New Service Development

Chapter 5
Introduction
⚫In order to survive, companies continuously
develop new services and products
⚫New service
⚫ an offering not previously available to customers
⚫It can be result of
◦ Additional offerings
◦ Radical changes in the service delivery process.
◦ Incremental improvements to existing service
packages or deliver processes that the customer
perceives as new

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New Service Development Process
⚫New service developers developed their
own ad hoc processes
◦ They were slow to adopt formal new service
development processes
⚫Formal process consists of four key steps
◦ Design
◦ Analysis
◦ Development
◦ Full launch

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 New Service Development Cycle
Planning
Execution Stage Stage
Full Launch: full-scale
launch and post launch Design: Formulation of a new service
review objective and strategy, idea generation
People and screening, and concept developing
and testing

Products

Tech-
nology Systems

Development: addresses the

complete service design and
testing, personnel training, Analysis: business
service testing, pilot run, and analysis and project
test marketing
authorization

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New Service Development Process
⚫Difficult to prototype and field test a new
concept due to the intangible nature of
services
⚫Nonlinear and iterative process
⚫Developing successful new services need
to
● Organize people into cross-functional teams
● Provide tools and resources for planning and
execution
● Develop the context that facilitate entire process

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Service Innovation
⚫Radical Service Innovation
◦ New to the world or new to the market
◦ Requires a different process and design
approach than incremental innovation
◦ Imply increased risk and resource investment
◦ Large amount of planning is needed with
substantial resources for development process
◦ Execution side must be equally supported

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Radical innovations
New Service Category Description Example
Major Innovations New Service for Online auctions such as
markets as yet eBay and Priceline.com
undefined, innovations
usually driven by
information and
computer-based
technologies
Start-up business New services in a Travelocity, Internet
market that is already travel planning, allows
served by existing automated travel
services agency service
New services for a New service offerings to Free-standing bank
market presently served existing customer of an branches or kiosks in
organization (although supermarkets or other
the services may be retail establishments
available from other
companies)

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Incremental Innovations
⚫Some minor adjustment to the existing
service delivery components
◦ People
◦ System
◦ technology
⚫Fewer resources and less effort are
devoted to the planning side
⚫Execution side of the process cycle is
emphasized
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Incremental Innovations
New Service Description Example
Category
Service line Augmentations of the existing Southwest Airlines adding
extension service line such as adding new Fresno as a new
menu items, new routes, and new destination; McDonald’s
courses adding a new sandwich
Service Changes in features of services Delta Airlines’ and British
improvement that currently are being offered Airlines’ use of ATM-like
kiosks to distribute
boarding passes to
passengers
Style do not change the service Funeral homes that offer
changes fundamentally, only its appearance abbreviated ceremonies
that celebrate life instead
of mourning death

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Service System Design
⚫ Good service product and process design provides the key to
success for a company
⚫ Service Decision Factors
⚫ Facility Location (based upon proximity to customers)

⚫ Facility Layout (depends on the presence of the customer at the

location)
⚫ If the customer is not present in the service then layout decisions are
based on operational efficiency
⚫ When the customer is present, the layout decisions revolve around how
the surroundings affect the customers and employees

⚫ Product and Process Design (Covers both the intangible and

tangible aspects of the service offering)
⚫ Physical environment
⚫ Menu offerings
⚫ Customer interaction level
⚫ Music etc.

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Service System Design
⚫Service Decision Factors

⚫Scheduling (how the workers are assigned to

the service)

⚫Quality Control, Measures and Time

Standards (focus is on the needs of the
customer)

⚫Demand/Capacity Planning

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Service System Design
⚫Service Decision Factors

◦ Customer Contact Level (physical presence and length

of time that a customer spends with a service provider)

◦ Industrialization level (the substitution of technology for

people)

◦ Front Line Personnel Discretion (denotes the flexibility

of the service employee while interacting with a
customer)

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 Service System Design
⚫ Service Decision Factors
◦ Worker Skills (depend on service strategy and concept,
customer contact level and industrialization level)

◦ Sales Opportunities (coincide with high customer contact

and employee discretion)

◦ Standardization of Service offering (level of uniformity

provided in the service)

◦ Customer Participation (substitution of consumer labor

for provider labor)

