Strategic Positioning

Chapter 2

Strategic Service Vision

Target market
May result in different treatment of different customers All employees must understand target market

Service concept
Why customers choose a particular firm
Motivation can be emotional or physical

Chapter 2 - Strategic Positioning

Strategic Service Vision

Operating strategy
How should the firm be structured to produce the service concept? How should resources be allocated?

Service delivery system

Specific decisions made by the firm regarding personnel, procedures, equipment, capacity, facilities, etc.

Chapter 2 - Strategic Positioning

Strategic Service Vision

Ideally, a service delivery system should support the operating strategy, which should support the service concept, which supports the target market
Target Market Service Concept

Operating Strategy

Service Delivery System

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Capacity Strategies
Capacity issues in services are:
More complex than in manufacturing Timing may be important, for example if there are peaks in demand at different times of day More critical than in manufacturing
Often no backorders can occur Excess capacity may be perishable

An imbalance in supply and demand can result in lost sales or idle employees

Chapter 2 - Strategic Positioning

Capacity Strategies
Provide: Ensure sufficient capacity at all times
High quality/high cost; greater amount of idle time for employees

Match: Change capacity as needed

Balance quality/cost; part-time workers

Influence: Alter demand patterns to fit firm capacity

Pricing, marketing and appointment systems

Control: Maximize capacity utilization

Compete on cost by driving idle time to zero
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Techniques for managing capacity

Work-shift scheduling Increased customer participation Adjustable (surge) capacity Shared capacity Partitioned demand Price incentives for and promotion of off-peak demand Development of complementary services Yield management
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Retail Design Strategies

Store sizes have been increasing over the last decade
Supermarkets:
50K sq. ft. now vs. 20K in the 1980s 40,000 SKUs vs. 6,000 in the 1980s

WalMarts
200K sq. ft. vs. 70K in the 1980s

Chapter 2 - Strategic Positioning

Why larger stores?

Marketing Motivation
Increased revenue/sq. ft. due to a greater pull of customers One stop shopping for dual income families
Grocery stores have banks, pharmacies, flowers, etc.

Operational Motivation
Fewer employees per customer are required for a given service quality. Lower inventory carrying costs and distribution costs

Chapter 2 - Strategic Positioning

An Alternative: A Small Store Strategy

Managing stores as a network is critical
Blanket a given geographical area Multiple locations reduce travel time for customers Small stores reduce shopping times Distribution costs are low because stores are close to one another Labor can move from location to location Flexible job descriptions reduce idle time

Chapter 2 - Strategic Positioning

Managing for Growth

Multi-site Service Firm Life Cycle

Entrepreneurial

Multi-site Rationalization

Growth

Maturity

Decline/ Regeneration

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Managing Growth Skill Sets

Entrepreneurial Charismatic leader Local marketing and PR Innovation and development of service strategy Employees typically underpaid with little stability Multi-site rationalization Selection of dominant paradigm for marketing, operations and HR Standardization or procedures Growth Operations and design are already set Sell concept to consumer and managerial audiences Wider scale advertising Maturity Maintaining market position and awareness and keeping concept fresh Maintaining standards and operating control Keeping employees motivated Decline/ Regeneration Revising service concept and implementing revisions over a large network Requires charismatic leader

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Growth Strategies
Industry Roll-Ups
Use stock to buy up dozens of small firms in a fragmented industry Gain synergies when once-competing firms share facilities, supplies, marketing expenses and operational expertise

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Franchising
A self-financing growth strategy
Franchisees pay an up-front fee and a percentage of gross revenue

Can limit profitability because a large portion of the profits go to the franchisee
Firms may buy back mature franchises

Common in international expansion

Bypass ethical walls/US Foreign Corrupt Practices Act

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Challenges of Franchising
Channel conflict
For example, retail outlets may oppose the introduction of on-line channels

Operational control issues

Franchisees may oppose changes initiated at the firm level Franchisers cannot dictate retail prices or require that franchisees purchase supplies from the franchiser

Franchisers providing on-going value

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Franchising Agreements
Passive ownership
Franchisees are not actively involved in the operations of the franchise

Master franchise agreements

Allows an individual or corporate group other than the firm to award franchises

Fee structure
Average of $20,000 fee + 7% royalties Can affect the ability to monitor free-riders or brand shirkers

Geographic protection for franchisees

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