Overall Cost Leadership
An overall cost leadership strategy requires efficient-scale facilities, tight cost and overhead control, and often innovative technology as well. Having a low-cost position provides a defense against competition, because less efficient competitors will suffer first from competitive pressures. Implementing a low-cost strategy usually requires high capital investment in state-of-the-art equipment, aggressive pricing, and start-up losses to build market share. A cost leadership strategy sometimes can revolutionize an industry, as illustrated by the success of McDonald’s, Walmart, and Federal Express. Moreover, service firms have been able to achieve low-cost leadership using a variety of approaches.
Seeking Out Low-Cost Customers
Some customers cost less to serve than others, and they can be targeted by the service provider. For example, United Services Automobile Association (USAA) occupies a preeminent position among automobile insurers because it serves only military personnel and their families. This group also entails lower cost because its members, who are relatively nomadic, are accustomed to and willing to do business by telephone, mail, or online. Consequently, USAA is able to eliminate any need for the extensive sales force employed by traditional insurers. Another example of this strategy is provided by lowcost retailers such as Sam’s Wholesale Club and Costco, which target customers who are willing to buy in quantity, do without frills, and serve themselves.
Standardizing a Custom Service
Typically, income tax preparation is considered to be a customized service. H & R Block, however, has been successful in serving customers nationwide when only routine ta preparation is required. Also, storefront legal services and family health care centers are attractive means of delivering routine professional services at low cost. The key word here is routine. However, product substitution is always a danger (e.g., Turbo Tax).
Reducing the Personal Element in Service Delivery
The potentially high-risk strategy of reducing the personal element in service delivery can be accepted by customers if increased convenience results. For example, convenient access to ATMs has weaned customers from personal interaction with live tellers and, consequently, has reduced transaction costs for banks.
Reducing Network Costs
Unusual start-up costs are encountered by service firms that require a network to knit together providers and customers. Electric utilities, which have substantial fixed costs in transmission lines, provide the most obvious example. Federal Express conceived a unique approach to reducing network costs by using a hub-and-spoke network. By locating a hub in Memphis with state-of-the-art sorting technology, the overnight air-package carrier was able to serve the United States with no direct routes between the cities that it served. Each time a new city is added to the network, Federal Express only needs to add one more route to and from the hub instead of adding routes between all the cities served The efficiency of the hub-and-spoke network strategy has not been lost on passenger airline operators, either.
Taking Service Operations Offline
Many services, such as haircutting and passenger transportation, are inherently “online,” because they can only be performed with the customer present. For services in which the customer need not be present, the service transaction can be “decoupled,” with some content performed “offline.” For example, a shoe repair service could locate dispersed kiosks for customer drop-off/pick-up, thus consolidating orders for delivery to an off-site repair factory, which even could be located offshore. Performing services offline represents significant cost savings because of economies of scale from consolidation, low-cost facility location (e.g., American Airlines has one of its 800-number reservations centers located in the Caribbean), and absence of the customer in the system. In short, the decoupled service operation is run like a factory.
Differentiation
The essence of the differentiation strategy lies in creating a service that is perceived as being unique. Approaches to differentiation can take many forms: brand image (e.g., McDonald’s golden arches), technology (e.g., Sprint’s fiberoptics network), features (e.g., American Express’s complete travel services), customer service (e.g., Nordstrom’s reputation among department stores), dealer network (e.g., Century 21’s nationwide real estate presence), and other dimensions. A differentiation strategy does not ignore costs, but its primary thrust lies in creating customer loyalty. As illustrated here, differentiation to enhance the service often is achieved at some cost that the targeted customer is willingto pay.
Making the Intangible Tangible
By their very nature, services often are intangible and leave the customer with no physical reminder of the purchase. Recognizing the need to remind customers of their stay, many hotels now provide complimentary toiletry items with the hotel name prominently affixed. The Hartford Steam Boiler Inspection and Insurance Company writes insurance on industrial power plants, but this company has enhanced its service to include regular inspections and recommendations to managers for avoiding potential problems.
Customizing the Standard Product
Providing a customized touch may endear a firm to its customers at very little cost. A hotel operator who is able to address a guest by name can make an impression that translates into repeat business. Hair salons have added many personalizing features (e.g., personal stylist, juice bar, relaxed surroundings, mood music) to differentiate themselves from barbershops. Burger King’s efforts to promote a made-to-order policy is an attempt to differentiate itself from McDonald’s classic make-to-stock approach to fast-food service.
Reducing Perceived Risk
Lack of information about the purchase of a service creates a sense of risk-taking for many customers. Lacking knowledge or self-confidence about services such as auto repair, customers will seek out providers who take the extra time to explain the work to be done, present a clean and organized facility, and guarantee their work (e.g., Village Volvo). Customers often see the “peace of mind” that is engendered when this trusting relationship develops as being worth the extra expense.
Giving Attention to Personnel Training
Investment in personnel development and training that results in enhanced service quality is a competitive advantage that is difficult to replicate. Firms that lead their industries are known among competitors for the quality of their training programs. In some cases, these firms have established collegelike training centers (e.g., McDonald’s Hamburger University in Oak Brook, Illinois, near Chicago).
Controlling Quality
Delivering a consistent level of service quality at multiple sites with a labor-intensive system is a significant challenge. Firms have approached this problem in a variety of ways, including personnel training, explicit procedures, technology, limits on the scope of the service, direct supervision, and peer pressure, among others. For example, to ensure consistency, the Magic Pan chain of restaurants designed a foolproof machine to produce its famous crêpes. The question of service quality is further complicated by the potential gap between customer expectations and experiences.
