Week 3

Managing and Meeting Guest

Expectation (Service Strategy)
Learning Objectives
•The three generic strategies for positioning products and services.
•The organizational planning cycle and how its different elements result in the establishment of the
hospitality organization’s overall strategic plan and service strategy.
•The basics of how organizations plan and design the guest experience.
•The key external and internal factors that must be examined for successful planning are developed.
•The quantitative and qualitative tools used for forecasting in the hospitality environment—external and
internal.
•The process to determine core competencies.
•The importance of including the key drivers of guest satisfaction in the planning process.
•The importance and value of product and service branding.
•A planning model, showing how components are tied together and action plans are developed

Reference:
Ford, R.C. & Sturman, M.C. (2020). Managing Hospitality Organizations: Achieving Excellence in the Guest Experience, 2nd Edition, SAGE Publications, Inc. (Chapter 2)

Bordoloi, S.K. , Fitmzsimons, J.A., Fitzsimmons, M.J. (2019) Service management: Operations, strategy, information technology, 9th Edition, New York: McGraw-Hill Education. (Chapter 2)

Ford, R.C., Sturman, M.C. & Heaton, C.D. (2012) Managing quality service in hospitality: How organisations achieve excellence in the gust experience. Delmar: Cengage Learning. (Chapter 2)
1
Elements of the Strategic Service
Vision
Understanding the Competitive
Environment
Competitive Difficulties & Reasons:
Relatively low overall entry barriers. Service innovations are not patentable, and in
most cases, services are not capital-intensive. Thus, innovations can easily be copied
by competitors. However, other types of entry barriers exist, such as locating a resort
hotel on the best beach of an island (e.g., the Club Med location on the island of
Moorea in French Polynesia).
Minimal opportunities for economies of scale. The necessity of physical travel for
many services limits the market area and results in small-scale outlets. Franchised
firms can realize some economies of scale by sharing purchasing or advertising costs;
in other instances, using the Internet can be a substitute for physical travel (e.g., ordering
from Amazon.com).
Erratic sales fluctuations. Service demand varies as a function of the time of day and
the day of the week (and sometimes seasonally), with random arrivals. Can you think
of some exceptions?
Understanding the Competitive
Environment
Competitive Difficulties & Reasons:
No advantage of size in dealing with buyers or suppliers. The small size of many service
firms places them at a disadvantage in bargaining with powerful buyers or suppliers. Many
exceptions should come to mind, however, such as McDonald’s buying beef and Marriott’s
buying mattresses.
Product substitution. Product innovations can be a substitute for services (e.g., the
home pregnancy test). Thus, service firms must not only watch other service competitors
but also anticipate potential product innovations that might make their services
obsolete.
Customer loyalty. Established firms using personalized service create a loyal customer
base, which becomes a barrier to entry by new services. For example, a hospital supply firm
may place its own ordering computer terminals at customers’ sites. These
terminals then facilitate the placement of new orders to the extent that competitors are
effectively excluded.
Understanding the Competitive
Environment
Competitive Difficulties & Reasons:
Exit barriers. Marginal service firms may continue to operate despite low, or even
nonexistent, profits. For example, a privately held firm may have employment of family
members rather than maximizing profit as its goal. Other service firms, such as antique
stores or scuba diving shops, have a hobby or romantic appeal that provides their owners
with enough job satisfaction to offset low financial compensation. Thus, profit-motivated
competitors would find it difficult to drive these privately held firms from the market.
Competitive Service Strategies
(Michael Porter’s 3 Generic Competitive Strategies)

Overall Cost Leadership: requires efficient-scale facilities, tight cost and overhead
control, and often innovative technology (such as McDonald’s Walmart, Federal Express)
 In its industry, area, or market segment, tries to design and provide almost the same
service that the competitors sell, but at lower price
 Management focusing on maximizing operational / production efficiencies to minimize
the organization’s costs
 Companies must recognize if they reduce prices to customers by reducing their costs, the
deterioration in the guest experience may decrease the value of experience and drive
them to competitors
Seeking Out Low-Cost Customers
Standardizing a Custom Service
Reducing the Personal Element in Service Delivery
Reducing Network Costs
Taking Service Operations Offline
Competitive Service Strategies
(Michael Porter’s 3 Generic Competitive Strategies)

Differentiation: 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.
 Practice produce differentiation in the marketplace
 Offering a service product that is different that guests find favourable
 Attract guests by emphasizing differences rather than by offering low prices
 Lies in creating a service that is perceived as unique
 Does not ignore costs, but primary thrust lies in creating customer loyalty and targeted
customer is willing to pay.

