Page 266 - DMGT510_SERVICES_MARKETING

Unit 14: Service Strategies

Lower right cell and the Divest strategy: SBUs or products in this cell are poor performers, Notes
having no attractive market nor possessing enough resistance to enable a turnaround. They are
to be disposed of from the portfolio of the service organization.
Normally, service firms do not get hemmed in by any one strategy, usually choosing to follow
a combination of them as far as resource allocation is concerned.

Did u know? The House of Tatas bolstered and reinforced their information technology
SBUs with resources and marketing supports and also successfully participated in the
disinvestments of CMC and VSNL (Invest). They have selectively invested in steel,
infrastructure, telecommunication and automobiles (Protect). Lakme and TOMCO have
been profitably sold to FMCG major Hindustan Lever Limited (Harvest), while Tata
Textiles has been liquidated (Divest). The resources generated from the sell offs through
Harvest and Divest have been utilized in acquiring companies like VSNL and CMC and
investing in new areas of retailing through Tata Retail Enterprise (TRENT)/Westside.

14.1.3 Michael Porter’s Strategies for Competitive Advantage

For strategies at the SBU level, Michael Porter urges service firms to first assess scope of target
market and differential advantage(s) and then choose the appropriate strategies. He has
propounded three approaches to give a service firm a decisive “competitive advantage”: cost
leadership, differentiation and focus. Cost Leadership is a competitive strategy where a service
firm seeks to be a low cost producer, satisfying a broad market base with a standard service
product. This it does so by aggressively pursuing operating efficiencies and then under-pricing
the competition. Porter recommends efficient facilities, systems and processes, tight cost and
overhead controls, minimization of costs in R&D, advertising, sales and distribution, service
etc.

Example: Wal-Mart has made a virtue of being a low cost retailer, aggressively seeking
operating efficiencies in logistics, supply chain and driving down the prices of its merchandise
that were sourced from its vendors. The low costs enable the giant US retailer to get a competitive
advantage by offering lower prices, driving the competition out of business and posting
handsome profits derived from volume business.
Differentiation strategy for a service firm involves developing offerings which are perceived as
unique by all the six markets in the industry. The creation of a distinctive image of the firm’s
service products requires meticulous planning, usage of high quality processes, innovative
designs, or leveraging on unique product attributes and features. This uniqueness would make
the service firm to charge a premium price and target a broad or a very narrow market.

Example: Dilip Chhabria, CEO and chairman of DC cars, the supplier of innovative and
uniquely designed cars (on existing platforms), can charge a premium on designs and execution
service. The construction and housing firms of Hiranandanis, and architect Hafeez Contractor
demand (and get) a premium for their homes and designs which boast of high and consistent
quality (the former are amongst some of the few construction firms who as a policy do not have
‘sample flats’ to convince customers). Nordstrom’s is always associated with high quality service
while Bose Corporation is famous for its high fidelity and high technology audio systems.
Focus strategy is adopted by a service firm or the SBU when it concentrates its entire attention on
a very specific customer segment and their needs. The service firm then services this segment
with uniquely designed offers. The target segment can be specific by:

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