Dynamic Service Strategies- Valutrics
Service strategies have evolved over the past few years. In the early 1990s most companies applied either a customer service strategy or an after-sales service strategy . Since then, companies seem to have developed more sophisticated service strategies, namely customer support services and development partner strategies . Other even more advanced service strategies, developed in the last few years, refer to the outsourcing partner strategy or supplementary service strategy .
The customer service strategy concentrates purely on services in the sales phase; after-sales service and customer support service strategies aim at the sales and usage phase (i.e. the after-sales phase). A development partner covers the whole life cycle, starting with the pre-sales and sales phase and ending with the usage phase (after-sales phase). All of these four strategies focus on the primary activities of the customer and on adding new services to these activities. Procurement of an outsourcing partner aims at reconfiguring customer activities, whereas a supplementary service strategy is a question of exploiting opportunities in the adjacent activity chain of the customer. Outsourcing partners concentrate on the reconfiguration of customer activities in the after-sales phase: should the customers be unwilling to outsource their activities of operating or maintaining the product, however, they add just services to the customer activity chain.
Each service strategy possesses a unique value proposition, which ensures competitive differentiation. The value proposition is formed by a few services that dominate the service offering and some additional services.
The service strategies can be summarized in the following way:
• The customer service strategy (or a customer service provider) augments the product by offering customer service. It is consistent with the belief that customer service enhances both the quality of the product and its reputation by increasing the general quality of the interaction between the buyer and seller.
• The after-sales service strategy (or after-sales service provider ) involves offering product-related services (or basic services for the installed base) with a few customer services as add-ons to the products. Its main focus is on after-sales services that ensure the proper functioning of the product. It is similar to the notion of product services as well as entering the service market for the installed base. After-sales service providers support customers during the usage of their products and ensure that products faults are remedied. They form a value proposition by providing products at attractive prices and guaranteeing the proper functioning of the product through after-sales services. After-sales service providers use an independent pricing approach that allows customers to select the after-sales services they require: prices can be compared and discounts negotiated. The service offering comprises spare and wearing parts, repairs, inspections, basic training and troubleshooting.
• The customer support service strategy (or customer support service provider ) attaches great importance to maintenance services: the emphasis on basic services for the installed base is lower than for an after-sales service provider. Typical examples of such maintenance services are preventive maintenance, maintenance agreements and process-orientated optimization. Customer support service providers thereby also concentrate on expanding the service offering to cover usage of the product. They focus moreover on services that prevent faults and breakdowns instead of merely reacting when these have occurred. Such prevention of failures and breakdowns increases the availability of the product within customer processes. Therefore, the value proposition of a customer support service provider is to avoid product faults in order to increase the efficiency and effectiveness of customer processes. Customer support service providers succeed with this value proposition when their market consists of customers desiring outstanding product quality. Product performance and reliability remain important purchasing attributes: customers not only invest in reliable products but also increasingly demand services that improve the efficiency and effectiveness of the product in the usage phase of operating the installed base. Compared to after-sales service providers, customer support service providers are not faced with the same degree of competitive intensity regarding price levels and discounts. Providers of customer support service are still able to achieve elements of differentiation through technical superiority.
• The value proposition of development partners is based on providing design and construction services. The emphasis placed on maintenance services is similar to that of providers of customer support services: basic services for the installed base and operational services are of medium to low importance. A development partner tends to offer services in the phase prior to the actual acquisition of the product. Customers expect specific solutions for their operating processes. Greater specialization of customer processes and a clearer definition of the operating processes involved are the core competencies that seem to be the driving forces of a higher demand for innovative solutions for customer processes. Development partners also report that competitive equality has been reached in the field of products and after-sales services, leading to an essentially greater competitive intensity. Sustainable competitive advantages are gained mainly by designing individual solutions for customer processes. A development partner not only develops its own products but also offers customers its development skills as a service. Such companies position themselves in the field between supporting development activity and shifting responsibility for performing individual development activities.
• outsourcing partner strategy offers the highest level of operational (outsourcing) services. The basic services for the installed base and maintenance services are of moderate importance; R&D services are of only marginal importance. Outsourcing partners take on the responsibility of carrying out an entire customer process, which may consist of primary and/or supplementary customer activities.
Assuming responsibility for an entire customer process means that a customer pays exclusively for the service rendered. An outsourcing partner combines cost leadership with service and product differentiation in order to offer attractive prices for operational services.
The aim is to assume the operating risk and full responsibility for the customer’s operating processes. The value proposition is simply based on reducing the capital employed by the customer and managing the corresponding risks. In contrast to providers of customer support services, outsourcing partners do not create customized service packages. Operational services are standardized and focus on efficiency, economies of scale and the belief that service customization is costly. However, offering attractive prices for the performance of the outsourced process without sufficient quality of both product and service is insufficient: a product that fails frequently and requires troubleshooting, repairs and spare parts increases service costs which, in turn, will lead to the potential erosion of overall profitability.
• Supplementary service providers focus on services in supplementary customer activities that have no direct effect on the availability and functionality of the product. The value proposition has to cover a wide range of needs beyond the direct relationship to the actual product. This strategy has been observed only occasionally in companies.
When service strategy is changed, four stages are seen to recur when a shift is made:
1. from a customer service strategy to an after-sales service strategy;
2. from an after-sales service strategy to customer support service strategy;
3. from a customer support service strategy to being a development partner;
4. from a customer support service strategy to being an outsourcing partner.
The first stage describes the strategic change from customer service strategy to adopting an after-sales service. Firms that rely more on customer service move towards the provision of after-sales services. Very
few firms seem to adhere to the customer service strategy, suggesting that it is becoming increasingly insignificant in achieving competitive advantages.
The second involves the strategic move from being a provider of after-sales service to being a provider of customer support services (or advanced services). Again, very few after-sales service providers seem to remain with this service strategy. For example, these companies continued to move into the provision of design and construction services, thereby positioning themselves as a development partner. The emphasis of being a development partner in maintenance services suggests that this is the prevalent sequence of events.
The third stage consequently captures the strategic intent to move from being providers of customer support services to being development partners.
Finally, the fourth refers to the strategic change made from providing customer support services to becoming outsourcing partners. The dominating route that is taken when moving from being providers of customer support service to adopting other service strategies, such as being a development and then an outsourcing partner, however, is less clear.