Wolfgang Ulaga Discusses How to Develop Service Differentiation Strategies



When I asked Dr. Wolfgang Ulaga, Co-Executive Director of the Center for Services Leadership at ASU’s W.P. Carey Business School, to discuss service differentiation, his enthusiasm was palpable.

Too many services are ‘me too’ services, where you just copy-cat what others are doing,” Dr. Ulaga said, right off the bat. “Then you get into this negative spiral of not having a clear, differentiated offer, which leaves you with one remaining differentiator – price.”

Dr. Ulaga peppered in some very interesting examples of what differentiated services look like, and how organizations can go about developing them.

What’s the first thing a company should focus on when developing a service differentiation strategy?

First off, its leaders need to get back to basics. Service, in essence, is about leveraging resources (i.e. a field engineer) and skills (i.e. analyze data) to complete an activity that will achieve customer-desired outcomes (i.e. ensure machine uptime through a remote monitoring service). How an organization leverages those resources and develop those unique skills will determine what differentiates it from its competitors.

Services involve, by definition, a lot of intangibles. That makes it easy for companies in the B2B sector to claim that they offer “the same” service as anybody else. Once you scratch past the surface, you realize that two services which appear to be the same are actually quite different.

For example, I worked with one manufacturer in the health care sector that offered help desk and customer support services. Competitors claimed they offered the same support as the manufacturer – “we’re cheaper than them, we provide the same support,” and so on.

However, while the supplier offered 24/7 support, it appeared the competition only offered assistance from 8:00 AM to 5:00 PM. So, whenever other vendors claim to be on par, it’s worthwhile to dig deeper and ask whether such claims are verified.

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How should organizations start informing their service differentiation strategies?

What you really need are deep customer insights. You need to figure out what rocks the boat with your customers. What goals do they care about? Which KPIs do your customers use? Why do they use them? How do they measure those KPIs? And so on.

Taking the time to better understand your customers allows you to identify all these interesting nuances. Consider a simple example of a B2B service: Contract cleaners provide cleaning services to business customers for premises, such as offices, health care facilities, retail stores, warehouses, etc. The meaning of ‘clean’, as perceived by customers, greatly varies among segments. For a customer in the health care sector, “clean” could mean “hygienically clean.”

A retail customer, however, may just want its stores to “look or smell clean.” These different definitions demand varying levels of resource investment on your part. The type of services offered to a hospital would look very different from those you may provide to a retailer.

There was a case study I published in partnership with Procter & Gamble when the company moved from product to service by launching Tide Dry Cleaners. P&G allocated considerable time to understanding dry cleaning customers, taking a deep dive into what really mattered and how the customer experience could be moved from good to great. P&G thus rolled out a franchising network of dry cleaning stores, leveraging the Tide brand from the product into a service space.

If you visit a Tide Dry Cleaners location, you can see the company really went the extra mile. They have these kiosks that allow you to drop off your clothing, at any time of the day. With the help of a smartphone app, you can track and trace your garments and receive a notification when they are ready to pick up.

There are also these nice add-ons: For instance, if you give them a shirt, and that shirt’s missing a button, Tide Dry Cleaners will attach a button to that shirt, free of charge. That’s really a “wow” experience. Tide Dry Cleaners went beyond the essentials of a dry-cleaning service and developed differentiating features designed to resolve many key customer issues:

  • Freeing up time by removing the hassle of dropping off and picking up clothes within restricted store opening hours.
  • Putting the customer in control by allowing them to decide when, where, and how to access the service.

When developing its services, P&G also did a really good job of avoiding labeling ‘must-have’ service elements as ‘differentiators’.

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Is that a common problem among service organizations?

Not all, but it does happen a lot. Using Tide Dry Cleaners as an example, a must-have would be delivering the right garments to the correct customer, ensuring those garments are clean, intact.

Put it this way: if a customer gives you a white shirt, he or she expects it to be white when it’s returned, not gray. They also expect to find all the buttons intact, not broken or missing. These are must-haves: as a service provider, you can hardly differentiate on these points of parity.

A customer that knows a dry cleaner has a reputation of returning damaged garments likely won’t even consider visiting that business. But, you can differentiate on superior stain removal, restoring faded colors, transparent prices, a better in-store experience, etc.

Getting back to gathering customer information, how do you recommend organizations do so?

It’s an idea that gets parroted over and over again, but it warrants emphasis: Organizations that have the means to use the IoT should do so. I mentioned this when we discussed developing advanced services.

Think about a forklift. If you equip that machine with multiple sensors, each sensor is an opportunity for collecting valuable data. All that data can inform analysts as to how customers are using (or misusing) your forklift.

In addition, simply being present at your customers’ locations can provide a lot of valuable information. Your field technicians, account managers, or anyone in contact with your customer organization can not only take notes on sentiment in tools like Salesforce, but also acquire a general understanding of how a customer’s resources (or lack thereof) hinder it from reaching its goals. That’s where the big ideas will come from.

Want to hear more from Dr. Ulaga? Check out his book, “Service Strategy in Action,” or visit his session on growing B2B service strategies at LiveWorx: 

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