Quiz 5: Technology in Services

Business

Internet is a network of interconnected publicly accessible computer networks which sends out data using Internet Protocol, consisting of smaller networks which carry a variety of services and information like access to World Wide Web, streaming media, file transfer, VoIP, and electronic mail. Internet is the most cost effective medium for a service provider to connect with customers. Till a few years back, service providers used to connect with customers with the help of a desktop which had internet access through phone or satellite. However, today, connecting with customers have become a lot more convenient with the advent of wireless communications and social networking sites. From a customer perspective, using the internet for availing services of a particular service provider is a lot more convenient. A prime example is that of booking flight tickets online. In the past, customers had to visit the booking office of the airline company to book a ticket, but today not only bookings but seat selection and meal preference can be selected while booking tickets, besides getting the boarding pass after booking tickets. With the advent of GPRS communication technology, searching for the nearest service provider has become that much more convenient. For example, if someone is looking for a Pizza Hut nearby, they just need to search for it in Maps, and the search results would give the nearest Pizza Hut Store. Another good example of a service provider using GPRS technology for better customer experience is UBER. Once a customer books a cab through the cab aggregator, the customer gets real time information on the estimated time taken to reach customer destination, and shortest route for the destination. Customers can also compare prices offered by different service providers for similar kinds of products. Today prices of used cars can be compared online before deciding to buy one. Similarly, insurance premiums can be compared online before zeroing on someone that's suitable to ones needs. Therefore, using internet can be very convenient to carry out day to day activities. Internet has helped bridge the physical distance between customers and service providers to a great extent.

Scalability can be defined as a firm's ability to improve and better its contribution margins. Contribution margin helps a company determine profitability of its products. It refers to a measure of the gross operating margin of a product. Contribution margin is calculated as the sale price of a product minus total variable cost to produce each unit. Lower the contribution margin, greater is the profitability of a firm. Scalability of a firm occurs when the cost of providing service to additional customers is nil. Scalability has three sources - customers serving each other like in online auctions, customers serving themselves like in online reservations, and data-transfer service like in online encyclopedia. Scalability without product differentiation is a failure, as it leads to commoditization and only those firms survive who provide better prices. In the case of L, the online furniture retailer, the firm's variable cost may have been higher, thereby leading to higher contribution margins and lesser profits. Due to the lack of product differentiation, scalability for L had its limitations. Competitors provided similar products at a lower price, which forced L to reduce prices of its offerings, which in turn impacted profit margins. Thus, likely lack of product differentiation and higher contribution margins played an important role in the failure of Living.com. For a firm to achieve infinite scalability, the variable cost must be low, besides creating a differentiating feature of its offerings.

Advancement in information technology and communications has a profound effect on the ways customers connect with service providers. For example with the advent of airport kiosks the behavior and expectations of airline passengers have changed. Customers are no longer required to wait for the boarding pass from a reservation clerk, and such face-to-face dealings have been replaced by self-service machines. The characteristics of early adopters of self-service are: •The driving force behind self-service is customer benefit and motivation of service provider. Self-service helps the service provider eliminate labor cost of unproductive activities. •Customer preference and acceptance increases opportunities for accuracy, customization and speedy delivery of services •Human interaction has made way for substitution by machines and wherever possible to anywhere-anytime services •Cost saving is the primary objective of migrating to self-service technology. Services that did not have an opportunity to enhance revenue were the initial targets of self-service technology. For example, ATM's gave customers place and time convenience besides saving teller costs for banks. Thus, due to introduction of self-service technology, human interaction has reduced, saving time for customers and unproductive cost for service providers. Moreover, speed of service delivery has increased without compromising on accuracy.