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Current arguments on the drivers of business performance in the service economy focus on investments in information technology, investments in human resources, and investments in developing customer-oriented business processes. This paper advances a new approach to understanding competitive performance in the service economy. Termed the strategic segmentation perspective, this new approach suggests it is not investments in organizational capabilities alone but the alignment of organizational capabilities with customer segmentation strategies that generates competitive advantage. By aligning organizational capabilities with distribution strategies that recognize the distinct product and service needs of different customer segments, service companies can maximize profits from each customer group they serve. The article draws on case studies of high-performing service companies to show how a strategic approach to distribution strategies can be used to achieve superior service performance.
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