Chapter 5

New Service Development

Learning Outcomes
Understand the new service

development process

Choose appropriate tools for

making decisions in the new service design

Understand the different design

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attributes and their strategic implications

New service
Offering not previously available to

customers.

Result of additional offerings: radical changes in service delivery process or incremental improvements to existing service packs or Delivery process that the customer perceives as new
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For Example : internet services, online

New Service Development Cycle

Execution Stage Full Launch
People Products Technology
Service design and testing Process and system design and testing Marketing program design and testing Personnel training Service testing and pilot run Test marketing

Planning Stage Design

Formulation of new services objective / strategy Idea generation and screening Concept development and testing

Systems

Develop -ment

Analysis
Business analysis Project authorization

New Service Development Cycle

The process consists of 4 key steps:
Design analysis Development Launch

New Service Development Cycle

The process is conceptualized as a sequence

from design through launch. Design and Analysis are planning activities while Development and Launch are execution activities. Design stage covers the formulation of a new service objective and strategy, idea generation 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

New Service Development Cycle

At the heart of the model sits the service

delivery system: the people, technology and systems that go into designing and delivering the new service.
Organizations that continuously develop

successful new services tend to organize their people into cross functional teams, provide them with appropriate tools and resources for planning and execution, and develop an organizational context that facilitates the entire process so that products can be developed quickly and effectively.

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.

Radical Service Innovation

Innovative service firms require enablers

( cross functional teams) to facilitate the process Radical Innovation Major innovation E.g. new service that customers did not know they needed. Innovations usually driven by information and computer based technologies. Eg Online auctions Start up business new services in a market that is already served by existing services. Eg Internet travel planning allows automated travel agency service. New service for the market presently Served-

Incremental Innovations
Usually involve some minor adjustments to

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the existing service delivery system components( people, system & technology) Hence, fewer resources and less effort are devoted to the planning side and more devoted to the execution side of the process cycle. imply increased risk and resource investments. Large amount of planning is needed to flesh out the idea along with committing substantial resources to the new service development process.

Incremental Innovations
Service Line Extensions: augmentation of

existing 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 resources are allocated (I/Innovation - fewer resources to planning than what is devoted to execution phase. R/ Innovation imply increased risk and 11 resource investment, requires lot of planning.

Service System Design

The initial part of the planning cycle tackles the development of a service concept and operating strategy. The next stage is to make decisions related to the service process or delivery system design to produce the service concept. Good service product and process design provides the key to success for the company. All the service design factors should relate to the service strategy and concept.

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Service Decision Factors

Facility Location

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- based upon proximity to customers. Facility Layout - depends on the presence of the customer at the location. -servicescape (refers to the services physical surroundings and how they affect people in the a retail setting. Product and Process Design - covers both the intangible and tangible aspects of the service offering or package. Scheduling - addresses how the workers are assigned to the service.

Service Decision Factors

Quality Control, Measures and Time Standards

- should focus on the needs of the customers and how well the service addresses those needs. Demand/Capacity Planning -depends on the type of service and the immediacy of matching supply to demand Customer Contact Level - physical presence and length of time that a customer spends with a service provider. Indirect contact- customer is not physically present or interacting in real time such as emailing Direct contact- customer is physically present and interacts with a service provider and interacts with a service provider No contact- no interaction with the service 14 provider such as ATM machines

Service Decision Factors

Industrialization level

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- refers to the substitution of technology for people. The goal is to reduce the use of service employees and direct customer contact, the mostly costly and fallible side of a service encounter. Front Line Personnel Discretion -denotes the flexibility of the service employee while interacting with a customer. Formalized dialog sequences and scripting limit the employees discretion Worker Skills -depend on service strategy and concept, customer contact level and industrialization level. High customer contact with high quality expectation require strong people skills

Service Decision Factors

Sales Opportunities

-coincide with high customer contact and employee discretion. Direct contact with customers gives the employee a high level of discretion, the opportunity to close the sale or up sell increases
Standardization of Service Offering

-level of uniformity provided in the service.

Customer Participation

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-substitution of consumer labor for provider labor. By shifting some of the activities to the customer, the service provider can save money,

Service System Design and Innovation

Service customers buy a package of goods and services usually in the same environment. This package consists of different features. 1. Supporting facility must be in place before a service can be provided. 2. Facilitating goods such as product or other tangible features as part of the service. 3. Sensual or psychological benefits are associated with sight, smells, and sounds or feelings of status, privacy or security.
Services might be bundled into one
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supporting facility Must differentiate between core and ancillary

Service System Design and Innovation

Contribution of the service system design to

new service innovation

The emergence of the internet as a significant

process technology enables delivery of many new services both incremental and radical innovations.
The interaction of design factors of customer

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contact, industrialization and standardization play an important role in new service innovations.

