Service Management: Operations, Strategy, Information Technology, 1st Edition Solution Manual

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Chapter 01-The Service Economy1-1CHAPTER1THE SERVICEECONOMYTEACHING NOTEThis introductory chapter is intended to motivate students and arouse their interest in the importance of services in oureconomy and career opportunities in the 21stCentury.Material on the "experience economy" illustrates the currenteconomic evolution beyond the postindustrial economy. The role of information technology, innovation, and changingdemographics in service sector growth can lead to speculation about the future.The chapter continues by answeringthe question “why study services” with a discussion of the distinctive characteristics of service operations.Thequestion of “what is a service” is answered with the service package and grouping services by delivery process usingthe "service process matrix."Service-dominant logic is presented as an alternative paradigm to the traditional goods-centered view of value creation. The open systems view of service management represents a departure from thetraditional role of the operations management found in manufacturing.SUPPLEMENTARY MATERIALS“The Hitchhiker’s Guide to Cybernomics:A Survey of the World Economy”,The Economist, September 28, 1996.A 46 page special insert loaded with figures and graphs that present the transformation from an industrial economy toa service economy driven by information technology. The article discusses new jobs, productivity, and the difficultyof measuring economic output when the metrics were designed for industrial production.Joseph Pine and James Gilmore, "Welcome to the Experience Economy,"Harvard Business Review, July-August1998, pp. 97-105.The authors describe the features of the emerging experience economy represented by firms such as the RainforestCafé that stage an experience rather than just deliver a service.James L. Heskett, " Lessons in the Service Sector”,Harvard Business Review, March-April 1987, pp. 118-129.This is a classic article articulating the need to integrate marketing and operations to achieve excellence in services.The author formulates a strategic service vision that is both internally directed (employees) and externally directed(customers).LECTURE OUTLINE1.Service Definitions2.Facilitating Role of Services in an Economy (Figure 1.1)3.Economic Evolution (Figure 1.2 and 1.3)4.Stages of Economic Development (Table 1.2)5.Nature of the Service Sector (Figure 1.4 and Figure 1.5)6.The Experience Economy (Table 1.3, Table 1.4, and Figure 1.6)7.Distinctive Characteristics of Service Operations

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Chapter 01-The Service Economy1-28.The Service Package (Figure 1.7 and Table 1.5)9.Grouping Services by Delivery Process (Figure 1.8 and Figure 1.9)10.Service-DominantLogic (Table 1.6)11.Open-Systems View of Service Operations Management (Figure 1.10)TOPICS FOR DISCUSSION1.Illustrate how the type of work that he or she does influences a person's lifestyle. For example, contrast a farmer,a factory worker, and a schoolteacher.A farmer's lifestyle is, to a certainextent, still influenced and conditioned by the elements, the weather, the quality ofthe soil, and the availability of water. Life is partly a game, but mostly it is a struggle against nature. The rhythm oflife is shaped by nature and the pace of work varies with the season.In the case of the factory worker, the struggle is against a fabricated nature: a world of cities, factories and tenements.Life is machine-paced (or at least appears to be).Efficiency is the watchword and productivity is its measure. Thestandard of living is measured by the quantity of goods a person has. The worker becomes just a part, a person in thebureaucratic and faceless organizations that spring up to achieve the task of production and distribution of thesegoods. The individual is the unit of social life, with society considered as the sum of all the individual decisions beingmade in the marketplace. Protection from the organization is often sought through labor unions.A schoolteacher interacts on a face-to-face basis with his/her students in an intellectual environment.A career inteaching involves continual reading in the subjects taught and searching for innovative ways to motivate students.Life is reflective, ordinarily not physically demanding, and work is conducted in a pleasant campus environment.2.Is it possible for an economy to be based entirely on services?Economies based on services only are exceptions and rare ones at that, e.g., Andorra and Liechtenstein, resort islandsin the South Pacific and the Caribbean, and Monte Carlo (gambling).Such countries must import their food,consumer goods, and durables.But as a rule, this cannot be done for larger economies where production of foodand/or goods is essential.3.What is the value of self-service in an economy?Measuring self-service is a problem in its own right and currently is not included in the GNP.A creativediscussionof methods to measure self-serviceindirectlywould include accounting for customer labor in transactions such asbuying a meal at a fast-food restaurant where you are expected to bus your own table or the savings in pumping yourown gas at a filling station. Self-service has additional value because the labor is presentonlywhen it is needed.InChapter 5 “Technology in Services” the topic of self-service technology (SST) will be explored.4.Determine if the U.S. service sectorcurrentlyis expanding or contracting based upon the Non-ManufacturingIndex(NMI)foundatISMReportonBusinessontheInstituteofSupplyManagementwebsite:http://www.ism.ws/pubs/ismmag/.