An overall cost leadership strategy requires efficient-scale facilities, tight cost and overhead control, and often innovative technology as well. Having a low-cost position provides a defense against competition, because less efficient competitors will suffer first from competitive pressures. Implementing a low-cost strategy usually requires high capital investment in state-of-the-art equipment, aggressive pricing, and start-up losses to build market share. A cost leadership strategy sometimes can revolutionize an industry, as illustrated by the success of McDonald’s, Walmart, and Federal Express. Moreover, service firms have been able to achieve low-cost leadership using a variety of approaches.
Seeking Out Low-Cost Customers
Some customers cost less to serve than others, and they can be targeted by the service provider. For example, United Services Automobile Association (USAA) occupies a preeminent position among automobile insurers because it serves only military personnel and their families. This group also entails lower cost because its members, who are relatively nomadic, are accustomed to and willing to do business by telephone, mail, or online. Consequently, USAA is able to eliminate any need for the extensive sales force employed by traditional insurers. Another example of this strategy is provided by lowcost retailers such as Sam’s Wholesale Club and Costco, which target customers who are willing to buy in quantity, do without frills, and serve themselves.
Standardizing a Custom Service
Typically, income tax preparation is considered to be a customized service. H & R Block, however, has been successful in serving customers nationwide when only routine ta preparation is required. Also, storefront legal services and family health care centers are attractive means of delivering routine professional services at low cost. The key word here is routine. However, product substitution is always a danger (e.g., Turbo Tax).
Reducing the Personal Element in Service Delivery
The potentially high-risk strategy of reducing the personal element in service delivery can be accepted by customers if increased convenience results. For example, convenient access to ATMs has weaned customers from personal interaction with live tellers and, consequently, has reduced transaction costs for banks.
Reducing Network Costs
Unusual start-up costs are encountered by service firms that require a network to knit together providers and customers. Electric utilities, which have substantial fixed costs in transmission lines, provide the most obvious example. Federal Express conceived a unique approach to reducing network costs by using a hub-and-spoke network. By locating a hub in Memphis with state-of-the-art sorting technology, the overnight air-package carrier was able to serve the United States with no direct routes between the cities that it served. Each time a new city is added to the network, Federal Express only needs to add one more route to and from the hub instead of adding routes between all the cities served The efficiency of the hub-and-spoke network strategy has not been lost on passenger airline operators, either.
Taking Service Operations Offline
Many services, such as haircutting and passenger transportation, are inherently “online,” because they can only be performed with the customer present. For services in which the customer need not be present, the service transaction can be “decoupled,” with some content performed “offline.” For example, a shoe repair service could locate dispersed kiosks for customer drop-off/pick-up, thus consolidating orders for delivery to an off-site repair factory, which even could be located offshore. Performing services offline represents significant cost savings because of economies of scale from consolidation, low-cost facility location (e.g., American Airlines has one of its 800-number reservations centers located in the Caribbean), and absence of the customer in the system. In short, the decoupled service operation is run like a factory.
Differentiation
The essence of the differentiation strategy lies in creating a service that is perceived as being unique. Approaches to differentiation can take many forms: brand image (e.g., McDonald’s golden arches), technology (e.g., Sprint’s fiberoptics network), features (e.g., American Express’s complete travel services), customer service (e.g., Nordstrom’s reputation among department stores), dealer network (e.g., Century 21’s nationwide real estate presence), and other dimensions. A differentiation strategy does not ignore costs, but its primary thrust lies in creating customer loyalty. As illustrated here, differentiation to enhance the service often is achieved at some cost that the targeted customer is willingto pay.
Making the Intangible Tangible
By their very nature, services often are intangible and leave the customer with no physical reminder of the purchase. Recognizing the need to remind customers of their stay, many hotels now provide complimentary toiletry items with the hotel name prominently affixed. The Hartford Steam Boiler Inspection and Insurance Company writes insurance on industrial power plants, but this company has enhanced its service to include regular inspections and recommendations to managers for avoiding potential problems.
Customizing the Standard Product
Providing a customized touch may endear a firm to its customers at very little cost. A hotel operator who is able to address a guest by name can make an impression that translates into repeat business. Hair salons have added many personalizing features (e.g., personal stylist, juice bar, relaxed surroundings, mood music) to differentiate themselves from barbershops. Burger King’s efforts to promote a made-to-order policy is an attempt to differentiate itself from McDonald’s classic make-to-stock approach to fast-food service.
Reducing Perceived Risk
Lack of information about the purchase of a service creates a sense of risk-taking for many customers. Lacking knowledge or self-confidence about services such as auto repair, customers will seek out providers who take the extra time to explain the work to be done, present a clean and organized facility, and guarantee their work (e.g., Village Volvo). Customers often see the “peace of mind” that is engendered when this trusting relationship develops as being worth the extra expense.
Giving Attention to Personnel Training
Investment in personnel development and training that results in enhanced service quality is a competitive advantage that is difficult to replicate. Firms that lead their industries are known among competitors for the quality of their training programs. In some cases, these firms have established collegelike training centers (e.g., McDonald’s Hamburger University in Oak Brook, Illinois, near Chicago).
Controlling Quality
Delivering a consistent level of service quality at multiple sites with a labor-intensive system is a significant challenge. Firms have approached this problem in a variety of ways, including personnel training, explicit procedures, technology, limits on the scope of the service, direct supervision, and peer pressure, among others. For example, to ensure consistency, the Magic Pan chain of restaurants designed a foolproof machine to produce its famous crêpes. The question of service quality is further complicated by the potential gap between customer expectations and experiences.
No comments:
Post a Comment