5 new service development

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New ServiceDevelopment

Chapter 5


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Learning Outcomes

Understand the new serviceUnderstand the new servicedevelopment processdevelopment process

Choose appropriate tools forChoose appropriate tools for

making decisions in the newmaking decisions in the new

service designservice design

Understand the different designUnderstand the different design

attributes and their strategicattributes and their strategic

implicationsimplications2


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New serviceOffering not previously available to

customers.

Result of additional offerings: radical changes in service delivery

process orincremental improvements to existing

service packs orDelivery process that the customer

perceives as new

For Example : internet services, online3


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Development Cycle

Full

LaunchDesign

AnalysisDevelop

-ment

Execution Stage Planning Stage

People

Products

Tech-

nology Systems

Formulation

of new services

objective / strategy

Idea generation

and screening

Concept

development and

testing

Business analysis

Project authorization

Service design

and testing

Process and system

design and testing

Marketing program

design and testing

Personnel training

Service testing and

pilot run

Test marketing

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New Service DevelopmentCycle

The process consists of 4 key steps:

Design

analysis

Development

Launch

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The process is conceptualized as a sequencefrom design through launch.

Design and Analysis are planning activitieswhile Development and Launch are

execution activities.Design stage covers the formulation of a new

service objective and strategy, ideageneration and screening, and concept

development and testing.The analysis stage includes business analysis

and project authorization.

The development stage addresses the

complete service design and testing, personal

ew erv ce eve opmenCycle

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At the heart of the model sits the servicedelivery system: the people, technology andsystems that go into designing and deliveringthe new service.

Organizations that continuously developsuccessful new services tend to organizetheir people into cross functional teams,provide them with appropriate tools andresources for planning and execution, anddevelop an organizational context thatfacilitates the entire process so that productscan be developed quickly and effectively.

ew erv ce eve opmenCycle

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Service Innovation

Radical Service Innovation

Requires a different process and design approach

than incremental innovation ( eBay & Priceline.com)

It is either new to the world or new to the market.

Recent radical innovations include online auctions

It is developed through some form from of the new

service development process.

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Innovation

Innovative service firms require enablers( cross functional teams) to facilitate theprocess

Radical Innovation

Major innovation E.g. new service thatcustomers did not know they needed.Innovations usually driven by information andcomputer based technologies. Eg Online

auctionsStart up business new services in a market

that is already served by existing services. EgInternet travel planning allows automated

travel agency service.New service for the market presently Served-9


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Incremental Innovations

Usually involve some minor adjustments tothe existing service delivery systemcomponents( people, system & technology)

Hence, fewer resources and less effort are

devoted to the planning side and moredevoted to the execution side of the processcycle.

imply increased risk and resource

investments.Large amount of planning is needed to flesh

out the idea along with committing substantialresources to the new service developmentprocess.10


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Incremental Innovations

Service Line Extensions: augmentation ofexisting service line (e.g. new menu items).McDonalds offers a new sandwich

Service Improvements: changes in service

delivery process (self-service boarding kiosk).Style Changes: modest visible changes in

appearances

Nature of change will dictate where resourcesare allocated (I/Innovation - fewer resourcesto planning than what is devoted to executionphase. R/ Innovation imply increased risk and

resource investment, requires lot of planning.11


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Service System Design

The initial part of the planning cycle

tackles the development of a serviceconcept and operating strategy. The nextstage is to make decisions related to theservice process or delivery systemdesign to produce the service concept.

Good service product and process designprovides the key to success for thecompany.

All the service design factors shouldrelate to the service strategy andconcept.12


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Facility Location- based upon proximity to customers.Facility Layout

- depends on the presence of the customer at the

location.-servicescape (refers to the services physicalsurroundings and how they affect people in the aretail setting.

Product and Process Design- covers both the intangible and tangible aspectsof the service offering or package.Scheduling

- addresses how the workers are assigned to theservice.