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Chapter 01-The Service Economy1-3The ISM Report of Business has a wealth of survey data from industry respondents on the current level of businessactivity for the month.The first table presents the ISM series index for the current and previous month for severalmeasures (e.g., new orders, employment, inventories, etc.).An index value above 50 indicates an expanding servicesector economy, below 50 a declining economy. The table also contains a measure of the index direction and rate ofchange.5.What are some of the management problems associated with allowing service employees to exercise judgment inmeeting customer needs?Some consistency and, therefore, perceived quality of servicemightbe lost when different employees handlesituations in different ways. Much more training of customer contact personnel is required to develop their decision-making skills and to provide them with the confidence to use their own judgment. Service personnel also need to betrained in the limits of the service that should be provided6.Critique the “Distinctive Characteristics of Service Operations” by arguing that the characteristics of, customerparticipation, simultaneity, perishablity, intangibility, and heterogeneity,mayapply togoods as well.The following analysis is based upon the article“The Four Service Marketing Myths: Remnants of a Goods-Based,Manufacturing Model,”Journal of Service Research, 6, no. 4, (May 2004), pp. 324-335 by Stephen L.Largo andRobert F. Lushc.Note how the arguments are a precursor of Service-DominantLogic.Customerparticipationin theserviceprocessThischaracteristicwasnotoneoftheoriginalfouruniquecharacteristics of services offered by our colleagues in marketing.Intaking a process perspective customerparticipationshould be expandedbeyond a physical presence in the process, for example, providing health history to aphysician, investing savings in a bank, orentrusting one’s automobile to a repair shop. Customer participation in theservice delivery process is the hallmark of all servicesbut could befoundin collaborative product designinmanufacturing.Interestingly the attempt to reduce customer-employee interaction through the promotion of self-service just reinforces the customer role as co-producer.SimultaneityIn an attempt to achieve manufacturing efficiencies, some services decouplepart ofthe deliveryprocessfrom the customer. The typical exampleis auto repair thatinvolves processing a customer’stangiblepossessionin afactory settingthat does not requirethe simultaneous presence of the customer.Most services such asrestaurants,banks, and hotels have a front and back office operation with part of the service produced in the back office wherecustomer demand can be batched and processed with manufacturing efficiency.PerishabilityThe concept that services cannot be produced at one point in time, inventoried, and later sold upondemand led to the concept of service perishability.However, service capability can be stored in systems, databases,knowledge, and peopleto be used when called upon.Infact, service capacity as measured, for example, in hotelrooms or airline seats is routinely referred to as inventory to be sold at a later date.Unlike manufacturing, servicecapacity is inventoried prior to production rather than after.Finally, when customers form a queue waiting forservice, one might consider thisto bean inventory of raw material.IntangibilityWith few exceptions,essentially all goods have a service component, whereas all services have somefacilitating goodsin the service package.Thus, goods and services can be placed on a continuum according to therelative degree of tangibility.For example, in the purchase of a home entertainment center the financing offered bythe store is a service. On a domestic airline flight, passengers in coach are offered a drink and peanuts.

