice-drivenbusinessesCreatingvalueforcustomersthroughserviceTheFlowerofService:coreandsupplementaryelementsCustomerloyaltycreatesvalueforthefirmSomestrategiestoimprovesuccessTheValueofaCustomer“Thevalueofacustomerliesnotinthepurchasethathemakesatanygiventime,butinthethediscountedcashflowofallfuturepurchasesmadeduringhislifecycleasacustomer--ifheremainsloyal.Allthis,multipliedbythenumberoffriendstowhom,ifsatisfied,hemayrecommendtheproduct.”ERICMEYERL’EntrepriseProfitsGeneratedbyaLoyalCustomerIndustrialDistributionServicesSource:ReichheldandSasser$0$50$100$150$200AnnualProfitperCustomer12345YearofPatronageProfitsGeneratedbyaLoyalCustomerCreditCardSource:ReichheldandSasser($60)($40)($20)$0$20$40$60AnnualProfitperCustomer123456YearofpatronageProfitsGeneratedbyaLoyalCustomer:CarMaintenanceandRepairServicesSource:ReichheldandSasserWhatMakesLoyalCustomersMoreProfitable?TendtospendmoreasrelationshipdevelopsbusinesscustomersmaygrowlargermayconsolidatepurchasesfromonesupplierCostlesstoservelessneedforinformationandassistancemakefewermistakesRecommendationswinnewcustomersforfirm(actasunpaidsalespeople)Trustleadstowillingnesstopayregularpricesvs.shoppingfordiscountsWhyCustomersAreMoreProfitableoverTimeSource:ReichheldandSasserCalculatingCustomerValueValueatAcquisitionrevenues(applicationfee+initialpurchase)lesscosts(marketing+creditcheck+accountsetup)AnnualValue(calculateeachyear)revenues(annualaccountfee+sales+servicefees+valueofreferrals)lesscosts(accountmanagement+costofsales+write-offs)AreYOUloyal?IfSo,Why?Thinkofasmallbusiness,retailshop,orprofessionalofficethatyouhavepatronisedforsometime.Now,completethefollowingsentence:“Istickwithmy…-hairdresser/barber-drycleaner/laundry-servicegarage-accountantordentistbecause___________________________________”or“Ileftthemforanotherprovider,because....”HowCustomersSeeRelationalBenefitsinServiceIndustriesConfidencebenefitslessriskofsomethinggoingwrong,lessanxietyabilitytotrustproviderknowwhattoexpectgetfirm’’sbestservicelevelSocialbenefitsmutualrecognition,knownbynamefriendship,enjoymentofsocialaspectsSpecialtreatmentbenefitsbetterprices,discounts,extraserviceshigherprioritywithwaits,fasterserviceSource:Gwinner,GremlerandBitner5Successfactorsinservice-drivenbusinessesCreatingvalueforcustomersthroughserviceTheFlowerofService:coreandsupplementaryelementsCustomerloyaltycreatesvalueforthefirmSomestrategiestoimprovesuccessLearningMoreaboutCustomersWhatcostsdocustomersincurtouseourproducts?(money,time,effort,etc?)Whatsupplementaryservicessurroundeachofourcoreproducts?Howdoourofferings(andthecoststocustomers)comparetoourcompetition?Howmightwebestaddvalueforcustomers?Whichwillappealmoretoeachofourcustomersegments:greaterbenefitsorlowercosts?ImprovingValuebyEduca
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