Service Decision Factors

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Quality Control, Measures and Time Standards

- should focus on the needs of the customers andhow well the service addresses those needs.

Demand/Capacity Planning

-depends on the type of service and the immediacyof matching supply to demand

Customer Contact Level

- physical presence and length of time that acustomer spends with a service provider.

Indirect contact- customer is not physically

present or interacting in real time such as emailingDirect contact- customer is physically present andinteracts with a service provider and interacts with aservice provider

No contact- no interaction with the servicerovider such as ATM machines


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Industrialization level

- refers to the substitution of technology forpeople. The goal is to reduce the use of serviceemployees and direct customer contact, themostly costly and fallible side of a serviceencounter.Front Line Personnel Discretion

-denotes the flexibility of the service employeewhile interacting with a customer. Formalizeddialog sequences and scripting limit the

employees discretionWorker Skills

-depend on service strategy and concept,customer contact level and industrialization level.

High customer contact with high qualityexpectation require strong people skills


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Sales Opportunities-coincide with high customer contact andemployee discretion.

Direct contact with customers gives the

employee a high level of discretion, theopportunity to close the sale or up sell increases

Standardization of Service Offering

-level of uniformity provided in the service.

Customer Participation

-substitution of consumer labor for providerlabor. By shifting some of the activities to the

customer, the service provider can save money,


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Innovation

Service customers buy a package of goods and

services usually in the same environment. Thispackage consists of different features.

1.Supporting facilitymust be in place before aservice can be provided.

2.Facilitating goods such as product or othertangible features as part of the service.

3.Sensual or psychological benefits are associatedwith sight, smells, and sounds or feelings of

status, privacy or security.

Services might be bundled into onesupporting facility

Must differentiate between core and ancillary17


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Contribution of the service system design tonew service innovation

The emergence of the internet as a significantprocess technology enables delivery of manynew services both incremental and radicalinnovations.

The interaction of design factors of customercontact, industrialization and standardizationplay an important role in new service

innovations.

Service System Design andInnovation

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Innovation

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erv ce ys em es gn


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New service designers rely on several tools todevelop and analyze their concepts.

All these tools recognize the importance of thecustomer in the system .

Tools :1. Service Blue print maps the customersprocesses and examines interactions indifferent steps in the service.

2. Customer Utility Models generates theattributes that are important to a customer andthen analyses the potential customersatisfaction level, revenues and profits from anew service design in a competitive market.

erv ce ys em es gnTools

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Service Blueprinting

Design tool based on the process flow diagramDelineate front office or high contact areas

from back office operations or low customercontact areas. A line of visibility divides the

these 2 functional areas and the processoccurring in each.

Designers can determine standard ormaximum execution times, materials and the

exact details for each step. (refer to thefigure)

Identify potential failure points and generate

strategies for preventing or recovering fromfailure. The mistake-proofing strategy or poka21


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Step 1

Identify the

process to

be blue-printed

Step 1

Identify the

process to

be blue-printed

Step 2

Identify the

customer or

customersegment

Step 2

Identify the

customer or

customersegment

Step 3

Map the

process from

thecustomers

point of view

Step 3

Map the

process from

thecustomers

point of view

Step 4

Map contact

employee

actions,onstage and

back-stage,

and/or

technology

actions

Step 4

Map contact

employee

actions,onstage and

back-stage,

and/or

technology

actions

Step 5

Link contact

activities to

neededsupport

functions

Step 5

Link contact

activities to

neededsupport

functions

Step 6

Add evidence

of service at

eachcustomer

action step

Step 6

Add evidence

of service at

eachcustomer

action step

Building a Service Blueprint

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Service System Design Tools

Line of Visibility

Take Drink Order Collect Payment Deliver DrinkMake Drink

Order SuppliesPrepare Mixes

Materials

(Coffee, flavors, milk,cups, etc.)

