New services can be of the following six types:
- Radical innovations that are new to the world like guaranteed overnight courier delivery by Federal Express
- New services offered to customers having access to competitive products
- New services offered to customers by a company which was not providing those services earlier like Barnes and Noble booksellers offering coffee services
- Service‐line extensions like an airline offering additional routes
- Service improvements like augmenting hotel rooms with internet facilities
- Style changes like changing the colour of the servicescape, redesigning the website, logo, etc.
Research published in BusinessWeek in 1993 indicated that only 56 percent of new products and services remained in the market 5 years after those have been launched. Professor Robert G. Cooper wrote in 2001 that the primary reasons for failure of new products and services included:
- No unique benefits offered
- Insufficient demand
- Unrealistic performance goals like market share, etc. for the new service
- Poor fit between the new service and others within the organisation’s portfolio
- Poor location
- Insufficient financial backing
- Failure to take the necessary time to develop and introduce the new service
Professors Henard and Szymanski wrote in 2001 that the primary reasons for success of new services are that the new service:
- Meets customer needs, has advantage over the competition, and is technologically sophisticated,2. Has dedicated R&D, dedicated human resources and availability of marketing, predevelopment, technological and launch proficiencies in the firm for new service development and commercialisation, and3. Enjoys existence of the potential for absorption in the market
Professor G. L. Shostack wrote in 1984 that as services are intangible, new service development system should have the following four characteristics:
- It must be objective, not subjective
- It must be precise, not vague
- It must be fact driven, not opinion driven
- It must be methodological, not philosophical
As services are produced and consumed simultaneously, customers are heavily involved in the production and consumption of services. Customers may be co-producing a service as in a self-service restaurant. Therefore, both employee and customer representatives must be a part of the new service design and development team from the very beginning. For instance, some hotels involve their customers and service personnel in the design of their hotel rooms besides architects, managers and other professionals.
Professor John T. Gourville wrote in 2004 that successful new product / services offer plenty of new benefits while requiring little change in consumer behaviour. New offerings like Google became successful as it provided a powerful search engine vehicle requiring no change in customer’s way of searching the Internet.
Change in customer Behaviour
|New Benefits Provided|
|High||Sure failures:DVORAK keyboard||Long Hauls:Satellite Radio|
|Low||Easy Sells:McDonald’s Vegetarian Menu||Smash Hits:Google|
Figure 18-1: Criteria for success of New Offerings
Stages in New Service Development
Professors Zeithaml, Bitner, Gremler and Pandit, have published the stages of new service development from various sources in their book entitled “Services Marketing” in 2008.
Stage 1: Business Strategy Review
At this stage we must review and understand the vision, mission, values and strategic orientation of our company. The vision of transporting goods, i.e., cargo service would be different from the vision of transporting mail, i.e., courier service. In 1997, Michael Treacy and Fred Wiersema have written about three value disciplines that companies must choose from.
(i) The operationally excellent firm, which is efficient and delivers services at the lowest cost to the customer,
(ii) The product/service leader, i.e., offering innovative services under a strong brand.
(iii) The customer intimate firm, that excels in customer attention and customer service.
Next, we must understand the strategic orientation that our company has decided to take to excel in the marketplace. A strategy is essentially a means to reaching business goals that our company has decided for itself. Generic strategies are game plans for operating and surviving in the marketplace. Michael Porter has written about three generic strategies in 1980.
1. Cost leadership strategy, i.e., becoming the lowest cost provider of services,
2. Differentiation strategy, i.e., providing unique set of benefits to the customers which are not offered by our competitors, and
3. Focus strategy, i.e., focusing on a niche or narrow market segment and fulfilling the needs of that segment through its service offerings.
Stage 2: Developing New Service Strategy
We must decide the strategy that our company would like to take to grow in the marketplace and align new service development in that direction. These include
(i) Intensive growth
(ii) Integrative growth
For intensive growth, the company would strive to increase market share for its current services in the current market or develop and launch new services in existing markets or take current services to new markets. These strategies are depicted in the matrix. A company can increase its market share by changing the style of operations and enhancing its customer intimacy, for instance. Ordinarily, service businesses choose to grow by taking their current services to new markets, i.e., new countries and cities and adapt the offering to the preferences of the customers in the new market. You may have noticed how McDonald’s opened its outlets in various cities in India, one after another. On the other hand, post offices in India started providing fixed deposit services and passport related services in the same markets where they were offering postal services. Similarly, a customs agent may launch courier services in the city where they are located, as an example of growing their business by offering new services in existing markets.
|Services||New||New Service Development||(Diversification)|
|Current||Increasing market share||Market development|
Figure 11.3 Ansoff’s Matrix indicating Intensive Growth Strategies
For integrative growth, the company would form joint ventures or alliances with other companies in order to deliver complementary services, such as catering services for airlines. It might also like to acquire other companies or merge with them.
Under the diversification strategy, the company develops and launches new services in new markets. This step is risky as the company does not have prior experience with the new service in the new market. However, once the intensive and integrative modes of growth have been exhausted, a business would have no choice other than to diversify its business into new services in new markets.
Knowledge about the above strategic orientation of our company will help us formulate the new service strategy. We can now initiate the new service development process in alignment with the new service strategy.