Making the Intangible Tangible

Customizing the Standard Product
Reducing Perceived Risk
Giving Attention to Personnel Training
Controlling Quality
Competitive Service Strategies
(Michael Porter’s 3 Generic Competitive Strategies)

Focus/Special Niche: built around the idea of servicing a particular target market very well
by addressing customers’ specific needs. The market segment could be a particular service
(e.g.,Motel 6 and budget travelers, Federal Express and people who need guaranteed
overnight package delivery), or geographic region (e.g., community college or
neighborhood restaurant).
• To find and fill a particular market niche / gap
• Focus on a specific target market to attract customers by offering a special appeal –
i.e. quality, value, location, or exceptional service
• The organaisation that concentrates to fill the niches is often a market innovator
seeking to meet and unfulfilled customer need, perhaps a need that customers don’t
recognize until they see the product
• The company achieves competitive advantage in its market segment by meeting
specific customers needs and/or by lower costs through specialisation
• The focus strategy is the application of differentiation and/or overall cost leadership to
a particular market segment rather than the entire market
Strategic Analysis
Strategic Analysis

Porter’s Five Forces Analysis

Competitive Rivalry within Industry. Often this factor is the major determinant of
industry competitiveness. Rivals might be aggressive price competitors or they might
use non-price strategies such as innovation, branding, or superior quality. Industry
capacity relative to total customer demand is an important indicator of whether a new
entrant will find customers.
Potential New Entrants. Profitable markets that yield high returns invite new competitors.
Threat of Substitutes. For services, substitutes often take the form of a product.
Bargaining Power of Suppliers. Suppliers of inputs can be a source of power over the
firm because of product uniqueness or monopoly source.
Bargaining Power of Customers. Netflix customers might be able to exert price pressure
and, thus, restrict high margins. In the travel industry the use of Priceline.com
and Hotwire.com have shifted the information asymmetry to the advantage of the
customer. However, Netflix uses information about customer purchases to recommend
other movies with similar themes, thereby stimulating demand.
Strategic Analysis

SWOT Analysis
identifies an organization’s internal strength and weakness as well
as threats and opportunities in the external environment. The aim of the analysis is to
reveal competitive advantages, analyze prospects, prepare for problems, and allow for
development of contingency plans.
Winning customers in the marketplace

Availability: How accessible is the service?

The used of ATMs by banks has created 24 hours availability of some banking service; use
800-numbers and website by service firms facilities access to information and personal
accounts 24/7
Dependability: How reliable is the service?
For airlines, on-time performance is the statistic collected by the FAA
Convenience: the location of the service defines convenience for customers who must travel
to that service
Gasoline stations, fast-food restaurants, dry cleaners
Personalization: Are you treated as an individual?
Hotels have discovered that repeat customers respond being greeted by their name; the
degree of customization allowed in providing the service, no matter how slight
Price: competing on price is not the effective way in services, it is often difficult to compare
costs of service objectively
In professional services, competition on price can be considered counterproductive because
price often is viewed as being a surrogate for quality
Winning customers in the marketplace

Quality: Service quality is a function of the relationship between a customer’s prior

expectations of the service and his/her perception of the service experience both during and
after the fact
Service quality is judged by both the process of service delivery and the outcomes of service.
Reputation: The uncertainty that is associated with the selection of a service provider often is
resolved by talking with others about their experiences before decision is made
A poor service experience cannot be exchanged or returned for a different model. Positive
word-of-mouth is the most effective form of advertising.
Safety: Well-being and security are important considerations
For example. Air travel and medicine, the customers are putting their lives in the hands of the
service provider.
Speed: How long must I wait?
For emergency service such as fire and police protection, respond time is the major criterion of
performance. In other services, waiting sometimes might be considered a trade-off for
receiving more personalize service, or in reduced rates
The Competitive Role of Information in
Services

Creation of Barriers to Entry

• Reservation Systems
– A barrier to entry can be created by investing in online reservation
systems that are provided to sales intermediaries such as Expedia.
• Frequent User Club
– Airline company such as American Airlines, given it’s a massive
reservation system, to add passenger accounts to accumulate travel
credit for frequent flyer awards, i.e. free trips and other awards, create
strong brand loyalty among travelers, especially business travelers.
• Switching Costs
– Establishing customer relationships creates a cost in the form of
inconvenience for the customer to switch to another provider. For
example, the hassle of changing your bank after you have arranged for
automatic bill payment from your checking account.
The Competitive Role of Information in
Services