Fail

Point

Not seen by customer

Seen by customer

Service Blueprint for Espresso and Coffee Shop

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Blueprint for Express Mail DeliveryService

Driver

Picks Up

Package

Dispatch

Driver

Airport

Receives

& Loads

Sort

Packages

Load on

Airplane

Fly to

Destination

Unload

&

Sort

Load

On

Truck

S

UPPORTPROCESS

CONTACT

PERSON

(BackStage)

(OnStage)

CUSTOMER

PHYSICAL

EVIDENCE

Customer

Calls

Customer

Gives

Package

TruckPackaging

Forms

Hand-held Computer

Uniform

Receive

Package

TruckPackaging

Forms

Hand-held Computer

Uniform

Deliver

Package

Customer

Service

Order

Fly to

Sort

Center

Line of interaction

Line of visibility

Line of internal interaction

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Bl i t f O i ht H t l St


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Blueprint for Overnight Hotel StayService

SU

PPORTPROCESS

CO

NTACTPERSON

(Back

Stage)

(OnStage)

CUSTOMER

Hotel Exterior

Parking

Cart for

Bags

Desk

Registration

Papers

Lobby

Key

Elevators

Hallways

Room

Cart for

Bags

Room

Amenities

Bath

Menu Delivery

Tray

Food

Appearance

Food Bill

Desk

Lobby

Hotel Exterior

Parking

Arrive

at

Hotel

Give Bags

to

BellpersonCheck in

Go to

Room

Receive

Bags

Sleep

Shower

Call

Room

Service

Receive

FoodEat

Check out

and

Leave

Greet and

Take

Bags

Process

Registration

Deliver

Bags

Deliver

FoodProcess

Check Out

Take Bagsto Room

Take

FoodOrder

Registration

System

Prepare

Food

PHYSICAL

EVIDENCE

Line of Interaction

Line of Visibility

Line of Internal Interaction

Registration

System

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Hotel

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ustomer t ty


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ustomer t tyModels

Success depends on favorable market responseto a new service configuration and that responsedepends on the customers perceived utility orbenefit provided by the services price or non-price attributes and that of competing brands.

Promise of customer utility measurement is theability to optimize the design of a service i.e.specify a level for each price and non price

attribute.

Satisfaction with the quality of service affectscustomer loyalty and repurchase intent and thus

the utility of the service for customers.27


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Service quality can be measured along five principledimensions.Reliability, responsiveness, assurance and

empathy, and the tangible aspect of the service

Improving reliabilitycan result in increased laborand training costsResponsiveness may be enhanced by reducing

queue times

Empathy and assurance can be influenced by theability of service providers to convey knowledge,courtesy and impressions of caring andapproachability during each service encounter.

Enhancing the tangible attributes of a service

Customer Utility Models

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To evaluate a new service using the utility model,Conjoint analysis (CJA) and discrete choice analysis(DCA) are used to model customer utility inresponse to experimentally designed profiles ofservice attributes.Discrete choice experiments involve careful design

of service profile choice setsDesign of a new airport restaurant requires the following Identification of important attributesSpecification of attribute levelsExperimental design

Presentation of alternatives of respondents

Estimation of choice model

Customer Utility Models

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New Service Design for Snowbird Ski


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New Service Design for Snowbird SkiResort

Determine Appropriate Service Attributes

(e.g., Price, Service Time, Intangible, & Tangibles)

Determine all variables and costs related to Service Attributes

& demand -capacity matching strategies

Solve forCustomer Segments and Utility Weights (s)using multinomial Logit or regression analysis

Collect Customer Attribute Information using

choice-based or ratings-based conjoint analysis

FeasibilityEvaluate Market

Share & Profit& Profit

Profile N withattributes,

price, and cost

Customer waitingtime

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Summary

Challenges to service designIntangible nature of service encountersInability to prototype and test new conceptsPropensity to use ad-hoc methods

Innovations come through incremental and radicalnew servicesThe two approaches address the same factors (i.e.

customer contact and industrialization)

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5 new service development

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