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Chapter 01-The Service Economy1-4HeterogeneityProcess variability destroys efficiency and consistency in quality both in manufacturing and services.Standardization in services, such as limited menus at fast-food restaurants,isan attempt to reduceinputvariability. Inthe medical field, standardization of procedures has amajor impact on reducing infection and recurrence.INTERACTIVE CLASS EXERCISEThe class breaks into small groups. Each group identifies service firms that should be listed in the Fortune 100 andplaces them in rank order of estimated annual revenue.Post on the backboard the combinedresultsof the student groups. Bring to class anPowerPoint slide oroverhead ofthe most recent listing of theFortune 100to compare with the students’lists(seehttp://www.fortune.com).CASE: VILLAGE VOLVO1.Describe Village Volvo's service package.The following descriptions address the four elements of Village Volvo's service package:supporting facility,facilitating goods, explicit services, and implicit service.Supporting facilityThe new Butler building with ample service bays (two bays per mechanic) and comfortablewaiting room promotes the customer's positive perception of the organization.The suburban location could meandifficult access and the possible need for a shuttle.Facilitating goodsSpecialized tools and an inventory of select auto parts are obvious items in this element.InformationThe unique and possibly differentiating feature is the Custom Care Vehicle Dossier (CCVD), whichserves as a powerful information tool for both mechanic and customer. The CCVD acts as a prompt to the customerto seek continuing service in a pattern (based uponmileage or time). Analysis of customer patterns can assist VillageVolvo in predicting demand and scheduling its operations to make full use of capacity.Explicit servicesThe two owners of Village Volvo are former authorized Volvo dealer mechanics and have 22 yearsof combined experience between them.They have earned a respected reputation and satisfied customer following.Service availability is enhanced by the use of "express times" when customers can come in and get quick, routine jobsdone while they wait.Implicit servicesThe owners' attitudes and emphasis on customer satisfaction is illustrated by encouraging inspectionof replaced parts. The policy of confirming work prior to commencement is essential to the customer's perception ofreliability and participation in the service process.2.How are the distinctive characteristics of a service firm illustrated by Village Volvo?Village Volvo exemplifies many characteristics of a service firm, one of which is that the inputs are the customersthemselves. Listed below are the distinguishing characteristics of a service firm and the specific attributes of VillageVolvo, which exemplify those characteristics.

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Chapter 01-The Service Economy1-5Customer participation in the service processThe client brings his or her car to Village Volvo for specific needs or routine services during scheduled times.There is continuous interaction between the client and the service manager and the assigned mechanic as evidenced bythe discussion of problems and the test drive of the vehicle prior to the time when the repair work is done. Once therepair is complete, the client does the quality control inspection and is furnished with the worn parts.SimultaneityFor routine repairs, customerscanwait in the attractively furnished waiting area. In most cases the customersdrop off their vehicles early in the morning and return for pickup at the end of the day.This allows Village Volvosome latitude in scheduling the daily work.For repair services, production and consumption of the service need notoccur simultaneously, because the service is performed on the customer's property, which can be inventoried.PerishabilityVillage Volvo is aware of this problem and has taken action to smooth demand, first by encouraging clients to makeappointments for diagnosis and repair of specific problems and then by scheduling "drop in" times for Wednesdayafternoon and Thursday morning.During peak hours, all mechanics are asked to deal with customers to reducecustomer-waiting time.IntangibilityMost customers are unable to judge the quality of an automobile repair service and thus, reputation becomes veryimportant.If Village Volvo did not have such a good reputation, it would be difficult to persuade customers to usethe private garage rather than the dealership.Village Volvo tries to reduce this intangibility by providing customerswith their worn out parts.HeterogeneityVillage Volvo is a service shop with the capability to handle a variety of auto repair problems. The mechanics treateach customer's problem individually by explaining to the customer exactly what has occurred and what will happen.3.Characterize Village Volvo in regard to the nature of the service act, the relationship with customers,customization and judgment, the nature of demand and supply, and the method of service delivery.•Car repair represents a tangible action performed on an object and therefore, is a service directed at a physicalpossession.•By keeping a Custom Care Vehicle Dossier (CCVD) on customers’ vehicles, Village Volvo is attempting todevelop a “membership” relationship.The repair service itself is a discrete transaction, but sending reminders forroutine maintenance gives the appearance of continuous monitoring.•For routine maintenance (e.g., oil changes) customization and judgment are limited in scope.However, for majorrepairs the opposite is true.•Demand for emergency auto repairs can vary considerably, but reservations for work is common and a loaner carcan be provided for extended repairs. Routine maintenance can be scheduled to fill low demand periods.•Village Volvo has a single site and requires customers to bring their cars (or have them towed) to the facility.

