Practice Problems and Cases up to Assignment 1:

Includes:
Case 1.2 Xpresso Lube
Case 2.2 Alamo Draft House
Case 3.1 100 Yen Sushi House
Case 3.2 Commuter Cleaning A New Venture Proposal
Case 3.3 Amazon.com
Case 4.2 Enterprise Rent-A-Car

CASE 1.2: XPRESSO LUBE

1. Describe Xpresso Lubes service package?
Supporting facility: Xpresso Lube has a fixed amount of operational capacity because it has a
limited number of service lifts two to be exact. Other components of its supporting facility are
tools and equipment, an equipment storage area, a spacious waiting room, chairs, a service
counter, street access and parking.
Facilitating goods: oil, filters, auto parts, coffee, snacks, cups, napkins, sugar, and milk.
Information: for regular customers a reminder card could be sent for routine maintenance.
Explicit services: a car with new oil and filter, maintenance checks of the car, and a cup of
coffee.
Implicit services: trust, a feeling of not getting screwed, a feeling of keeping the car
maintained, the satisfaction that comes from taking care of ones car, the good feeling that comes
from recycling the old oil, a caffeine lift, and the satisfaction of drinking good coffee while you
wait.

2. How are the distinctive characteristics of a service operation illustrated by Xpresso Lube?

Customer Participation in the Service Process: Customers bring their cars to Xpresso Lube and
wait for the oil change. Customers are invited to inspect the car while on the lift to observe other
needed repairs.
Simultaneity: Using the coffee shop as a pleasant diversion allows Xpresso Lube to reduce
partially the need for working on arriving cars immediately. Providing a shuttle service to the
nearby University and State Capital would allow scheduling of oil changes.
Perishability: The number of car lifts at the shop limits Xpresso Lubes capacity. This oil
change business also owns an auto repair facility next door so the two businesses can deploy
mechanics between them to utilize labor capacity in the most efficient way.
Intangibility: When an oil change is done in a typical pit, the customer cannot actually see the
process and, after the service, the cars performance probably will not be noticeably different. In
this situation, customers rely on the word of the oil change service person. Xpresso Lubes car lift
design allows customers to watch its service, which gives customers more assurance that their
needs are being met.
Heterogeneity: Different cars provide some variability in the oil change routine. Some
customers even come only for the coffee.
3. Characterize Xpresso Lube in regard to nature of the service act, relationship with customers,
customization and judgment, nature of demand and supply, and method of service delivery.

Changing the oil is the primary function of Xpresso Lube. This is a tangible action performed on
the car, but the secondary service is serving coffee, which recognizes the personal needs of the
owners.
Xpresso Lubes service relationships consist of discrete, one-time transactions, but the companys
focus on fostering customer trust and a pleasant waiting environment might lead to more long-
term customers.
Fairly low customization is possible, but the accessibility of the service area and the mechanics
can lead to customization opportunities if there are problems with the cars.
There is a significant demand fluctuation based on the obvious convenience of having the service
performed after work or during the weekend. This peaked demand pattern easily can exceed
Xpresso Lubes capacity. But Xpresso Lubes service environment encourages people to accept
longer waits and, by providing transportation, it enables customers to drop off their cars in the
morning and retrieve them later in the day. The supply of the service cannot be altered very
easily, given the companys fixed number of two carports and lifts.

4. What elements of Xpresso Lubes location contribute to its success?

Xpresso Lube is located on the main thoroughfare leading to the University of Texas and, thus, provides
excellent visibility. The immediate business area is bustling and diverse, and attracts a broad spectrum of
visitors. Its also an area where customers dont mind waiting because they can walk to a variety of
popular shops (e.g., Wheatville Co-Op and Half-Priced Books).

5. Given the example of Xpresso Lube, what other services could be combined to add value for the
customer?
Many examples exist in todays business environment. One common service combination is selling
concessions candy, popcorn, or beer, for example with showing movies, sports events, or concerts.
Others include the combination of bookstores and coffeehouses, gaming activities such as pool or
bowling with alcohol sales and prepared food (e.g., Dave & Busters), fast food and gasoline (e.g., Exxon
and McDonalds).
All of these combinations support one another and marry related customer needs. In the case of
gas and hamburgers, for example, customers are in a hurry and the service combination provides them
additional reasons to stop. Other examples take advantage of unfilled waiting time. By locating in a
shopping mall, a one-hour eyeglass store provides its customers something to do while they wait for their
glasses (i.e., shop at other mall stores).

