Learning from Zillow and Zoots
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Data AnalyticsStrategy Innovation Marketing Operations Jan 1, 2009

Learning from Zillow and Zoots

Improved performance through service inventory management

Based on the research of

Sunil Chopra

Martin Lariviere

Have you ever Zillowed your house? Zillow is a Web-based service offering residential property valuations. With a simple street address, Zillow will tell you the property’s estimated value, square footage, and lot size, as well as the value of neighboring properties and recent comparable transactions. Zillow aims to provide an edge to those buying and selling real estate and has created a new model that challenges the role of the traditional real estate agent.

Zillow is also notable for its approach to managing the service process. Providing real estate appraisals is by no means a new business. The novelty of Zillow is that it gathers the necessary data and automates the number crunching before anyone asks about a specific property. What a real estate agent would do in response to a specific demand, Zillow does and stores in anticipation of demand.

The Nature of Service Inventory

This stored work is called service inventory. Obviously, a finished service cannot be placed in inventory, but that does not mean that some steps in the delivery process cannot be performed before the customer shows up. Service inventory involves all activities that are carried out in advance of the customer’s arrival. By moving away from thinking of services as being performed completely on demand, service providers can potentially improve the quality and responsiveness of their service, while broadening offerings and lowering costs.

Managing service inventory improves service and also reduces costs.As with physical inventories, service inventories allow firms to buffer resources from the variability of demand and reap benefits from economies of scale while also providing customers with faster response times. Zillow benefits from economies of scale. For example, once Zillow automates downloading county tax data for one house, it can download data for all the houses on the street or even the whole town. Since it gathers this data on its own schedule as opposed to serving a client immediately, it is buffered from demand and does not need to worry about seasonal swings in the market. Together these attributes provide Zillow a cost advantage over traditional real estate agents.

How Service Inventory Affects Capabilities

Zillow is not alone in exploiting service inventory. Many firms take advantage of service inventory to improve offerings along four key dimensions: quality, speed, customization and price. Managers must pay attention to these areas in order to match service structure to customer preference.

Quality: Consumers value various aspects of service quality—from a store’s ambience to its staff’s friendliness—but many times the primary concern is being able to get a well-defined service reliably and accurately. For example, an investor looking to rebalance her portfolio wants reliable, accurate information about how best to make the adjustments. Service inventory is an effective way to fill this need. The necessary algorithms to perform the analysis can be encapsulated in self-service tools. Since these tools are built in advance, all that is needed is up-to-date data to provide the investor with accurate decision support. Fidelity Investments did just this with Web-based tools for a variety of analyses.

Speed: Building service inventory means doing work before customers show up. Hence, less needs to be done after a given customer walks in. Zillow delivers in seconds what would take a real estate agent minutes if not hours to produce. But increasing the speed of a service need not rely just on databases and Web sites. Think of picking up dry cleaning and laundered shirts. At many cleaners laundered shirts are stored separately from dry-cleaned items and a customer must wait for both to be fetched. The retailer could save time if it performed the work before the customer walked in. It could save even more time if a customer’s items were waiting at the front of the store. One dry cleaning chain, Zoots, actually does this. Zoots charges orders to a filed credit card and then places the completed orders in lockers that are available twenty-four hours a day. At their convenience, customers can walk in the store to retrieve their clothes, and spend less time doing so. Zoots has reduced the pick up time to a minimum by building up its service inventory. As a result, Zoots is able to optimize staff utilization because store employees can work at a more level rate as opposed to responding to minute-by-minute fluctuations in demand.

Customization: It is no secret that customers place a high value on service. Even more, customer satisfaction increases when the service they receive is tailored to their specific desires. Such customization does not need to result from high cost activities but rather from effective service inventory management. JW Marriott Hotels and Resorts’ “At Your Service” program is an excellent example of providing customers with increased levels of service satisfaction. If a guest prefers feather to foam pillows, it is noted in the company database. This program enables Marriott to build its service inventory and to use that inventory to customize its offerings to the customer’s preferences.

Price: The benefit of managing service inventory is not only improved service but also reduced costs. Marriott’s “At Your Service” is again an example of such savings. The program lowers the company’s cost by allowing for higher staff utilization. By anticipating guests’ needs, the hotels are able to customize rooms early in the day instead of responding to all requests at the end of the business day. Zoots also benefits from cost savings based on the management of its service inventory. Through careful selection of pre-demand process completion, the company is able to optimize its employee work stream and thereby achieve improved efficiencies. The resulting benefit is a lower cost structure.

Additionally, airlines provide a case study on service inventory and its effect on the four service dimensions mentioned above. The transport of millions of customers inevitably results in lost baggage, missed connections, and delayed flights. By developing a protocol and training employees to handle such events, the airlines have built up their service inventory in advance of demand. Without such policies in place, the customers would experience significant delays in addressing these problems. But through pre-completed activities focused on customer needs, airlines significantly increase the service experience during times of transportation delays.

Cost and Efficiency Benefits

Service inventory allows managers to meet demand more efficiently. Service providers can improve the quality and the responsiveness of their service by completing some steps in the delivery process before demand is realized. In doing so, the service experience can be far superior at a lower cost. A byproduct of service inventory management is workforce efficiency. Whether a company relies on a database (Marriott) or focused employee work streams (Zoots), the end state is an organization that is running at a more optimal level. Furthermore, customer satisfaction increases with their perception of tailored services, all at the hands of service inventory management. In the end, a manager’s decision is not about the cost of service inventory, but rather about the costs of not having service inventory.

Featured Faculty

IBM Professor of Operations Management and Information Systems; Professor of Operations

John L. and Helen Kellogg Professor of Operations

About the Writer
Robert Smith, MBA 2007, was a Kellogg Insight Operations Scholar.
About the Research

Chopra, Sunil and Martin A. Lariviere (2005). “Managing Service Inventory to Improve Performance.” MIT Sloan Management Review, 47(1): 56-63.

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