2.

What generic approach to service system design is illustrated by Commuter

Cleaning, and
what competitive advantages does this design offer?
The customer contact approach to service design is used by Commuter Cleaning.
This approach
is exemplified by the separation of high-contact front- office drop-off and pick-up by
the
customer at a commuter train station kiosk and the low-contact back-office contract
cleaning
operations at a remote site. The principal competitive advantage is customer
convenience,
because the kiosk is located where the customer must be every workday and
monthly billing and
use of a personal laundry bag minimize the transaction time.
3. Using the data in Table 3.5, calculate a break-even price per shirt if monthly
demand is
expected to be 20,000 shirts and the contract with a cleaning plant stipulates a
charge of $.50 per
shirt.
Break-even price per shirt is calculated by setting the total monthly fixed expenses
equal to the
monthly demand multiplied by the difference between the price per shirt and the
cleaning charge
per shirt as shown below:
Total Monthly Fixed Expenses = (Monthly Demand)(Price – Cleaning Charge)
$13,404 = (20,000)(Price – 0.50)
Price = (13,404 + 10,000)/20,000
= $ 1.17
4. Critique the business concept, and make suggestions for improvement.
The business concept seems particularly effective for cleaning men’s and women’s
business
shirts, but more complicated dry cleaning is problematical, because instructions
would be difficult
to communicate. The level of demand is prone to severe peaking and explicit efforts
would be
needed to smooth demand throughout the week. Customers might need to be given
a day in the
week (perhaps keyed to a color-coded bag) to make a drop-off. There is some
concern about lack
of quality control over the contract cleaner and the willingness of the contract
cleaner to return
shirts the same day if it interferes with in-house cleaning. Accounts receivable could
pose a
collection problem, because the cleaned shirts have already been returned to the
customer.
CASE 3.3: AMAZON.COM
1. How does Amazon.com illustrate the sources of service sector growth? Comment
on
information technology, Internet as an enabler, innovation, and changing
demographics.
Amazon.com has taken the business world by storm. Jeff Bezos set out with lofty
goals and has
taken every conceivable step to achieve them. Amazon.com identified a market that
was perfect
for the virtual world. Books are the same no matter where they are purchased.
There is no need
to try on or taste books so books can be sold effectively without the physical
presence of the
customer. Amazon.com launched with a concentration on books, but quickly
branched out into
other lines of business such as music and auction sites. It is hailed as the top pure
web-based
business in existence, yet did not turn a profit for several years. This is due to
Bezos’ eye towards
long-term success, which he thinks is driven by grabbing market share early in the
game
regardless of profitability and creating strong brand equity for the business.
Information Technology
Amazon.com was the first to introduce the very successful Kindle as a digital book
reader. In
2011 a tablet computer called Kindle Fire was introduced to compete with the iPad.
This move to
digital products represents a change in focus from being exclusively in the D
quadrant of Figure
3.1 to compete in the C quadrant as well. Amazon.com has created an information
chain
beginning with retail products viewed online to their consumption using handheld
devices.
Internet as an Enabler
From the beginning, Amazon’s focus was on increasing its customer base. It did this
by
capitalizing on the Internet’s major strength – its ability for mass customization. The
Web site’s
Discussion Boards allowed customers to post opinions and reviews. This
incorporated the
customer as a participant in the development of the website and helped to increase
loyalty to the
site. “Collaborative filtering” allows Amazon to personalize recommendations to its
customers
and the 1-Click streamline service makes repeat ordering as hassle free as possible.
Finally,
Amazon made the site simple to navigate and used few graphics so the site would
load quickly.
The attributes work together to raise the level of involvement between Amazon and
its customers,
thereby creating switching costs in the future.
Amazom.com has been credited with specific Internet innovations that include 1-
Click (purchase
processing), customer “wish lists,” personalized recommendations for each
customer, ability to
distinguish between personal and gift purchases, and site customization to focus on
each
customer’s preferences. Using “collaborative filtering” Amazon is able to
recommend to its
customers products or books that other customers who have made similar
purchases have
ordered. This software technique mimics the personal advice found at your corner
store.