CASE 2.2: THE ALAMO DRAFTHOUSE

1. Marketing analysts use market position maps to display visually the customers perceptions of a firm
in relation to its competitors regarding two attributes. Prepare a market position map for Alamo
Drafthouse using food quality and movie selection as axes.
Use the Strategic Service Vision framework to describe Alamo Drafthouse in terms of target market
segments, service concept, operating strategy, and service delivery system.

Target Market Service Concept Operating Service Delivery

Strategy

18-30 year old, male, Meal and 2 run or cult

nd
Low cost old Unobtrusive wait
alcohol consumers, cult films theater people
film appeal
Single screen theater with Inexpensive 2 nd
Acceptable sound
25-40 year olds with every other row replaced run movies and projection
sophisticated taste in films with narrow tables equipment
Food made to
order with less Excess capacity mid-
waste day

3. Identify the service qualifiers, winners, and service losers for Alamo Drafthouse. Are the Alamo
purchase decision criteria appropriate for the multiplex movie theater market? What do you conclude?

Qualifiers include good sound system, reasonable prices for the meals, availability of beer and wine,
and menu selection. A service winner is the unique date experience including the special events
and film showing. Service losers include movie projection and sound that do not meeting minimal
standards. For the multiplex movie theater market the qualifier is the desired movie showing, a
winner would be convenient location and available time of showing, and the loser would be a long
waiting line at the box office. The difference in the criteria would lead us to conclude that Alamo
does not compete in the multiplex movie market.

4. Use Porters Five Forces Model to assess the strategic position of Alamo Drafthouse in the
entertainment industry.

5. Conduct a SWOT analysis to identify internal strengths and weaknesses as well as threats and
opportunities in the external environment.

Strengths Weaknesses

Small theater with kitchen is unique. Projection and sound quality could

People in your market see dinning and movie be improved.

combination as your strength. Attracting mid-week audience.

Opportunities Threats

Expand by purchasing small movie theaters. Cash-flow problem.

 Business meeting could be a market niche. Concept copied by competitor.

CASE 3.1: 100 YEN SUSHI HOUSE

1. Prepare a service blueprint for the 100 Yen Sushi House operation.

2. What features of the 100 Yen Sushi House service delivery system differentiate it from the competition,
and what competitive advantages do they offer?
The main differentiating factor of 100 Yen Sushi House is its production-line approach to food
preparation and service. Even the customers are included in the production line. The rate at which
customers enter the restaurant, remove dishes from the food train, and leave the restaurant determines the
flow of the delivery process. This "pull" system that originates directly from the customers' inputs gives
100 Yen a competitive advantage because it allows the cooks to match the preparation of particular foods
to the demand for them, thereby eliminating waste.
100 Yen's method of food delivery reduces the number of personnel needed to serve customers and this
feature represents a competitive advantage. The restaurant also differentiated itself from most other
establishments by offering each of its items at the same price, but varying the size of the item according to
its cost. This arrangement simplifies the customer-billing procedure and, here again, 100 Yen realizes
savings in personnel costs.
3. How has the 100 Yen Sushi House incorporated the just-in-time system into its operation?
One way that 100 Yen has incorporated the JIT system is making agreements with vendors who deliver
fish several times each day. Because it receives fish only when it is needed, the restaurant does not need
refrigerators for storing an inventory of perishable items and, consequently, more space is available for
customers.