Revenue Generation
• Yield Management (capacity management)
– The concept of yield management is best understood as a revenue-
maximising strategy to make full use of service capacity
– It is the application of information to improve the revenue that is
generated by a time-perishable resource (i.e. airline seats, hotel rooms)
• Point of Sale
– Help saves unnecessary steps and allows more time for suggestive
selling. For example, consider a commercial application for the iPad.
With this device, a server in a restaurant can transmit an order directly
to kitchen monitor, and the bill to the cashier at the same time.
 Reinventing the Industry

• If drastic change is forecast, the organization might

event have to reinvent itself and learn new core
competences. A strategy might be to get cheaper, or
better or faster.
• These are reactive operational strategies that most
organizations could adopt as circumstances change
 Providing Superior Service Quality and
Value

• In long term, many successful service organisations

have found that best way to succeed is to differentiate on
the basis of superlative service quality and value
• Provide better service and value than the competition
does, which they can’t beat.

“You can knock off everything…except awesome service”

By Tom Peters
The Hospitality Planning Process

Environmental Assessment Vision Statement Internal Assessment

(“A long look around”) (“A long look within”)

Strategic Premises Mission Statement Core Competencies

Service Strategy

Service-Product Strategy Service-Setting Delivery-System Strategy

Strategy

Action Plans
(with Performance Measures)

Management Employee Hiring/ Capacity Financial/ Marketing

Performance Training/Retention Plan Utilization Plan Budgeting Plan Plan
Plan
Looking Around

 Environmental assessment
 Looking around for opportunities and threats, in turn
defines the strategic premises
 Strategic premises
 These premises are the beliefs of the managers assessing
all long-term aspects of the external environment and
trying to use them to discover what forces will impact their
business in the future
 Determine key drivers!
 Identify what the key drives or value drivers of guest
satisfaction will be in the intermediate-term and long-term
future
 Looking Within

• Organizational hopes (vision statement) and

Organizational purpose (mission statement)
– The internal assessment, or looking for strengths and
weaknesses
– Defines the organization’s core competencies and considers the
organization’s strong and weak points in terms of its ability to
compete in the future
– The organization determines what it does well, what it does not
do well, and how its strengths and weaknesses pair with what it
wants to accomplish
Environmental Assessment

• Hospitality planning process starts with looking around the overall

environment:
– Economy
• Economic growth, inflation, interest rates, capital and credit available, consumer
confidence, consumer purchase power, changes in global market, etc.
– Society and demographics
• Shifts in social attitudes/values on chin-bearing, marriage, family-work balance, life
style, racial equality, retirement, pollution, etc.
• Shifts in population characteristics, language, age distribution, educational background,
health, ethnic mix, cultural values, etc.
– Ecology
• Foreseeable natural or man-made caused disasters , environmental
legislation, etc.
– Politics
• Government policy changes, regulation, foreign trade, health care, taxation,
depreciation, environment protection, foreign trade barriers, etc.
(continued)
– Technology
• New products, services, etc.
Environmental Assessment
Industry environment/Strategic Analysis (Porter’s Five Forces of Analysis)

– New entrants – Competitive rivalry among

• Who are the new competitors? industry / Rivalry among
• Barriers to entry existing firms
• Brand equity • Is market growth slower or is
• Capital requirements competition becoming fiercer?
– Bargaining power of suppliers • Numbers of competitors
• If current suppliers stable, big, and • Rate of industry growth
reliable. Any potential competitors • Industry capacity
or substitute suppliers? Self-
– Threat of Substitute / Substitute
supply?
products/services
• Presence of substitute inputs
• Any alternatives to our service
• Threat of forward integration product likely?
• Uniqueness of inputs • Buyer propensity of substitute
– Bargaining power of • Buyer switching cost
buyers/customers • Product substitute for service
• How big are buyers? Are there
intermediaries?
• Buyer’s / customer’s price
sensitivity
• Buyer / customer volume
• Information asymmetry
 Environmental Assessment

SWOT Analysis
Strengths Weaknesses

•What are your company’s advantages ? •What could you improve?

•What do you do better than anyone else? •What should you avoid?
•What unique resources do you have? •What factors lose sales?
•What do people in your market see as your •What are people in your market likely to see
strengths? as a weakness?

Opportunities Threats

•What are your competitor’s vulnerabilities? •What obstacles do you face?