Service System Design and Innovation

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Service System Design Tools

New service designers rely on several tools to

develop and analyze their concepts. All these tools recognize the importance of the customer in the system . Tools : 1. Service Blue print maps the customers processes and examines interactions in different steps in the service. 2. Customer Utility Models generates the attributes that are important to a customer and then analyses the potential customer satisfaction level, revenues and profits from a 20 new service design in a competitive market.

Service Blueprinting
Design tool based on the process flow diagram Delineate front office or high contact areas from back office operations or low customer contact areas. A line of visibility divides the these 2 functional areas and the process occurring in each.
Designers can determine standard or

maximum execution times, materials and the exact details for each step. (refer to the figure)
Identify potential failure points and generate
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strategies for preventing or recovering from failure. The mistake-proofing strategy or poka

Building a Service Blueprint

Step 11 Step
Identify the Identify the process to process to be bluebe blueprinted printed

Step 22 Step
Identify the Identify the customer or customer or customer customer segment segment

Step 33 Step
Map the Map the process from process from the the customers customers point of view point of view

Step 44 Step
Map contact Map contact employee employee actions, actions, onstage and onstage and back-stage, back-stage, and/or and/or technology technology actions actions

Step 55 Step
Link contact Link contact activities to activities to needed needed support support functions functions

Step 66 Step
Add evidence Add evidence of service at of service at each each customer customer action step action step

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Service System Design Tools

Service Blueprint for Espresso and Coffee Shop
Seen by customer
Take Drink Order Collect Payment Make Drink Deliver Drink

Fail Point

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

Line of Visibility
Prepare Mixes Order Supplies

Not seen by customer

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Blueprint for Express Mail Delivery Service

Truck Packaging Forms Hand-held Computer Uniform Customer Calls Customer Gives Package Truck Packaging Forms Hand-held Computer Uniform Receive Package CUSTOMER PHYSICAL EVIDENCE

CONTACT PERSON (On Stage) (Back Stage)

Line of interaction
Driver Picks Up Package Deliver Package

Line of visibility
Customer Service Order

Line of internal interaction

SUPPORT PROCESS Dispatch Driver Airport Receives & Loads Fly to Sort Center Load on Airplane Sort Packages Fly to Destination Unload & Sort Load On Truck

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Blueprint for Overnight Hotel Stay Service

PHYSICAL EVIDENCE
Hotel Exterior Cart for Parking 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 Check out and Leave

CUSTOMER CONTACT PERSON (Back Stage) (On Stage)

Arrive at Hotel

Give Bags to Bellperson

Check in

Go to Room

Receive Bags

Sleep Shower

Call Room Service

Receive Food

Eat

Line of Interaction
Greet and Take Bags Process Registration Deliver Bags Deliver Food Process Check Out

Line of Visibility
Take Bags to Room Take Food Order

SUPPORT PROCESS

Line of Internal Interaction

Registration System Prepare Food Registration System

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Service Blueprint of Luxury Hotel

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Customer Utility Models

Success depends on favorable market response

to a new service configuration and that response depends on the customers perceived utility or benefit provided by the services price or nonprice attributes and that of competing brands.
Promise of customer utility measurement is the

ability 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 affects
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customer loyalty and repurchase intent and thus the utility of the service for customers.

Customer Utility Models

Service quality can be measured along five principle

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dimensions. Reliability, responsiveness, assurance and empathy, and the tangible aspect of the service Improving reliability can result in increased labor and training costs Responsiveness may be enhanced by reducing queue times Empathy and assurance can be influenced by the ability of service providers to convey knowledge, courtesy and impressions of caring and approachability during each service encounter. Enhancing the tangible attributes of a service

Customer Utility Models

To evaluate a new service using the utility model,

Conjoint analysis (CJA) and discrete choice analysis (DCA) are used to model customer utility in response to experimentally designed profiles of service attributes. Discrete choice experiments involve careful design of service profile choice sets
Design of a new airport restaurant requires the following
Identification

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of important attributes Specification of attribute levels Experimental design Presentation of alternatives of respondents Estimation of choice model

New Service Design for Snowbird Ski Resort

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

Determine all variables and costs related to Service Attributes & demand -capacity matching strategies

Collect Customer Attribute Information using choice-based or ratings-based conjoint analysis

Solve for Customer Segments and Utility Weights (s) using multinomial Logit or regression analysis Profile N with attributes, price, and cost
Feasibility

Customer waiting time

Evaluate Market Share & Profit

& Profit

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Summary
Challenges to service design
Intangible nature of service encounters Inability to prototype and test new concepts Propensity to use ad-hoc methods

Innovations come through incremental and radical

new services
The two approaches address the same factors (i.e.

customer contact and industrialization)

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