Amazon.com has extended its reach to other businesses with Amazon Web Services
(AWS), a
platform for managing their operations including a CloudWatch capability for
monitoring the
AWS.
Changing Demographics
The Kindle book reader was a simultaneous hit with two demographics, the elderly
and
grandchildren. Because the Kindle was priced very low (possibly below cost), it
became an ideal
gift for both demographics. Grandparents could encourage their grandchildren to
read with an
inexpensive Christmas gift. On the other hand, grandparents could enjoy the novel
features of the
Kindle such as increased font size for elderly eyes. In general, Amazon.com is
benefiting from
the baby boomer retirees’ free time to read.
2. What generic approaches(s) to service design does Amazon.com illustrate and
what
competitive advantages does this design offer?
The two generic approaches that are obvious candidates include customer as
coproducer and
information empowerment. For Amazon.com, customers, without doubt, act as self-
servers using
their own computers for access. The competitive advantage is considerable savings
that result
from avoiding investment in physical retail sites. Customers also participate as
content
contributors when they provide product reviews. However, under the customer
contact approach,
Amazon.com falls into a position that results in low sales opportunity, although cost
of delivery is
low as see in Figure 3.3 (Web site). Amazon.com addresses the low sales
opportunity with its
collaborative filtering software that makes sales suggestions based on other
customer purchases.
Amazon utilizes the power of its brand name to sell a myriad of products effectively.
In addition,
its CRM (Customer Relationship Management) approach to cross-sell products
proactively based
on an individual’s online search activity will increase its profitability.
3. Is Amazon.com a model for the future of retailing?
Amazon.com definitely is a model for future retailing for one primary reason: the
company
listens to its customers and alters its service package real-time as a result of this
feedback loop. A
quick rebuttal to this argument might be Amazon’s lack of profits. However, high
levels of
customer service and customer retention techniques might drive revenues through
the rough startup
period, which Amazon.com has definitely succeeded in doing so far. There are
numerous
reasons to believe Amazon will be profitable in the future. First, it has very strong
brand equity.
Amazon has become the Nordstrom’s of the Internet world. It is the gold standard of
service,
which every future Internet retailer must match or risk falling short of customer
expectations.
Second, this strong brand equity has led to a loyal user base, including a current
estimated repeat
customer rate of 73 percent. It is no secret that the lifetime value of a customer is
tremendous.
Amazon has recognized this and is poised to reap major profits from its current user
base.
Eventually, Amazon will no longer be in a pure market share drive. This will allow it
to lower its
marketing expenditures and reap the “lifetime customer” profits.
The reasons Amazon has established itself as the future retailing model include (1)
customercentric
process design from inception, (2) full utilization of information technology to
enhance
the service delivery, (3) and a unique and continually evolving service package. The
Internet
empowers the buyer so retailers that are unable to perform well in these three
areas will fail
miserably in Internet retail space.
Jeffrey Bezos’ vision for Amazon took an entire year to develop, which in Internet
time is an
eternity. As speed-to-market is the only rule, Bezos demonstrated his customer-
centric focus by
his bet to take more time to develop the “best” product for the customer that was
friendly and
very easy to use. This bet early on clearly established one of Amazon’s founding
principles–
customer focus. This was further demonstrated through its decision to ensure
minimal customer
dissatisfaction during the Christmas season. Amazon stockpiled inventory so
customers would
not be dissatisfied when items were out of stock.
Utilization of information technology to provide the service delivery process is
Amazon’s
strength. It has been credited with specific Internet innovations that include 1-Click
(purchase
processing), customer “wish lists,” personalized recommendations for each
customer, ability to
distinguish between personal and gift purchases, and site customization to focus on
each
customer’s preferences. Amazon is one of the best companies at benefiting from
the utilization of
its information technology and customer-specific data to generate additional sales.
Finally, Amazon’s approach has created a “give the customer what he/she wants or
lose the
business” mentality, because the customer can locate and purchase a good
elsewhere with only a
click of a mouse. Amazon.com definitely has put the rest of the retail industry on its
ear in terms
of service levels and service packages and it has signaled the market that this is
only the
beginning