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Chapter -2

Competitive Dimensions

Given the choices customers face today, how do they decide which product or service to buy? Different customers are attracted by different attributes. Some customers are interested primarily in the cost of a product or service and, correspondingly, some companies attempt to position themselves to offer the lowest prices. The major competitive dimensions that form the competitive position of a firm are discussed next.

Cost or Price: "Make the Product or Deliver the Service Inexpensively"

Within every industry, there is usually a segment of the market that buys solely on the basis of low cost. To successfully compete in this niche, a firm must be the low-cost producer. However, even this does not always guarantee profitability and success. Products and services sold strictly on the basis of cost are typically commodity-like; in other words, customers cannot distinguish the product or service of one firm from that of another. This segment of the market is frequently very large, and many companies are lured by the potential for significant profits, which they associate with the large unit volumes. As a consequence, however, competition in this segment is fierceand so is the failure rate. After all, there can be only one low-cost producer, who usually establishes the selling price in the market. Price, however, is not the only basis on which a firm can compete (although many economists appear to assume it is!). Other companies, such as BMW, seek to attract people who want higher qualityin terms of performance, appearance, or featuresthan what is available in competing products and services, even though it means a higher price.

Q u a l i t y : " M a k e a G r e a t P r o d u c t or Deliver a Great Service"

There are two characteristics of a product or service that define quality: design quality and process quality. Design quality relates to the set of features the product or service contains. This relates directly to the design of the product or service. Obviously, a child's first two-wheel bicycle is of significantly different quality than the bicycle of a worldclass cyclist. The use of special aluminum alloys and unique lightweight sprockets and chains is important to the performance needs of the advanced cyclist. These two types of bicycles are designed for different customers' needs. The higher-quality cyclist product commands a higher price in the marketplace due to its special features. The goal in establishing the proper level of design quality is to focus on the requirements of the customer. Overdesigned products and services with too many or inappropriate features will be viewed as prohibitively expensive. In comparison, underdesigned products and services will lose customers to products that cost a little more but are perceived by customers as offering greater value. Process quality, the second characteristic of quality, is critical because it relates directly to the reliability of the product or service. Regardless of whether the product is a child's first two-wheeler or a bicycle for an international cyclist, customers want products without defects. Thus, the goal of process quality is to produce defect-free products and services. Product and service specifications, given in dimensional tolerances and/or service error rates, define how the product or service is to be made. Adherence to these specifications is critical to ensure the reliability of the product or service as defined by its intended use.

D e l i v e r y S p e e d : " M a k e t h e P r o d u c t o r D e l i v e r t h e S e r v i c e Quickly"

In some markets, a firm's ability to deliver more quickly than its competitors is critical. A company that can offer an onsite repair service in only 1 or 2 hours has a significant advantage over a competing firm that guarantees service only within 24 hours.

Delivery Reliability: "Deliver It When Promised"

This dimension relates to the firm's ability to supply the product or service on or before a promised delivery due date. For an automobile manufacturer, it is very important that its supplier of tires provide the needed quantity and types for each day's car production. If the tires needed for a particular car are not available when the car reaches the point on the assembly line where the tires are installed, the whole assembly line may have to be shut down until they arrive. For a service firm such as Federal Express, delivery reliability is the cornerstone of its strategy.

Coping with Changes in Demand: "Change Its Volume"

In many markets, a company's ability to respond to increases and decreases in demand is important to its ability to compete. It is well known that a company with increasing demand can do little wrong. When demand is strong and increasing, costs are continuously reduced due to economies of scale, and investments in new technologies can be easily justified. But scaling back when demand decreases may require many difficult decisions about laying off employees and related reductions in assets. The ability to effectively deal with dynamic market demand over the long term is an essential element of operations strategy.

Flexibility and New-Product Introduction Speed: "Change It"

Flexibility, from a strategic perspective, refers to the ability of a company to offer a wide variety of products to its customers. An important element of this ability to offer different products is the time required for a company to develop a new product and to convert its processes to offer the new product.

Other Product-Specific Criteria: "Support It"

The competitive dimensions just described are certainly the most common. However, other dimensions often relate to specific products or situations. Notice that most of the dimensions listed next are primarily service in nature. Often, special services are provided to augment the sales of manufactured products.

1. Technical liaison and support. A supplier may be expected to provide technical assistance for product development, particularly during the early stages of design and manufacturing.

2. Meeting a launch date. A firm may be required to coordinate with other firms on a complex project. In such cases, manufacturing may take place while development work is still being completed. Coordinating work between firms and working simultaneously on a project will reduce the total time required to complete the project.

3. Supplier after-sale support. An important competitive dimension may be the ability of a firm to support its product after the sale. This involves availability of replacement parts and, possibly, modification of older, existing products to new performance levels. Speed of response to these after-sale needs is often important as well.

4. Environmental impact. This dimension is related to criteria such as carbon dioxide emissions, use of nonrenewable resources, or other factors that relate to sustainability.

5. Other dimensions. These typically include such factors as colors available, size, weight, location of the fabrication site, customization available, and product mix options

Chapter - 3

the detailed design of manufactured products is focused on reducing the number of parts in the item and designing the item in such a way that it can be efficiently produced. Service products are very different because direct customer involvement in the process introduces significant variability in the process in terms of both the time that it takes to serve a customer and the level of knowledge required of the firm's employees. Questions that should be addressed in the design of a service include: How will this variability be addressed? and What are the implications for operational cost and the customer service experience? An important issue when developing a new service or changing an existing one is the question of how different the new service is compared to the current services offered by the firm. Here are three general factors to consider when determining this:

1. Similarity to current services.This means that the new service should fit into the current service experience for the customer. For example, Disneyland has started positioning employees with cameras around the park at memorable locations offering to take pictures of visitors that can be viewed online later. As a part of the greater service experience of making dreams come true and recording them, this has a good service experience fit. However, some services, like a car wash with a restaurant in the waiting area, are less complementary.

2. Similarity to current processes.Even the greatest service ideas require operational support to execute. One example of this is when grocery stores decided to offer home delivery. Even though this seemed like a logical extension of the service experience, it required completely new operational skills, such as selecting perishables for customers and delivering frozen foods.

3. Financial justification.Designing and implementing a new service is costly and should be financially justified. Although this is often thought of in a positive sense of making a profit, it can just as well be introducing a new service in order to keep from losing valued customers.

Complexity and Divergence

A useful way of analyzing the process similarity for new service development is by specifying the complexity and divergence of the proposed service process relative to the basic service process.

Complexity is the number of steps involved in a service and the possible actions that can be taken at each step. Divergence is the number of ways a customer/ service provider interaction can vary at each step according to the needs and abilities of each. The result may be a combination of higher complexity/divergence on some steps and lower complexity/ divergence on others. This can be used to determine different resource requirements such as worker skills, layout, and process controls. For example, the hypothetical family restaurant considered in Exhibit 3.7 is considering whether to change the service to create new process format. Relative to the current process, a minimum service format would have lower complexity/divergence, while an upscale format would have higher complexity/divergence.