Dr Christopher Lovelockpt 4.ppt

ADDINGVALUETHROUGHSERVICE STRATEGIESFORCOMPETITIVEADVANTAGE DrChristopherLovelockYaleUniversityBeijing16September2002 Overview Successfactorsinservice drivenbusinessesCreatingvalueforcustomersthroughserviceTheFlowerofService coreandsupplementaryelementsCustomerloyaltycreatesvalueforthefirmSomestrategiestoimprovesuccess WhyEffectiveManagementofServicesWillBecomeMoreImportantforChina MoredemandforservicesfromdomesticconsumersaspercapitaincomerisesTourismstimulatesdemandformanyservicesIncreasedsophisticationinmanufacturingmayinvolveemphasisonvalue addedservicesEntryofinternationalservicefirmsintoChinesemarkettransfersexpertiseGovernmenteconomicandsocialpoliciesoftenemphasiseimprovedservices TheManyFacesofService Serviceisthecoreproductoftheindustry e g insurance transport hotels banking Servicesupplementsandaddsvaluetoamanufacturedgoodmanufacturerprovidesservicetoendusersintermediaryprovidestheservice e g retailer Servicetointermediaries helpthemtodoabetterjobsellingproductstoendusersServicetosuppliers buildsrelationshipsandmakespurchaseranattractivecustomerInternalservices withinfirmtootherdepartments branches employees e g legal accounting humanresources TenCharacteristicsofSuccessfulServiceBusinesses ClearstatementofmarketpositionrelativetocompetitorsandtargetcustomersEasytodobusinesswithforcustomersandsuppliersFocusonbuildingcustomerloyaltybycreatingvalueOpentoinnovationandnewwaysofworkingSeekcontinuousimprovementsonqualityandproductivity TenCharacteristicsofSuccessfulServiceBusinesses cont MakeintelligentuseoftechnologyInvestinrecruitment training andmotivationofemployeesActivelyseekfeedbackfromemployeesandcustomersExceptionalatanticipatingandresolvingproblemsTakealongtermview 2 Successfactorsinservice drivenbusinessesCreatingvalueforcustomersthroughserviceTheFlowerofService coreandsupplementaryelementsCustomerloyaltycreatesvalueforthefirmSomeStrategiestoImproveSuccess CreatingandKeepingCustomers ValueistheKey Therecanbenocorporatestrategythatisnotmarketingoriented Thepurposeofabusinessistocreateandkeepacustomer Todothatyouhavetodothosethingsthatwillmakepeoplewanttodobusinesswithyou THEODORELEVITTTHEMARKETINGIMAGINATION HowPerceivedValueAffectsCustomerChoice Customersrelatevalueofbenefitsreceivedfromagoodorservicetothecostsofacquisition usage Badvalue or goodvalue assessmentsrelatetonetvalueafterdeductingcostsfrombenefitsCustomers choicesareshapedby whattheycanafford morethanjustmoney howwellbenefitsofferedmatchtheirneedswhichcompetingalternativeoffersthehighestperceivednetvalue PerceivedBenefits P e r c e i v e d Costs Time e Effort CustomersWeighPerceivedBenefitsagainstPerceivedCoststoAssess NetValue FiveTypesofCosts MoneyTimePhysicaleffortMentaleffortandnegativefeelingsSensoryburdensUnattractivesightsUnwantednoisesUncomfortablefeelNastytasteUnpleasantsmell TimeisMoney TherearenotimebillionairesBusypeoplehavelessdisposabletimeWeusethesameverbsfortimeandmoney SpendSaveInvestLoseWasteAreyoustealingyourcustomers time NetValue Benefits Costs NetvaluedrivesrelationshipsNetvalueisafunctionofbothcostsandbenefitsValuecanbeaddedorlostateachstepinservicedeliveryInacompetitivemarket higherfinancialpricesmustbejustifiedby morebenefitsand orbetterqualityofbenefitsand orlowertime effort andsensorycosts UnderstandingtheCustomerExperience FlowchartingaHotelVisit Customer Actions EmployeeActionsFace to face Frontstage PhoneContact Backstage Make reservation Rep records confirms Arrive Check in atreception Doormangreets valettakescar Enterdata ValetParksCar MakeupRoom Registerguestdata Receptionistverifies giveskeytoroom Gotoroom Bellhopleadswaytoroomwithbag IncreasingNetValuebyReducingNon financialCostsofService ConsidereachstepindeliveryofserviceReducetimecostsofserviceateachstepwherecustomerseespassageoftimeasaburdenMinimizeunwantedpsychologicalcostsofserviceEliminateunwantedphysicalcostsofserviceDecreaseunpleasantsensorycostsofservice 3 Successfactorsinservice drivenbusinessesCreatingvalueforcustomersthroughserviceTheFlowerofService coreandsupplementaryelementsCustomerloyaltycreatesvalueforthefirmSomestrategiestoimprovesuccess TwoDefinitionsofService Aserviceisanact adeed aperformance ratherthananobjectorathing LEONARDBERRY Serviceisallactionsandreactionsthatcustomersperceivetheyhavepurchased FEDERALEXPRESS CoreProductsandSupplementaryServices Mostfirmsoffercustomersapackageofbenefits coreproduct agoodoraservice supplementaryservicesthataddvalueInmatureindustries coreproductsoftenbecomecommoditiesSupplementaryserviceshelptodifferentiatecoreproductsandcreatecompetitiveadvantageWell designedsupplementaryservicesmay