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Service System Design and Innovation
⚫ Service customer buys a package of goods and services
which consists of different features or attributes
◦ Supporting facilities must be in place prior to offering a service
● Example: At gas station-Site, building or leased space
◦ Facilitating goods such as a product or other tangible features are part
of the service
● Example: gas, groceries, fast food
◦ Sensual and psychological benefits are associated with the service
offering
● Smells, sounds, privacy, or security

⚫ Must differentiate between core and ancillary services

◦ Core service: gas
◦ Ancillary services: ATM, fast food vendors

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 Service System Design and
Innovation
Industrialization Level Standardization Level
(Low) (High)

Low Current service (Take Incremental service

(Face to face delivery) computer to repair center) station (“House call”
computer repair service)

Technology driven Radical service

High (Technology service innovation (body innovation (shop on line
based self service) scanning technology) for made-to-order
clothing)

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Service System Design Tools
⚫Design tools assist designers in evaluating
service concepts for
● Improved efficiency

● Customer satisfaction

● Quality

● Market share

● Profitability

5 New Service Development 16

Service System Design Tools
⚫Service Blueprinting
◦ A process analysis technique that lends itself to
a focus on the customer & the provider’s
interaction with the customer
◦ Identifies failure points in design stage and
shows how poka-yoke techniques can be added
to improve quality
◦ Design tool based on the process flow diagram
● Delineate front office from back office operations
● Determine standard or maximum execution times, materials and
the exact process for each step
● Identify potential failure points and generate mitigation plans to
prevent or recover from a failure
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Service Blueprinting Example

Chapter 3 Service Environment 18

 Service System Design Tools
Service Blueprint for Espresso and Coffee Shop
Seen by customer

Take Drink Order Collect Payment Make Drink Deliver Drink

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

Line of Visibility

Prepare Mixes Order Supplies

Not seen by customer

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Example of Service Blueprinting

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Service System Design Tools
⚫Customer Utility Models
◦ Measuring service quality
● 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
● Enhancing the tangible attributes of a service
increases costs of consumables

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Service System Design Tools
⚫Designers need to determine
◦ Important service attributes along with customer’s
preference model for them
◦ The attributes that are appropriate for
standardization for all segments
◦ The practicality and economic feasibility of different
attributes and attribute levels
◦ The market share or profit implications of chosen
designs.

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Non-price Service Attributes and cost
implications

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Utility Based Service Design Process

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Service System Design Tools
⚫Conjoint analysis / Discrete choice analysis
helps answer vital product development and
pricing questions, such as:
◦ What combination of features should a product or service offer?
◦ Which are the most critical features, and which are less important?
◦ How does price impact demand for the product or service?
◦ How well will a new product or service compete in the market?
◦ Which strategies will maximize market preference across your product
portfolio?
◦ Which strategies will minimize cannibalization of existing offerings,
especially premium or higher margin products or services?
◦ How vulnerable are you to competitive response?

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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 (βs)

using multinomial Logit or regression analysis

Profile N with Customer waiting

attributes, time
price, and cost

Feasibility
Evaluate Market
Share & Profit
& Profit

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New Service Design for Snowbird Ski Resort

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100 Yen Sushi House Questions
⚫ Prepare a service blueprint for the 100 Yen Sushi
House
⚫ What features differentiate 100 Yen Sushi House and
how do they create a competitive advantage?
⚫ How has the 100 Yen Sushi House incorporated the
just-in-time system into its operations?
⚫ Suggest other services that could adopt the 100 Yen
Sushi House service delivery concept.

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 100 Yen Sushi House Layout
Dishwashing Counter in
Back
CONVERSATION AREA
Miso and Tea Station

CONVEYOR
BELT

CONVERSATION AREA
TAKE-OUT
POSITION

ENTRANCE = CHEF

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100 Yen Sushi House Blueprint

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 100 Yen Sushi House Blueprint

Customer Provider
Activities Activities

Enter Welcome Customers

Seat Themselves Serve Accessories F
F
Make Paste F
Make Selection Prepare Selections F Review Demand
Make Tea Cook with Attn. to Flavor
Eat Fill Tea F Remove Uneaten Sushi
Stack Plates Get from Inventory
Pay Count Plates
Leave Thank Customer Stock Inventory
Remove Accessories

Line of Visibility
F
Tell Friends Wash Plates, etc.
Provide High Quality Ingredients
5 New Service
F Development 31