Stage 3: Idea generation
The third stage of new service development is that of idea generation. This stage requires a formal department to be set up in our company. The activities in this stage would include conducting idea generation exercises like brainstorming and focus group discussion with customers, observing customers in different situations wherein they receive the same benefit through similar or ernative services and learning about the services provided by competitors. The company must also place suggestion boxes and institute suggestion reward schemes to attract suggestions from their employees. Listening to customers is the best way to receive ideas, not only for improvements in the current services offering, but also for entirely new services. The idea must align with the new service strategy; otherwise the idea must be dropped or shelved. It must also undergo preliminary evaluation regarding the potential market for the benefit that customers are willing to receive from the service. We must keep in mind that the quantum of investments starts increasing rapidly from this point onwards for developing each idea. Unless the idea has clear potential, it must be dropped, otherwise the company will face further losses if the idea is allowed to be developed further and is dropped at a later stage due to lack of feasibility.
Stage 4: Service Concept Development
An idea that appears feasible and profitable is taken up for development of the service concept. The service concept is the description of the service in terms of the value it will provide customers, the form and function of the service, the type and level of experience that customers are likely to receive from the service, and the outcome of the service. The concept is developed by involving customers, service personnel, service managers, suppliers and other professionals such that it is acceptable to all and everybody agree that it is likely to provide much needed benefits to the customers. The service concept is tested with customers and employees and is dropped if it is not found to offer substantial benefits to customers in comparison to existing alternate methods by which customers can satisfy their need.
Figure 19-2: Blueprint of a Typical Restaurant Service
A blueprint of the service can also be drawn at this stage as elaborated in Figure 19-2. The blueprint would help in laying out the service process and estimating various costs involved in delivering the service to customers. This would help in estimating the profitability of the service business and developing the business case as discussed in the following section.
Stage 5: Developing the Business Case
It is ensured that it will be possible to deliver the services in a manner acceptable to customers, the customers are willing to purchase the service, and the service remains profitable with a three-year ROI/ROCE that is greater than the prevailing bank interest rate. If the service does not seem to be profitable, it must be dropped without incurring any further cost in developing the concept further. The profitable business case is then developed for approval of the management and representatives of the shareholders and investors.
Stage 6: Service Development and Testing
Once the business case for the service has been approved, it is taken up for development of the actual service. The blueprint of the services is further developed and the service prototype is tested with actual customers. For example, a bank can test new ideas by reorganizing current branches for the test period and observing and collecting data from actual customers about the benefits of the new idea. One bank found that installing TVs with CNN channel reduced the perceived waiting time for the customers and then the same was taken up for implementation in big branches. In this way all new concepts are tested and those ideas that do not provide substantial benefits to customers are promptly dropped.
Stage 7: Market Testing
Once the service prototypes have been tested, these are put together for a pilot test. Alternative marketing mix elements or 7Ps options are tested at this stage. At first, the pilot service is offered to the employees of the organisation and their feedback is collected. The service is then modified according to the feedback received and is offered to actual customers for a short period and their feedback collected. The feedback is analysed for effecting further modifications in the service and tying up any loose ends. If the service passes the market testing phase and it is found that customers are enthusiastic about the new service and the service is estimated to generate profits, the service development is taken to the next stage.
Stage 8: Commercialisation
The plan for rolling out the new service is then drawn up. It is usually rolled out in a phased manner by opening it up in the least risky markets and then quickly spreading it to other markets if the feedback is favourable. Commercialisation has two important objectives. The first objective is to elicit the support of the large number of service personnel who are going to deliver the services. At this stage the new service is marketed to the employees of the organisation as a new smart offering that generates profits and bonuses for the organisation. The second objective is to monitor the service throughout the period that customers purchase and use the service. Every interaction at the moment of truth and every detail is monitored and feedback collected from the customers as to whether the latter’s needs are being fulfilled, whether they are deriving benefits from the service and are satisfied and what modifications they would like to be made in the service. The service is constantly modified based on the feedback collected. Customers’ comfort with the price and other marketing mix elements is thoroughly ensured by the service manager and adjustment and improvements are continuously made so that customers feel a compelling need to purchase the service.
Stage 9: Post-launch evaluation
The service is reviewed for performance according to a pre-planned period of review. Customers, employees, the market and the context keep changing with time. It is important to effect necessary changes periodically in the service in line with the changes in the above dimensions. The service blueprint comes in handy at this stage. It is also inspected for alternate ways to gain further efficiency and pass on part of the benefits so accrued to the customers and part of the same to the organisation. Customers and employees are requested for new ideas for this new service and same are incorporated to be able to provide the latest to the customers and to remain ahead of competitors in the marketplace.
|Front-end planning||1||Business strategy review|
|2||Developing new service strategy|
|3||Idea generation||Screen ideas against new service strategy||Drop|
|4||Concept development and evaluation||Test concept with customers and employees||Drop|
|5||Developing the business case||Test for Feasibility and profitability||Drop|
|Implementation||6||Service development and testing||Conduct service prototype test||Drop|
|7||Market testing||Test service and mix elements||Drop|
Figure 19-1: Stages in New Service Development