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Chapter 01-The Service Economy1-64.How could Village Volvo manage its back office (i.e., repair operations) like a factory?After receiving the cars for repair at the beginning of the day, the scheduling of repairs can be planned in accordancewith the availability of the mechanics and the promised delivery times. Thus, the back office can be run much like amanufacturing job shop. Routine work like brake pad replacement and minor tune-ups can be delegated to apprenticemechanics in order to achieve cost savings.5.How can Village Volvo differentiate itself from Volvo dealers?Dealers have traditionally neglected their service departments because more money was made in the sale of vehicles.The turnover of dealer mechanics alsohasbeen high because good mechanics leave to open their own shops such asVillage Volvo.The appeal of the independent mechanic is the personal relationship and trust that develops betweenvehicle owner and mechanic. The Custom Care Vehicle Dossier is a method that Village Volvo uses to establish thecustomer's loyalty.CASE: XPRESSO LUBE[Students Robert Ferrell, Greg Miller, Neil Orman, and Trent Reynolds prepared this analysis.]1. Describe Xpresso Lube’s service package?•Supporting facility: Xpresso Lube has a fixed amount of operational capacity because it has a limitednumber of service lifts–two to be exact. Other components of its supporting facility are tools and equipment,an equipment storage area, a spacious waiting room, chairs, a service counter, street access and parking.•Facilitating goods: oil, filters, auto parts, coffee, snacks, cups, napkins, sugar,and milk.•Information: for regular customers a reminder card could be sent for routine maintenance.•Explicit services: a car with new oil and filter, maintenance checks of the car, and a cup of coffee.•Implicit services: trust, a feeling of not “getting screwed,” a feeling of keeping the car maintained, thesatisfaction that comes from taking care of one’s car, the good feeling that comes from recycling the old oil, acaffeine lift, and the satisfaction of drinking good coffee while you wait.2.How are the distinctive characteristics of a service operation illustrated by Xpresso Lube?•Customer Participation in the Service Process: Customers bring their carsto Xpresso Lube and wait for theoil change. Customers are invited to inspect the car while on the lift to observe other needed repairs.•Simultaneity: Using the coffee shop as a pleasant diversion allows Xpresso Lube to reducepartiallythe needfor working on arriving carsimmediately.Providing a shuttle service tothenearby University and StateCapital would allow schedulingofoil changes.

