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Marketing Intermediaries in Channels of Distribution for Services
James H. Donnelly, Jr.
Service marketers should take a fresh look at the channels of distribution for services as distinct from the channels concept followed for goods.
LTHOUGH marketing is defined in terms of services as well as products, marketers generally have concentrated their attention on products, with the assumption that services are marketed using the same guidelines. In most areas, this assumption has proved essentially true; in the area of marketing channels, however, it is not only incorrect but its application has limited our understanding of the marketing of services. This article seeks to broaden this understanding by evaluating marketing channels for services as a separate decision area from those for products.
Services and the Traditional Concept of Channel of Distribution
Traditionally, the "channel of distribution" is viewed as the sequence offirmsinvolved in moving a product from the producer to the user. The channel may be direct, as in the case where the manufacturer sells directly to the ultimate consumer, or it may contain one or more institutional middlemen. Some of the middlemen assume risks of ownership, some perform various marketing functions such as advertising, while others may perform nonmarketing or facilitating functions such as transporting and warehousing. Apparently using this concept as a frame of reference, most marketing writers generalize that because of the intangible and inseparable nature of services, direct sale is the only possible channel for distributing most of them. (The only traditional indirect channel used involves one agent middleman. This channel is used in the distribution of such services as securities, housing, entertainment, insurance, and labor. In some cases, individuals are
Journal of Marketing, Vol. 40 (January 1976), pp. 55-70.
trained in the production of the service and franchised to sell it, e.g., dance studios and employment agencies.) They note that because they are intangible, services cannot be stored, transported, or inventoried; and since they cannot be separated from the person of the seller, they must be created and distributed simultaneously. Finally, because there is no physical product, traditional wholesalers and other intermediaries can rarely operate in such markets, and retailing cannot be an independent activity. For these reasons, it is generally concluded that the geographic area in which most service marketers can operate is, therefore, restricted.' All of these generalizations are certainly true, using the concept of "channel of distribution" developed for goods. However, the practice of viewing the distribution of services using the framework developed for goods has severely limited thinking concerning their distribution. It has focused attention away from understanding the problem and identifying means to overcome the handicaps of intangibility and inseparability. Most importantly, however, it has led to a failure to distinguish conceptually between the production and distribution of services; hence, it supports the idea that they must be created and distributed simultaneouslv. This has resulted in a lackof atten1. The literature on the problems of service marketing in general, and the distribution of services specifically, is scarce. For examples, see: Philip Kotler, Marketing for Nonprofit Organizations (Englewood Cliffs. N.J.: Prentice-Hall, 1975), pp. 190-199; William J. Stanton, Fundamentab of Marketing, 4th ed. (New York: McGraw-Hill Book Co., 1975), Chap. 24; John Rathmell, Marketing and the Senice Sector (Cambridge, Mass.: Winthrop Publishers, 1974), Chap. 7; and Seymour Baranoff and James H. Donnelly, Jr., "Selecting Channels of Distribution for Services, " in Handbook of Modem Marketing, Victor P. Buell, ed. (New York: McGraw-Hill Book Co., 1970), Section 4, pp. 43-50. 55
which use separate organizational entities as intermediaries between the producer and user of the service. Donnelly. becoming an intermediary in the channel of distribution for credit. the prepaid nature of the program encourages more frequent preventive visits. such as dentistry. firms in the communication industry have sought ways to increase the availability and convenience of their 2. 1974). Vol. when an organization agrees to become part of such a plan. By authorizing his employer to deposit his pay. "The Impact of Prepaid Group Insurance on American Medical Care: A Critical Evaluation. In addition. and preventive services. the insepara• ABOUT THE AUTHOR. . banks obviously must rely heavily on employers to encourage employees to apply for the service. Some examples from various service industries illustrate this point. In fact.) that serve a specific enrolled membership on a prepaid basis. many banks have actually compensated merchants for various kinds of incentive credit card promotions. It does. One method that has received some attention is the health maintenance organization (HMO) concept. These intermediaries play a variety of roles in making the services available to prospective users.^ Insurance The vending machines found in airports for aircraft accident insurance have been finding their way into other areas such as travel accident insurance. In the marketing of such plans. The HMO is not a new method of producing health care. Marketing Intermediaries in the Distribution of Services Despite traditional thinking concerning the distribution of services. In health care delivery. In each instance. Thus. etc. January 1976 tion to "channel" decisions for producers of services.^ This type of delivery system stresses the creation of group health care clinics using teams of salaried health practitioners (physicians. the employee saves a trip to the bank and avoids forgetting to make a deposit. 