facilitateuseofcoreproductenhancecoreproductandaddbenefits TheFlowerofService EightGroupsofSupplementaryServices Core Information Consultation Order Taking Hospitality Payment Billing Exceptions Safekeeping Facilitating Enhancing KEY HowWell ExecutedSupplementaryServicesAddValueforCustomers EnablecustomerstoobtainmaximumbenefitsfromcoreproductAddnewbenefitsReduceunwantedcosts e g timeandeffort associatedwithpurchaseanduseofcoreproductMakeseller easytodobusinesswith Distinguishcoreproductfromcompetition FacilitatingServices Information Core Customersoftenrequireinformationabouthowtoobtainanduseaproductorservice Theymayalsoneedremindersanddocumentation FacilitatingServices Order Taking Manygoodsandservicesmustbeorderedorreservedinadvance Customersneedtoknowwhatisavailableandmaywanttosecurecommitmenttodelivery Core FacilitatingServices Billing HowmuchdoIoweyou Customersdeserveclear accurateandintelligiblebillsandstatements Core FacilitatingServices Payment Core Customersmaypayfasterandmorecheerfullyifyoumaketransactionssimpleandconvenientforthem EnhancingServices Consultation Valuecanbeaddedtogoodsandservicesbyofferingadviceandconsultationthataretailoredtoeachcustomer sneedsandsituation Core EnhancingServices Hospitality Customerswhoinvesttimeandeffortinvisitingabusinessandusingitsservicesdeservetobetreatedaswelcomeguests afterall marketinginvitedthemthere Core EnhancingServices Safekeeping Customersprefernottoworryaboutthepersonalpossessionsthattheybringwiththemtoaservicesite Theyalsoexpectfirmstohelpthemgainfulladvantagefromgoodsthattheypurchaseorrent Core Safekeeping ExamplesofSupplementaryServicesforManufacturedGoods Caringforcustomers newpurchasesPackagingTransport deliveryInstallationWorkunderwarrantyCaringforcustomers existingpossessionsCleaning trouble shooting repairUpgradesStorageDisposal EnhancingServices Exceptions Customersappreciatesomeflexibilityinabusinesswhentheymakespecialrequests Theyexpecthelpwhennoteverythinggoesaccordingtoplan Core OpportunitiestoUseInformationTechnology Exceptions Billing Payment InformationProcesses Information Consultation Safekeeping PhysicalProcesses Order Taking Core Hospitality KeyRolesforITinDeliveringSupplementaryServices SpeedprocessestosavecustomerstimePermitaccessfromanywhere convenience SimplifyprocessestoreducementaleffortFacilitateself serviceLeverageemployeeknowledge skillsRemembercustomerpreferencesReduceproblems correctthemfasterStreamlinebillingandpaymentsystems 4 Successfactorsinservice drivenbusinessesCreatingvalueforcustomersthroughserviceTheFlowerofService coreandsupplementaryelementsCustomerloyaltycreatesvalueforthefirmSomestrategiestoimprovesuccess TheValueofaCustomer Thevalueofacustomerliesnotinthepurchasethathemakesatanygiventime butinthethediscountedcashflowofallfuturepurchasesmadeduringhislifecycleasacustomer ifheremainsloyal Allthis multipliedbythenumberoffriendstowhom ifsatisfied hemayrecommendtheproduct ERICMEYERL Entreprise ProfitsGeneratedbyaLoyalCustomerIndustrialDistributionServices Source ReichheldandSasser ProfitsGeneratedbyaLoyalCustomerCreditCard Source ReichheldandSasser ProfitsGeneratedbyaLoyalCustomer CarMaintenanceandRepairServices Source ReichheldandSasser WhatMakesLoyalCustomersMoreProfitable TendtospendmoreasrelationshipdevelopsbusinesscustomersmaygrowlargermayconsolidatepurchasesfromonesupplierCostlesstoservelessneedforinformationandassistancemakefewermistakesRecommendationswinnewcustomersforfirm actasunpaidsalespeople Trustleadstowillingnesstopayregularpricesvs shoppingfordiscounts WhyCustomersAreMoreProfitableoverTime Source ReichheldandSasser CalculatingCustomerValue ValueatAcquisitionrevenues 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 HowCustomersSeeRelationalBenefitsinServiceIndustries Confidencebenefitslessriskofsomethinggoingwrong lessanxietyabilitytotrustproviderknowwhattoexpectgetfirm sbestservicelevelSocialbenefitsmutualrecognition knownbynamefriendship enjoymentofsocialaspectsSpecialtreatmentbenefitsbetterprices discounts extraserviceshigherprioritywithwaits fasterservice Source Gwinner GremlerandBitner 5 Successfactorsinservice drivenbusinessesCreatingvalueforcustomersthroughserviceTheFlowerofService coreandsupplementaryelementsCustomerloyaltycreatesvalueforthefirmSomestrategiestoimprovesuccess LearningMoreaboutCustomers Whatcostsdocustomersincurtouseourproducts money time effort etc Whatsupplementaryservicessurroundeachofourcoreproducts Howdoourofferings andthecoststocustomers comparetoourcompetition Howmightwebestaddvalueforcustomers Whichwillappealmoretoeachofourcustomersegments greaterbenefitsorlowercosts ImprovingValuebyEducatingEmployeesandCustomerstoBeBetterPerformers Tr