Another feature of JIT that 100 Yen practices is making quality the responsibility of every employee
instead of leaving it to be "inspected in" by selected "quality inspectors." For example, all employees are
charged with the task of monitoring the prepared sushi and removing the "old" dishes from the serving
train.
Because the sushi is not made to order, 100 Yen does experience some waste, but the trade-off between
the time that is saved and the waste can be turned to the management's advantage by giving careful
attention to customer demand. 100 Yen also uses a kanban system (empty space on the conveyor) rather
than a push system.
In general, the attention of all employees to the delivery of a quality service and the responsiveness of
management to customer demand are both indicative of a successful implementation of the just-in-time
philosophy.
4. Suggest other services that could adopt the 100 Yen Sushi House service delivery concepts.
Other organizations that could use the 100 Yen technique include baking cookies for shopping mall
customers, delicatessen restaurants, specialty cafes and bars that are located close to their suppliers, and
refreshment concessions in amusement parks. One student recalls a cafeteria that had three circulating
self-serve dishes. This system eliminated a bottleneck in the delivery of the service and replacing unused
dishes each time they rotated behind the wall ensured quality.
CASE 3.2: COMMUTER CLEANING - A NEW VENTURE PROPOSAL
1. Prepare a service blueprint for Commuter Cleaning.

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 mens and womens 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, Amazons focus was on increasing its customer base. It did this by capitalizing on
the Internets major strength its ability for mass customization. The Web sites 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.

Innovation

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 customers
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 individuals 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 Amazons lack of profits. However, high levels of customer service and customer
retention techniques might drive revenues through the rough start-up 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 Nordstroms 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) customer-centric
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 Amazons 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 Amazons 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 customers 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, Amazons 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!

CASE: 4.2 ENTERPRISE RENT-A-CAR

1. How has Enterprise Rent-A-Car (ERAC) defined its service differently than that of the typical national
car rental company?

Enterprise Rent-A-Car (ERAC) offers a complete service package to its target market, the local rental
or hometown segment. This market includes two groups: the replacement and the discretionary
segments. ERAC differentiates itself from the typical national car rental company by applying a
personalized service philosophy in its business. This principle is reflected in its service package:
Supporting facility
ERAC has 7000 offices and customers perceive them as being located nearby as opposed to its
competitors who are located at or near airports only.
Some offices are strategically located next to or in car dealers or repair facilities, and offer a
convenient replacement car.

Facilitating goods
ERAC offers a wide variety of cars, with a selection of more than 60 types of vehicles for all
tastes and needs (e.g. a car to impress clients or a reliable car for a long trip).

Information
Because ERAC picks up its customers from office or home, it acquires information that is useful
in planning future site locations.
With an automated system, ARMS, customers are able to contact any North American office via
an exclusive 1-800 number.
Explicit services
Convenience in free pick-ups and drop-offs for the customer.
 Rates lower than those of the competition.
Availability to customers of a 1-800 number that allows them to contact any of ERAC connected
offices and ARMS, which makes insurance companies (who are major clients) transactions more
efficient.
Comprehensiveness in its services through an end-to-end clients fleet management arrangement
offered by an Account Services representative this service includes activities such as
acquisition, registration, financing, fueling, maintenance management, and disposal.

Implicit services
Image and service attitude based on ERACs culture, which focuses on hiring people with
abilities to deal with customers and internal competition.
Convenience by partnering with repair facilities and auto dealers for replacement cars.

2. What features of its business concept allow ERAC to compete effectively with the existing
national rental car companies?

Three main elements of ERACs service concept are the keys that allow it to compete with national rental
car companies these keys are related to the companys service delivery system:
A simple but personalized service delivery system relies on providing convenience to customers through a
unique 1-800 number and the picking-up and dropping-off services free-of-charge. Despite these extra
services ERAC offers a wide selection of cars at attractive low prices.
The number and location of ERACs offices facilitates the delivery system it has offices within 15
minutes of 90 percent of the U.S. population and repair facilities.
Its service encounter emphasizes treating people like friends and neighbors and hiring people people,
(i.e.) those who have personalities and attitudes aligned with the culture of the organization.

3. Use the service profit chain to explain the success of ERAC.

ERAC focuses on recruiting, hiring, and training people who have the social skills required to succeed in
the car rental business. The competitive advantage of ERAC is not offering cars only but also people
offering a service. The quality service provided to customers, along with the competitive nature of the
personnel and the reward and compensation system practiced by ERAC generate satisfied employees,
who commit to maintain or improve the quality of their work and increase their productivity. The value
of the service provided by ERAC is reflected in satisfied customers, who return or refer others to the
business. Overall, its service profit chain drives the profitability and the growth of the company.