3. In recent years. James H. while the traditional philosophy of medical care is primarily remedial. although direct personal contact between producer and user is necessary. several alternative delivery systems are being developed. M. It increases availability and convenience by providing a central location and "one-stop shopping. pp. Communication The distribution of health care services is of vital concern today as the nation faces what has been widely described as a "delivery gap" in health care." permits an employee to have his pay deposited directly into his checking account. One of these. HMO programs have inspired similar innovations in other phases of health care. the banking industry has been very active in developing new retail banking services. Witb growth potential basically limited to population growth since the mid-1950s. 100-113. Jr. "An Investigation of the Adoption Process Associated with an Innovative Dental Program" (DBA diss. See Richard C. Becherer. emergency care. Health Care bility characteristic presents more of a handicap than in other service industries because tbe user (patient) litercilly places himself "in the hands" of the seller. Financial The retailer who extends a bank's credit to its customers is an intermediary in tbe distribution of credit. fee-for-service system." For example. a member can visit a general practitioner for a particular ailment and undergo treatment by the appropriate specialist in the same visit. University of Kentucky." The Annals of the American Academy of Political and Social Science. banks rely heavily on the retail merchant to assist in encouraging customers to apply for and use the card. R. is professor of business administration in the College of Business and Economics. Group insurance written through employers and labor unions has also been extremely successful.56 Journal of Marketing.. Thus. new and more efficient channels of distribution appear to be evolving. University of Kentucky. He gets a receipt from the employer and deposits are shown on his monthly bank statement. when a retailer becomes part of a credit card plan he is. which is now available in many motel chains. however. perform an intermediary role between practitioner and patient. technicians. the insurance industry has used intermediaries to distribute their service. Lexington. pharmacists. While medical care is traditionally associated with the present solo-practice. Bankers benefit by tbe reduced paperwork involved in the processing of checks. in effect. In the marketing of credit card plans. particularly those that use the technology of more sophisticated hardware and data-processing systems. channels of distribution have evolved in many service industries. 399 (January 1972). it becomes an intermediary in the distribution of a bank's service. "direct pay deposit. Greenlick. However. Tbe HMO also assumes responsibility for arranging or providing hospital care.
For example. Identify the functions that need to be performed by intermediaries in channels of distribution for each classification of services. One means hais been the walk-up telephone. Certainly. 24 (January-February 1974). Second.. this discussion points out the critical role of product development in the distribution of services. one useful classification appecirs to be those services where direct contact between buyer and seller is necessary (e. because the service can now be "separated" from the producer.g. We propose that any extra-corporate entity between the producer of a service and prospective users that is utilized to make the service available and/or more convenient is a marketing intermediary for that service. For example. The revised concept of the distribution of services appears to have at least two important implications for service marketers. Haas. For example. Vol. many service industries have been criticized for an "overdependence on advertising."" The problem of overdependence on one or two elements of the marketing mix is one that service marketers cannot afford. 35-39. The same is true for the HMO membership card. For example. means of distribution were used that consisted of separate organizational entities between the producer of the ser\ ice and the user for the purpose of making the service available. since each element in the marketing mix is designed to address specific problems and achieve specific objectives. It indicates that making services available is often a product development as well as a distribution problem. Rather. Etzel of Utah State University for valuable comments and suggestions. "The Missing Link in Bank Marketing. Much thinking is left to be done before we develop a complete understanding of the very nebulous notion of distributing an intangible. The author would like to acknowledge the aid of Professor Michael J. Identify characteristics of services that can serve as means to classify them for purposes of distribution. Companies or organizations that provide space for a walk-up phone serve as intermediaries for telephone communication. A logical direction would appear to be: 1. It is hoped that this article has shown that such an effort is worthwhile. see Robert W. 3. For the latter group. The sum total of the marketing mix elements represents the total impact of the firm's marketing strategy. Identify and classify existing intermediaries by the functions they perform. banking). indirect distribution of the service was made possible because "products" were de4.Marketing Notes and Communications 57 services. as has been done with the intermediaries that comprise the channels of distribution for goods. These intermediaries were not the traditional institutional middlemen that comprise the channel of distribution for goods. The credit card has also made it possible for banks to expand their geographic markets by maintaining credit customers far outside their immediate trading areas. a separate approach to the distribution of services will provide marketers with potentially broader and more useful insights into this important facet of marketing.g. This facilitates the use of intermediaries. the bank credit card is a tangible representation of the ser\ ice of credit though it is not the service itself." Atlanta Economic Review. The slack created by severely restricting one element cannot be compensated for by heavier emphasis on another.. Members can be treated or hospitalized while away from home and still be covered by their HMO membership. The problem of making services more efficiently and widely available must not be ignored in favor of other elements of the marketing mix that are easier to deal with. service marketers can (and rnust) distinguish conceptually between the production and distribution of services. First. 2. as has been done with goods. Of course. the concept of "marketing intermediary" must be defined in the context of services. the process might be reversed: intermediaries could be located and appropriate "products" developed. As such. the concept itself is not inadequate. Implications for IMarketing Thought Services must be made available to prospective users. In each of the examples cited here. In several of the examples described. and this implies distribution in the marketing sense of the word. it has enabled banks to overcome the inseparability problem and use the retail merchant as an intermediary in the distribution of credit. more "intermediaries" appear feasible. medical and legal services) and those where direct contact may not be necessary and a tangible representation of the service can exist (e. . pp. Implications for Service Marketers veloped that included a tangible representation of the service. While the present "goods-based" concept of channel of distribution does not provide for this. since it enables subscribers to maintain an "inventory" of the bank's credit for use at their convenience.