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Chapter 01-The Service Economy1-7•Perishability:The number of car lifts at the shop limits Xpresso Lube’s capacity.This oil change businessalso owns an auto repair facility next door so the two businesses can deploy mechanics between them toutilize labor capacityin the most efficient way.•Intangibility: When an oil change is done in a typical pit, the customer cannot actually see the process and,after the service, the car’s performance probably will not be noticeably different. In this situation, customersrely on the word of the oil change service person. Xpresso Lube’s car lift design allows customers to watch itsservice, which gives customers more assurance that their needs are being met.•Heterogeneity: Different cars provide some variability in the oil change routine. Some customers even comeonlyfor the coffee.3.Characterize Xpresso Lube in regard to nature of the service act, relationship with customers, customization andjudgment, nature of demand and supply, and method of service delivery.•Changing the oil is the primary function of Xpresso Lube. This is a tangible action performed on the car, butthe secondary service is serving coffee, which recognizes the personal needs of the owners.•Xpresso Lube’s service relationships consist of discrete, one-time transactions, but the company’s focus onfostering customer trust and a pleasant waiting environment might lead to more long-term customers.•Fairly low customization is possible, but the accessibility of the service area and the mechanics can lead tocustomization opportunities if there are problems with the cars.•There is a significant demand fluctuation based on the obvious convenience of having theserviceperformedafter work or during the weekend. This peaked demand patterneasilycan exceed Xpresso Lube’s capacity.But Xpresso Lube’s service environment encourages people to accept longer waits and, by providingtransportation, it enables customers to drop off their cars in the morning and retrieve them later in the day.The supply of the service cannot be altered very easily, given the company’s fixed number of two carportsand lifts.4.What elements of Xpresso Lube’s location contribute to its success?Xpresso Lube is located on the main thoroughfare leading to the University of Texas and,thus,provides excellentvisibility. The immediate business area is bustling and diverse,andattracts a broad spectrum of visitors. It’s also anarea where customers don’t mind waiting because they can walk to a variety of popular shops (e.g., Wheatville Co-Opand Half-Priced Books).5.Given the example of Xpresso Lube, what other services could be combined to “add value” for the customer?Many examples exist in today’s business environment. One common service combination is selling concessions–candy, popcorn,or beer, for example–with showing movies, sports events,or concerts. Others include thecombination of bookstores and coffeehouses, gaming activities such as pool or bowling with alcohol sales andprepared food (e.g., Dave & Busters), fast food and gasoline (e.g., Exxon and McDonald’s).All of these combinations support one another and marry related customer needs. In the case of gas andhamburgers, for example, customers are in a hurry and the service combination provides them additional reasons tostop.Other examples take advantage of unfilled waiting time. By locating in a shopping mall, a one-hour eyeglassstore provides its customers something to do while they wait for their glasses (i.e., shop at other mall stores).

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Chapter 02-Service Strategy2-1CHAPTER2SERVICE STRATEGYTEACHING NOTEThis chapter sets forth the strategic theme of the book that the operations function is central to thecompetitive strength of a service firm. The chapter begins with the strategic service vision that relatesthe service delivery system to the target market segments via an operating strategy and service conceptusing Southwest Airlines as an example. The application of the three generic competitive strategies—cost leadership, differentiation, and focus—to service firms is explored with examples. Porter’s fiveforces model and SWOT analysis are applied to service firms.Taking a page from manufacturingstrategy, we apply the concept of service winners, qualifiers, and service losers to the dimensions ofservice competition.The important role that information plays in a firm's competitive strategy iscaptured in a two-by-two matrix that uses the dimensions of strategic focus (external or internal) andcompetitive use of information (online or offline). The concept of a virtual value chain that can createcompetitive advantage in the "marketspace" is illustrated with examples from USAA.Privacyquestions and anticompetitive behavior are issues that limit the use of information.The chapterconcludes with a discussion of the stages in service firm competitiveness and a “whodunit” Case abouttwo niche-market banks.SUPPLEMENTARY MATERIALSJames L. Heskett, W. Earl Sasser, Jr. and Christopher W.L. Hart,Service Breakthroughs, FreePress, New York, 1990.The authors describe how breakthrough managers develop counterintuitive strategic service visionsand a service concept that focuses on achieving results for their customers.Case: Southwest Airlines (A) (HBS case 575-060)Southwest Airlines began as a small intrastate Texas airline, operating commuter-length routesbetween Dallas (Love Field), Houston, and San Antonio. In June 1971, having overcome legal hurdlesraised by entrenched Braniff and Texas International, Southwest inaugurated service with a massivepromotional campaign and many innovations designed to attract passengers. On February 1, 1973,Southwest must decide how to respond to Braniff's "Half Price Sale."Case: Zipcar: Refining the Business Model (HBS Case: 9-803-096)The expense of owning or leasing a modest car in urban locations can exceed $500 per month wheninsurance and parking expenses are included.Using a website forreservations and wirelesscommunication, the concept of car sharing has become a reality with Zipcar and its tag line, “wheelswhen you want.”Case: British Airways: Using Information Systems to Better Serve the Customer(HBS case 9-395-065)BritishAirwaysdevelopedaninformationsystem,CustomerAnalysisandRetentionSystem(CARESS) to ensure rapid response to customer complaints. The case explores how this system is