•What are the current market trends? •What are your competitors doing?
•Does technology offer new service options? •Is changing technology threatening your
•Are there niche in the market your position? (continued)
organisation can fill? •Do you have cash-flow problems?
Environmental Assessment

• Operating environment
– Competitive position
• What moves are competitors expected to make, inside and outside
of our existing markets?
– Customer profiles and market changes
• Demographic and population changes; new market segments,
technologies changes, etc.
– Supplier relationships
• Will source of supply reliable? changes on cost? Availability of
suppliers? Alternative suppliers from other countries?
– Creditors
• Have enough credit to finance growth? Have enough cash when
needed?
– Labor market
• Have enough employees with right skills, when and where we need
them? When are people retiring?
Environmental Assessment

• Quantitative-causal models  Qualitative or judgmental

– Econometric models models
– Single and multiple regression  Sales force estimate
– Time series models  Juries of executive opinion
– Trend extrapolation  Customer survey and market
research
 Scenario development
 Delphi method
 Brainstorming
What the Future may Hold?
Changing Demographics & More Changes

• Generations X, Y, or the Millenniums and the Next gens

• Demographic implications
• Generation Y in the workforce
• Different way of thinking
• Technology
• Social expectations
• Economic forces
• Competitors
• Other relevant groups:
– Resource suppliers
– Capital suppliers
– Labor supply
• Surprises
 Strategic Premises

• The hospitality organization draws conclusions about the future of its

industry and market from its environment assessment, and then
uses this information to make the assumptions, called strategic
premises
– Strategic premises are educated guesses
• Impact of change
Internal Audit (internal assessment)

• Core competencies
– The bundle of skills and technologies that gives the organization
an important difference in providing customer benefits and
perceived value
• Internal assets
– An assessment of all the organization’s internal assets
– Has a reputation, a pool of human capital, managerial
capabilities, material resources, and competitive advantages
based on its technology
– Possesses patents, brand names, copyrights, customer loyalty
Internal Audit (internal assessment)

• Vision statements
– A vision statement articulates what the organization hopes to look like and
be like in the future
– The vision present hopes and dreams
– It creates a picture towards which organization aspires
– It provides inspiration for the journey ahead
– It is uses to unite and inspire employees to achieve the common ideal and
to define for stakeholders what the organization is all about
Internal Audit (internal assessment)

• Mission statements
– A mission statement articulates the organization’s purpose, the reason for
which it was founded and for which it continues to exist
– It defines the path to the vision, given the strategic premises and the
organization’s core competencies
– It is a guide to defining the how, what, who, and where for the organization’s
overall service strategy that in turn drives the design of the service product,
service environment, and service delivery system
– It forms the basis of action plans and lead to the other steps and decisions
that put resources in place to fulfill those plans
– A typical mission statement will include the following elements:
• What you do? (What is the product/service you are providing to the customers?)
• Who you do it for? (Who is the targeted customers??
• How or where you do? (Where is the product/service going to be provided to the targeted
customers? Place., niche or market segment?)
Developing the Service Strategy
Excellent Service Strategy

Berry’s Four Components of Excellence Service:

•Quality
– The excellence strategy emphasizes quality
– Without quality, nothing else matters
– Those hospitality organization truly committed to excellence start by
committing the organization to providing the customers with a guest
experience of high quality
•Value
– To provide customers with more benefits from the guest experience
than their costs
– Value and cost cannot be defined solely in monetary terms
– No matter what the service costs, customers must believe that they are
getting significant value for their money (continued)
Developing the Service Strategy
Excellent Service Strategy

Berry’s Four Components of Excellence Service:

•Service
– It focuses the entire organisational effort on service
– To hire people who believe in service,
– employee training programme emphasise the commitment to service quality,
– resources are allocated to serving the customer,
– the performance and reward systems carefully reinforce the entire
workforce’s commitment to service,
– and all action plans support the service mission.
– Should ensure everyone in the organization walks the service-quality walk
by constantly reflecting total commitment to service excellence
 Developing the Service Strategy
Excellent Service Strategy

Berry’s Four Components of Excellence Service:

•Achievement
– The service strategy should foster among employees a sense of genuine
achievement.
– It should stretch and push every employee to grow and develop together
with the organization to do things no one thought were possible.

Supporting strategies: service product, environment and delivery system

•The service strategy provides the basis for ensuring that the customers’ key drivers are
addressed
•Determining what the organization’s service product should be
•What the service environment in which the service product is provided or delivered
should look and feel like
•How the service system makes the service product available to the guest
Action Plans

• Action plan can be developed once the organization has a clear idea
of:
– who it wants to serve,
– what it wants to serve,
– where the market for that service is,
– where the company wants to go; and
– how it intends to get there
• Five key areas in which action-plan should be established:
– Management
– Staffing
– Capacity utilization
– Finance
– Marketing