Guest Lecture

Mrs Vera Kriel

Executive Director
Corporate Strategy & Business Planning
Programme Coordinator SAA Restructuring
South African Airways

Topic: Revenue Management: The application of RM to counter-attack LCCs

When: 3 Marc, 2009

10:15am – 11:00am
Venue: LB 145

Why: Gives you insight into the nature of application questions in exam, and
practical information for your individual research paper

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 1
 Service innovation

 Types of innovations and the product life cycle

 Understanding the concept of value proposition

 Augmented product (core and supplementary products)

 Reengineering the (existing) value proposition

 Flowcharting
 The flower of service

 Creating new markets through service innovation

 The law of economics of things vs. the economics of information
 Is every service business an information business?

 Key success factors in innovation

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 2
 Key definitions

 Augmented product
 A core product plus supplementary elements that add value for customers

 Value proposition:
 a specified package of benefits and solutions that a company intends to
offer and how it proposes to deliver them to customers, emphasizing key
points of difference relative to competing alternatives
 Value chain:
 The series of departments within a firm or external partners and
subcontractors that carry out value-creating activities to design, produce,
market, deliver, and support a product or service offering
 Business model:
 means by which an organization generates income from sales and other
sources through choice of pricing mechanisms and payors, ideally sufficient
to cover costs and create value for its owners

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 3
 Types of innovation and product life cycle

High 1. Radical (major)

The core product service innovations
life cycle
2. Major process
Newness to the company

innovations Maturity
3. Product line extensions
th

4. Process line extensions

w

De
ro

5. Supplementary cl
G

service innovations in
e
n
io
ct
du

6. Services improvements
tro
In

7. Style changes

Low Newness to the customer High

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 4
 How do we discover ideas for service
innovation?

 Can we reinvent the value propositions (core

or supplementary benefits)?

 Can we separate production from

consumption?

 Can we increase the customer experience

substantially?

 Can we convert tangible product to intangible

product?
 Can we change the servuction from high to
low contact?

 Can we radically reinvent the delivery

channel?

 Can we transfer (some of) production

activities from the employees to the
customer?

 Can we change the nature of ownership to

non-ownership?

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 5
 Understanding the augmented product

Shostack’s Molecular Model:

Passenger Airline Service

Service Vehicle
Frequency

In-flight
Transport Service

Pre- &
Postflight
Service
Food &
Drink
Key
Tangible Elements
Intangible Elements

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 6
 Reengineering the service concept

The value proposition:

Core, supplementary and
delivery processes

Delivery Concept
Supplementary Nature of for Core Product
services offered Scheduling
Process
and delivered

Service Customer
Level Role
Reengineering:
 Documenting the
delivery sequence
 Flowcharting
 Analyze and reevaluate
 Reengineer the concept

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 7
 The Flower of Service: What can be
reinvented (deconstructed)?

Information

Payment Consultation

Billing Core Order Taking

Exceptions Hospitality

Safekeeping
KEY:
Facilitating elements
Enhancing elements

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 8
 Creating new markets through service innovation

Is every service business an information

business?
What does this mean to innovation?

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 9
 Is every service business an
information business?

Knowledge: Product
Is information with meaning
concept

Core; supplementary
Information: elements; delivery
processes; competitive
is data with context
offerings

Data: Data:
Are elements of analysis Elements of analysis

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 10
 Is every service business an
information business?
 Information is the glue that holds together the
structure of the value proposition, the value
chain or the business model

 For most services, information represents a

large percentage of the cost structure

 Sources of competitive advantage depends on

 Proprietary information
 Asymmetry information

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 11
 A business is governed by a basic law of economics
of things vs. the economics of information: The
trade-off between Richness and Rich
Trade-off is determined by:
 Customized  Customization
People  Dialogue  Interactivity
processing  Narrowband  Bandwidth

Richness
Transaction cost theory governs the trade-off

Information
processing
Possession  Mass distribution
processing  Monologue
Mental-stimulus
 Broadband
processing

Reach (connectivity)

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 12
 Creating new markets through service
innovation (Leonard et. al., 2006)

Can we reinvent the core product? Can we reinvent the delivery?

Separable
Flexible solution Controllable convenience
Can we separate production from separation?

eBay MTNBanking
www.surf4cars.co.za Yeigo (Telfree)
Type of Service

UNISA

Experiential innovation Respectful access

(Comfortable gains)
Kulula.com
Mug & Beam
Netcare (Mediclinic)
Exclusive books
Walgreen: Drive through
pharmacy

Inseparable
Core Type of Benefit Delivery

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 13
 KSF in innovation (Leonard et. al.2006)

1. A superior customer benefit

 Affordability
 Accessibility
1. Comprehensive customer benefit
1. Technical, mechanical, human clues
2. Investment in employees performance

3. Continues operational innovation

4. Innovation champion

5. A scalable business model

6. Strategic differentiation

7. Strategic innovation

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 14
 KSF in innovation (Scott Edget & Stephen
Parkison, 1994)

 Market research factors

 Scientific studies conducted early in development process
 Product concept well defined before undertaking field studies
 Market synergy
 Good fit between new product and firm’s image/resources
 Advantage versus competition in meeting customers’ needs
 Strong support from firm during/after launch
 Firm understands customer purchase decision behavior
 Organizational factors
 Strong interfunctional cooperation and coordination
 Internal marketing to educate staff on new product and its competition
 Employees understand importance of new services to firm

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 3 - 15