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Chapter 02-Service Strategy2-2able to melt the complaint iceberg in order to resolve customer complaints quickly and improveretention as well as to provide data for root-cause-analysis of problems.Case: Ritz Carlton: Using Information Systems to Better Serve the Customer(HBS Case9-395-064)Ritz-Carlton, a Malcolm Baldrige National Quality Award winner, relies on two information systemsto promote customer loyalty: COVIA to handle centralized reservations and Encore, a local systemthat keeps track of guest preferences.Note: Service in E-Commerce: Findings from Exploratory Research (HBS Module Note N9-800-418).This note explores the concept of scalability in the context of customer support and logistics.Theauthors also discuss the E-commerce customer experience cycle that includes navigation, information,customer support, and logistics leading to loyalty when well executed.LECTURE OUTLINE1.The Strategic Service Vision (Table 2.1 and 2.2)2.Understanding the Competitive Environment of Services3.Competitive Service StrategiesOverall cost leadership, Differentiation, Focus4.Strategic AnalysisPorter’s Five Forces Analysis (Figure 2.1)SWOT Analysis: Strengths, Weaknesses, Opportunities, Threats (Table 2.3)5.Winning Customers in the MarketplaceQualifiers, Service winners, Service losers6.Sustainability(Figure 2.2)7.The Competitive Role of Information in Services (Figure 2.3)Creation of Barriers to Entry, Revenue Generation, Database Asset, ProductivityEnhancement8.The Virtual Value Chain (Figure 2.4)9.Economics of Scalability (Table 2.4 and 2.5)10.Limits in the Use of InformationAnticompetitive, Fairness, Invasion of Privacy, Data Security, Reliability

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Chapter 02-Service Strategy2-311.Using Information to Categorize Customers12.Stages in Service Firm Competitiveness (Table 2.6)Available for Service, Journeyman, Distinctive Competence, World-Class ServiceDeliveryTOPICS FOR DISCUSSION1.Give examples of service firms that use the strategy of focus and differentiation and the strategy offocus and overall cost leadership.Reed College in Portland, Oregon, is a small private college that is focused primarily on anundergraduate education in liberal arts and sciences.The school differentiates itself from most otherhigher education institutions in such areas as the selectivity of its admissions requirements, therigorousness of its courses, and the requirement of a research thesis for an undergraduate degree.Another firm that exemplifies the strategies of focus and differentiation is Amy's Ice Cream in Austin,Texas.Amy's is focused on kneading various condiments into the ice cream, a service that also isprovided by a number of other firms. But, the servers at Amy's are accorded extraordinary freedom tointeract with customers and it is the nature of this service encounter that differentiates Amy's fromother ice creameries.Southwest Airlines is an example of firms that employ the strategies of focus and overall costleadership.Southwest concentrates on serving a select geographic region at low cost.The airlineachieves low cost by providing “no-frills” service, and it maximizes utilization of its assets bymaintaining a quick turnaround practice at airports. United Services Automobile Association (USAA)is another example of an organization that has a well-defined focus, primarily that of providinginsurance and financial services for American military officers and their families.The company isable to provide the lowest possible rates in the industry to its customers, in part, by doing businessover the phone instead of using field agents.2.What ethical issues are associated with micromarketing?The ethical issue associated with micromarketing involves the customer's right to privacy.Scannerdata and other personal information that target specific customers might be very beneficial forbusinesses, but the inappropriate use of the information can allow businesses to mislead or manipulatetheir customers.From an ethical standpoint, there must be some limits to the nature and amount ofinformation a business can obtain from its customers.3.For each of the three generic strategies (i.e., cost leadership, differentiation, and focus), which ofthe four competitive uses of information is most powerful?Productivity enhancement is the most powerful use of information for achievingcost leadership,because it allows firms to reduce inventory, reduce waste, and eliminate paperwork, all of which savemoney.Improved productivity allows companies to make more efficient use of their assets, such asretail shelf space.

