Service business models and digitalization Flashcards
What are incremental budgets?
Based on last year budgets with incremental changes like inflation, volume changes etc.
What are zero-based budgets?
Starting from scratch – meaning you must justify all expenses every year.
What is a business model?
How a firm creates value, delivers this value to customers, and entices customers to pay
What is the 2 main feature of a business model?`
- Value creation and value capture:
1) Defines a series of activities, that yield a new product or service in such a way that there is net value created
2) Captures value from a portion of those activities for the firm
What is a great tool for creating a business model and what does it entail?
The business model canvas.
1) Key Partners
2) Key Activities
3) Key Ressources
4) Value Proposition
5) Customer Relationships
6) Channels
7) Customer Segments
8) Cost structure
9) Revenue streams
What is a service?
An experience, time saving, energy saving, an action somebody does for us, does not have a fixed value, services can vary in intensity (think normal bar vs. rooftop bar), has a human element to it (we can influence the service we get and they can influence the service they give).
What is a finance and accounting service problem?
Cannot attach property rights to a service from a finance and accounting standpoint
What is the IHIP model?
It defines the characteristics of services
1) Intangibility – Service can’t be seen, tasted, felt before they are bought.
2) Heterogeneity – Quality of service depends on who provides them, when where and to whom
3) Inseparability – Produced and consumed simultaneously, often involving an interaction between provider and customer.
4) Perishability – Cannot be stored = challenges when demand fluctuates
What is the unique timing of a service?
The offering and demand has to meet up at the same point in time.
Which three criteria can gauge a service?
1) Search Qualities - Searchability
2) Experience Qualities – Vacations etc. -> Experiences
3) Credence Qualities - Credibility
Are products high in search qualities easy to evaluate?
Yes! This includes most goods and a few services.
Are service high in Experience Qualities easy to evaluate?
Medium, these are some goods like restaurants and a big portion of services
Are service high in Credence qualities easy to evaluate?
No, these are hard to evaluate, think medical diagnosis.
What is nice about having models to evaluate a service?
You can find the shortcomings of a service.
What is the gap model?
A model that allows us to find the shortcomings of a service. There a five main gaps like:
Expected service vs. perceived service
Expected service vs. managements perception of consumer expectations.
Is a product just a product?
No, there’s almost always a service underlying the product. Think: a pen, you like the way it feels, writes, that you can write and communicate, NOT the physical objective.
What is an issue if you’re product works perfect all the time?
People will not want to pay the service fee. If it works all the time, you start valuing it less. You need to “bother” customers once in a while and repair stuff, as people will value it more “we’re getting good service”.
Why should we care about Servitization?
Financial standpoint: service revenues offer attractive margins as well as smaller, but more stable, revenue streams than large-scale equipment sales
Sustainability: Repair and maintenance preferable to scrapping, design for durability and maintainability, efficiency gains
What is Servitization?
Offering services combined with a product. Think Novopen that also has an app.
What are some (4) Servitization drivers?
1) Mature companies feel economic pressure to find new profit streams.
2) Offsets commoditization of a company’s traditional product offerings.
3) Increased competition makes it a competitive edge (customers demand it)
4) Exploits new technology / legislation / collaborative opportunities available.
What are SLA?
Service-Level Agreement
What is CLV?
Customer Lifetime Value – the total amount of revenues/profits over a given time horizon of transacting with a customer.
What is the standard narrative/trajectory when it comes to implementing Servitization?
Start by offering a “basic” service, learn and become better organize ending up in more “advanced” client centric services. Shift from selling product to offering a value.
Often thought of as the “N-step model” learning in each step, which doesn’t necessarily fit reality.
What is the Matthyssens-Vandenbempt implementation model/trajectory for Servitization?
A grid of Added customer value in the offerings (Mainly product -> mainly service) vs. Degree of customization (standard -> Customized)
What are the two natural combinations in the Matthyssens-Vandenbempt model for servitization?
(1) standardized service addition might be followed by or combined with tailored service addition
(2) product-focused customization turns out to be very compatible with the follow-up strategy of customer process optimization.
What four standard trajectories are there for services/products?
1) Standardized service addition (Product Include a service)
2) Product-focused customization (Product More customized product)
3) Customer process optimization (Customized product Customized service)
4) Tailored service addition (Service based product Customized service)
What are some challenges companies face when implementing Servitization?
1) Lack of deep customer insight
2) Customers’ unwillingness to collaborate and share vital information
3) Service-for-free attitude
4) Requires a long-term, proactive view on relational development with customers
5) Lack of technical competences
6) Limited network competences
7) Internal resistance (engineering, sales force) Internal processes inhibiting service delivery
8) Trouble scaling / “fit” with the existing business model
9) Standardization and direction of processes are difficult to realize
What is CLV?
Customer lifetime value – measures how profitable a customer, is by showing the total amount of revenue over a certain time period transacting with the customer.
What is the core idea of CLV?
Develop a rank order of customers and recommend spending more resources to customers with higher ranks.
Because: Typically, the top 20% of a firm’s customers generate about 200-300% of the annual profits, whereas the remaining 80% are said to often even ‘destroy’ profits don’t keep unprofitable customers
Why is CLV important?
1) Don’t loose money on unprofitable customers
2) Important for decision-making: Internal profitability, M&As, company valuations
How do you calculate CLV?
CLV = {(annual revenue – annual costs) x Years as customer} – Initial acquisition costs
Other options available like Real Options or Present Value
What is the relationship between firm performance and Servitization & digitalization?
Its good! Both digitalization and servitization increases firm performance.
1) Servitization is positively associated with digitalization.
2) Digitalization is positively associated with firm performance
3) Servitization is positively associated with firm performance
4) Digitalization positively mediates the relationship between Servitization and firm performance.
What is MSP?
Maintenance Service Plans
Is it always good to make services?
1) No! In the medical equipment study they found that the full-protection contract leads to more failures and increased service costs.
2) The full-protection contract underperforms the basic contract because of added costs of visiting the companies instead of helping them remotely
3) Reliability deteriorates and costs increase when the service provider assumes more responsibility for equipment failure.
