Marketing Strategy and Competitive Positioning pdf ebook

Figure 13.3 
Service and 
competitive 
positioning
High service
strategy
Risk of under-
servicing
Cost of over-
servicing
Low service
strategy
Level and quality of service
Impact of
service on
customer
outcomes
High
High
Low
Low

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CHAPTER 13 COMPETING THROUGH SUPERIOR SERVICE AND CUSTOMER RELATIONSHIPS
often come to dominate companies’ thinking about what makes ‘service’ provision. For 
example, when buying an air ticket, is the customer primarily interested in the travel 
service, or something else? If the former, are they willing to pay more for ‘other’ aspects 
of the service, and can this provide a competitive differentiation to the firm? Keep these 
ideas in mind as you read on.
13.2.1 Low service strategy
Low service strategy is a component of the positioning of budget hotels such as Accor’s 
Formula 1. By stripping out the services typically provided by a two-star hotel and focus-
ing on a better sleeping environment, Accor found a successful way to deliver a two-star 
hotel level of comfort for a one-star hotel price. The model is based on the observation that 
people trade up from one star to two star for the better sleeping environment, not for the 
other services provided by conventional two-star hotels, and trade down from two star to 
one star just for the lower price.
Low service strategies have been particularly successful in some sectors during the eco-
nomic downturn and recession of the 2010s and what has followed since. For example, low-
cost retailers Aldi and Lidl have made significant inroads into Tesco’s market leadership 
during the toughest of economic conditions. While high service strategies at Sainsbury’s 
and Waitrose have, to a degree, protected their competitive position, low service and very 
low-price strategies at Aldi and Lidl have also been incredibly effective. Market leader 
Tesco has been left looking increasingly ‘stuck in the middle’ of the UK grocery market 
(Piercy et al., 2010a).
A prime example of an effective low-service strategy is the European no-frills airline 
Ryanair. It is the most successful of the European ‘no-frills’ airlines, based on the model 
of Southwestern Airlines in the USA – offering very low fares but stripping out many of 
the expensive services provided by conventional airlines. The chief executive of Ryanair, 
Michael O’Leary, even at one point mooted plans to go from being a ‘low-cost airline’ 
to a ‘no-cost airline’, by making tickets free, while earning more from additions such as 
food and luggage charges. In some promotions, Ryanair has offered to pay people £1 to 
sit in a seat on the aircraft (that is, deduct £1 from the airport taxes and charge no fare). 
Ryanair has given new meaning to the ‘art of cheap’: a quarter of seats are already ‘free’ 
except for airport charges and taxes; the planes are stripped down with seats that don’t 
recline (you can fit in more passengers instead and, worse, reclining seats break and have 
to be fixed, which slows things down); no seat-back pockets (less cleaning costs); no 
entertainment; advertising on seat-back trays; tickets sold online (along with insurance, 
hotels and car rentals); flight attendants selling food and cosmetics; and, soon, flights 
providing a cell-phone service. Passengers who want ancillary services are required to pay 
extra for them. Employees are encouraged in O’Leary’s low-cost thinking. Faced with 
economic downturn, Mr O’Leary said his ‘only one response to any consumer uncer-
tainty’ would be to intensify a price war, with moves ‘to slash fares and yields, stimulate 
traffic, encourage price-sensitive consumers, and promote new routes and base develop-
ments’. He believes that during recessions, travel does not get cut back but people do 
look for cheaper alternatives (Piercy, 2009d). Nonetheless, 2015 saw Ryanair’s ‘Always 
Getting Better’ customer experience programme operating to counter the company’s 
reputation for low customer services levels, and concessions being made to customers 
(Thomas et al., 2015).
Relatedly, a recent argument is that actually ‘the best service is no service’, because if you 
get things right in the first place, customers do not want your service (Price and Jaffe, 2008). 
In this sense, ‘the size of a company’s customer service operations is in inverse proportion 
to the quality of its underlying operations’ (Mitchell, 2008). According to research by Price 
and Jaffe, customer contacts come in four categories:

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SERVICE AND COMPETITIVE POSITIONING
About 1 in 7 customer 
contacts:
Are triggered by basic 
quality defects – ‘it 
doesn’t work’
Which have to be addressed by quality 
improvements
Another 25% or so:
Take the form of ‘How 
do I?’ questions
Which means the company has 
failed to communicate properly or its 
processes are confusing, and these 
are the issues to address
About 40%:
Are ‘Where can I get?’ 
queries
If the web page or other self-service 
options are done properly customers 
should be able to answer these for 
themselves
The last 20%:
Are people who want to 
buy stuff
The more the first 80% can be 
reduced, the more the company can 
invest in helping customers when they 
actually need and value it.
Making assumptions is dangerous, even though sometimes the evidence is highly counter-
intuitive. A Canadian study of shop assistants found that in luxury shops, the ‘snooty’ atti-
tude of assistants may actually boost sales – consumers may react in a positive way to rude 
and rejecting behaviour. It seems those who value designer labels crave the acceptance of the 
retail assistants in expensive shops. In an experiment, the researchers found that consumers 
who felt rejected when shopping liked the brand and were willing to pay more for it than 
those who were treated well. The researchers reason that social rejection drives people to 
conform and work harder in an attempt to be accepted – though in the context of shopping 
for luxuries, not routine shopping (Ward and Dahl, 2014).
13.2.2 Under- and over-servicing traps
Examining links between service level and quality and customer impacts also highlights the 
potential problems of under- and over-servicing. Over-servicing occurs when services are 
provided to an extent and at a quality level that exceeds customer needs and has little impact 
on outcomes such as customer retention or satisfaction. The same effect can occur when 
service efforts are concentrated in activities that matter little to the customers in question 
and do not create value. The low-cost operations already described exploit the over-servicing 
and wrong-servicing of conventional competitors.
To understand the idea of ‘wrong-servicing’, consider, for example, US retail giant 
Walmart’s experiences in the European market. Walmart is the world’s biggest supermar-
ket retailer. Its US value proposition of lowest price and highest service has been incredibly 
successful domestically. As part of its global expansion, in January 1998 Walmart arrived in 
Germany. However, this is a country where the rules of retailing seem to be ‘the grumpier 
the better’, the ‘customer comes last’, and ‘shopping is boring’, and the emphasis is on 
efficiency. Walmart arrived determined to pamper every customer in sight. Walmart’s ‘ten-
foot rule’ states that if a customer comes within ten feet of an employee, the latter must 
smile and offer to help. Complaints/requests must be dealt with ‘by sundown’. In fact, the 
result was a major culture clash. The Walmart tactics infuriated consumers and aroused 
their suspicions – if someone takes hold of their purchases at the checkout (to pack them 
in a bag), they think someone is trying to steal from them. Locally employed shop-workers 
have been found hiding in the lavatories to avoid the embarrassing but mandatory morn-
ing Walmart chant. By late-2000 Walmart’s losses were running in excess of £150 million a 

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