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Chapter 02-Service Strategy2-4Creating barriers to entry is the most powerful use of information for protecting adifferentiationstrategy. When customer loyalty is high, cost cutting by competitors is less effective. Switching costscan also create barriers to entry, for example, when suppliers use a computer order-entry network toestablish a direct link to customers.Database assets are the most powerful use of information for building afocusstrategy.These assetsallow a company to develop profiles of their customers and their buying habits.This informationallows the firm to develop new services and to be seen as responsive to its customers' needs.Advertising and distribution economies can be realized.4.Give an example of a firm that began as world-class and has remained in that category.Federal Express and Disney come to mind.5.Could firms in the “world-class service delivery” stage of competitiveness be described as“learning organizations’?Learning in organizations means the continuous testing of experience and the transformation of thatexperience into knowledge that is accessible to the whole organization and relevant to its purpose (seeSenge, et.al.,The Fifth Discipline Field Book, Doubleday, New York, pg. 49).Table 2.6 in the textshows that this definition is illustrated by the world-class service delivery category.Consider thefollowing example comments:•Learning organizations raise customer expectations, seek challenges, and improve continuously.•A learning organization is proactive, develops its own capabilities, and generates opportunities•The learning organization regards the customer as a source of stimulation, ideas, and opportunities.•The workforce of a learning organization is innovative and creates new procedures.•Top management of a learning organization looks to front-line management as a source of ideas.6.Compare and contrast sustainability efforts in service operations and manufacturing.At the outset, certain environmental wastes such as pollution generated by manufacturing plants areglaring problems in industrialized nations. Therefore, it is easy for most people to relate thephysical nature of sustainability efforts to manufacturing.Such efforts include emission controland other measures to protect our air and water from contamination.Wastereductionthroughleanmanagementandvaluerecoveryapplytoserviceandmanufacturing firms alike, however.Regulations by agencies such as EPA, WEEE, and RoHSapply equally to service firms. Beyond those regulations, service firms must build an image ofresponsibleorganizationsthatarecommittedtosustainabilitybycultivatingaculturethateliminates negative impacts on environmental and social issues.Service firms have a responsibilityequal to that of the manufacturing sector in achieving sustainability, especially for long-termviability of the firm.

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Chapter 02-Service Strategy2-57.Conduct a triple bottom line evaluation for a hospital by identifying its social, economic,and environmental attributes that enhance the sustainability movement.Social:•Proper health education for all constituencies.•Free screening for essential medical issues.•Appropriate medical outsourcing.•Linking health and wellness programs for a holistic approach to health care.Economic:•Use of lean management for cost savings–e.g., process control, better materialsmanagement, better record-keeping, elimination of unnecessary tests.•Cost-efficient payment structure for medical access and health insuranceEnvironmental:•Managingmedicalwastes–e.g.,biodegradableproductssuchascontaminateddressings.•Responsible medical disposals–e.g., used syringes.Overall, in promoting health,hospitals need to usefewer resources (economic), providesupportfor employee self esteem (social), and becomebetter stewards of their medical resources and products(environmental).INTERACTIVE CLASS EXERCISEThe class divides and debates the proposition “Frequent flyer award programs are or are notanticompetitive.”The statement “Frequent flyer award programs are anticompetitive” was voiced following airlinederegulation.The frequent flyer award is an attempt by airlines to create customer loyalty in acommodity market and to avoid price competition. Priceline.com and other Internet ticket sellers havereintroduced price competition making frequent flyer awards less effective.

