Service Differentiation and Operating Segments: A Framework and an Application to After-Sales Services

The decisions of whether and how to adopt service differentiation are at the core of a firm’s service operations strategy. This paper proposes a framework for service differentiation that highlights the identification and use of operating segments as a central component in the delivery of differentiated services. The notion of operating segments and the general empirical methodology to identify them proposed in this paper integrally considers the consumer’s preferences and operational capabilities required to fulfill the differentiated service offering. An application in the context of after-sales services for product-service bundles using data from a major manufacturer in the consumer electronics industry is presented, which illustrates how operational decisions need to be adjusted when multiple operating segments are defined to support a service differentiation strategy. The online appendix is available at https://doi.org/10.1287/msom.2017.0645 .