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Chapter 02-Service Strategy2-6CASE: UNITED COMMERCIAL BANK AND EL BANCO1.Compare and contrast the strategic vision of El Banco and United Commercial Bank.Service DeliverySystemOperating StrategyService ConceptTarget MarketSegmentsEl BancoSpanish spokenHispanic physicalsettingFranchiseLow cost informalstore frontsFee based servicesAttract first timebank customersLatinosUnitedCommercialBankChinese spokenConservativeImport-exportservicesBranches inChinese-AmericancommunitiesOffices in China,Taiwan, Hong KongLoans tobusinessesHigh interest CDsLow feesChinese-Americans2.Identify the service winners, qualifiers, and service losers for El Banco and United CommercialBank.Service WinnersQualifiersService LosersEl BancoCheck cashingMoney transfersSpanish spokenInformal locationLack of sophisticatedservicesUnitedCommercialBankLow feesImport-export servicesChinese spokenSoundness and safetyLowering interest rateon CDs3.What are the differentiating features of banks that target ethnic communities?•Products that match unique customer needs (trade finance, check cashing)•Well articulated cultural focus on target community (language, physical setting)•Convenient location accessible to community (ethnic population centers, places frequentlyvisited by community members)

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Chapter 02-Service Strategy2-7CASE: THE ALAMO DRAFTHOUSE1.Marketing analysts use market position maps to display visually the customers’ perceptions of afirm in relation to its competitors regarding two attributes. Prepare a market position map for AlamoDrafthouse using “food quality” and “movie selection” as axes.Movie Selection (+)Multiplex(-)Food Quality (+)Alamo(-)2.Use the “Strategic Service Vision” framework to describe Alamo Drafthouse in terms of targetmarket segments, service concept, operating strategy, and service delivery system.Target MarketService ConceptOperating StrategyService Delivery· 18-30 year old,male, alcoholconsumers, cult filmappeal· 25-40 year olds withsophisticated taste infilms· Meal and 2ndrun orcult films· Single screen theaterwith every other rowreplaced with narrowtables· Low cost old theater· Inexpensive 2ndrunmovies· Food made to orderwith less waste· Unobtrusive waitpeople· Acceptable soundand projectionequipment· Excess capacity mid-day3.Identify the service qualifiers, winners, and service losers for Alamo Drafthouse.Are theAlamo purchase decision criteria appropriate for the multiplex movie theater market? Whatdo you conclude?Qualifiers include good sound system, reasonable prices for the meals, availability of beer andwine, and menu selection.A service winner is the unique “date” experience including the specialevents and film showing.Service losers include movie projection and sound that do not meetingminimal standards.For the multiplex movie theater market the qualifier is the desired movieshowing, a winner would be convenient location and available time of showing, and the loserwould be a long waiting line at the box office.The difference in the criteria would lead us toconclude that Alamo does not compete in the multiplex movie market.4.Use Porter’s Five Forces Model to assess the strategic position of Alamo Drafthouse in the“entertainment industry.”

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Chapter 02-Service Strategy2-85.Conduct a SWOT analysis to identify internal strengths and weaknesses as well as threats andopportunities in the external environment.Strengths•Small theater with kitchen is unique.•People in your market see dinning and moviecombination as your strength.Weaknesses•Projection and sound quality could beimproved.•Attracting mid-week audience.OpportunitiesThreatsPotentialNew Entrants-Availability of smalltheaters-First mover brand equityCompetitive Rivalrywithin Industry-Restaurants, bars,live theater, live music-Only existingtheater/restaurantThreat of Substitutes-Netflix and pizza deliveredto home-All other entertainmentoptionsBargaining Powerof Suppliers-Second-run movieseasy to obtain-Low volume foodneedsBargaining Power ofCustomers-Price sensitivity-Movie selection-Food selectionPorter’s Five Forces Assessmentof Alamo Drafthouse

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