Chapter 5 : Distributing Services

Through Physical and Electronic

Channels
1. What is being distributed ?
Distribution embraces three interrelated flows, which address the question of what is being
distributed.
● Information and promotion flow
● Distribution and information and promotion materials relating to the
service offer
● Negotiation flow
● Researching an agreement on the service features and configuration and
the terms of the offer
● Product flow
● People processing or possession processing-physical facilities for delivery
and development of a network of local sites
● Information-processing services-electronic channels, employing one or
more centralized sites

2. How Should a Service Be Distributed ?

The key factors to be considered when customers have to visit the service site :
● Cost (e.g., rental)
● Customer catchment areas
● Convenience of service outlet locations for customers.
When should service providers go to their customers ?
● Object of the service is some immovable physical item.
● There may be a profitable niche in serving individuals who are willing to pay a
premium for the convenience of receiving personal visits or home delivery.
● In remote areas, service providers often fly to visit their customers because the
latter find it so difficult to travel.
● Service providers are more likely to visit corporate customers at their premises
than individuals in their homes, reflecting the large volume of such business-to-
business (B2B) transactions.

3. The Service Transaction Is Conducted

Remotely
When dealing with a service firm through remote transactions, a customer may:
● Never see the service facilities or
● Never meet service personnel face-to-face.
Logistics providers offer service firms:
● Integrated,
● Reliable, and
● Cost-effective solutions.
Examples:
● Repair services
● Information-based product
● Web and app-delivered services
Service businesses that involve physical core products, such as retailing and repair, are:
● shifting delivery of many supplementary services to the Internet,
● closing physical branches, and
● relying on speedy business logistics to enable a strategy of arm’s-length
transactions with their customers.
Factors that attract customers to use online services:
● Convenience
● Ease of search
● A broader selection
● Potential for better prices
● 24/7 service with prompt delivery

4. Channel Preferences Vary Among

Customers
Recent research has identified the following key drivers for channel preferences among
customers:
● Convenience is a key driver of channel choice for the majority of consumers.
● For complex and perceived high-risk services, people tend to rely on personal
channels.
● Individuals with higher confidence and knowledge about a service and/or the
channel are more likely to use impersonal and self-service channels.
Customers who look for the functional aspects of a transaction prefer more convenience.

5. Channel Integration
Channel integration is key for successfully delivering through multiple channels.
New delivery channels have created an inconsistent and frequently disjointed experience for
many customers.
Customers take advantage of price variation among channels and markets, a strategy
known as channel arbitrage.
Service providers need to develop effective pricing strategies that will enable them to deliver
value and capture it through the appropriate channel

6. Where Should a Service Facility Be

Located ?
Strategic Location Considerations
Understanding customer needs and expectations, competitive activity, and the nature of the
service operation.
Firms should make it easy for people to access frequently purchased services, especially
those that face active competition.
Markets can be segmented by accessibility preferences and price sensitivity.
Tactical Location Considerations
Key Factors:
● Population size and characteristics.
● Pedestrian and vehicular traffic and its characteristics.
● Convenience of access for customers.
● Competitors in the area.
● Nature of nearby businesses and stores.
● Availability of labor.
● Availability of site locations, rental costs, and contractual conditions and
regulations.
Locational Constraints
● The need for economies of scale and operational requirements may restrict
choice of locations.
Innovative Location Strategies
● Mini-Stores and Related Location Strategies
● Automated kiosks
● Separating the front and back stages of the operation
● Firms offering one type of service business are purchasing space from
another provider in a complementary field
Locating in Multipurpose Facilities
● Modern buildings are often designed to be multipurpose, office or production
space with services such as an ATM, a restaurant, a hair salon, several stores,
and maybe a health club.
● Entire new business models are based on co-location strategies.
● Locating retail and other services on transportation routes and in bus, rail, and air
terminals.

7. When Should Service Be Delivered?

24/7 service — 24 hours a day, 7 days a week, around the world.
Factors determining the opening hours — customer needs and wants and the economics of
opening hours.
Factors That Encourage Extended Operating Hours
● Pressure from consumers
● Changes in legislation
● Economic incentives to improve asset utilization
● Availability of employees to work during "unsocial" hours
● Automated self-service facilities

8. The Role of Intermediaries

Many service organizations find it cost-effective to outsource certain aspects of distribution.
This delegation predominantly concerns supplementary service elements.
Analysis of benefits and costs of alternative distribution channels
Many service firms have achieved brand equity by
● migrating their customers and sales to lower cost channels to remove
intermediaries
This process is also called disintermediation.

9. Analysis of Benefits and Costs of

Alternative Distribution Channels
When designing a firm's distribution strategy, the following have to be carefully considered:
● The role and value-added (i.e.,benefits) provided by intermediaries
● The risk of intermediaries taking over the customer relationship
● The cost of every intermediary

10. Franchising
Franchising has become a popular way to expand delivery of an effective service concept,
embracing all of the 7 ‘P’s to multiple sites.
A franchisor recruits entrepreneurs, who invest time and effort into the business.
Local marketing activities are typically paid for by the franchisee.
The International Franchise Association, the world’s oldest and largest organization
representing franchising worldwide, defined franchising as follows:
● A franchise (or franchising) is a method of distributing products or services
involving a franchisor, who establishes the brand’s trademark or trade name and
a business system, and a franchisee, who pays a royalty and often an initial fee
for the right to do business under the franchisor’s name and system.

11. What Makes Franchising Attractive?

Investment
Long-Term Commitment
Local Knowledge
Franchisor Success Factors include:
● The ability to achieve a larger size with a more recognizable brand name.
● Offering franchisees fewer supporting services but longer-term contracts.
● Having lower overhead per outlet.
● Providing accurate and realistic information about expected characteristics of
franchise operations and support given.
● Building a cooperative rather than controlling relationship.
The Top 10 Franchises in the United States and Their Start-Up Costs
Rank Franchise Name Type Start-Up Cost (US$ in
thousands)
1 Dunkin’ Food and beverage $396-$1,600
2 Taco Bell Fast food $526-$3,000
3 McDonald’s Fast food $1,300-$2,200
4 Sonic Drive-In Fast food $1,200-$3,500
5 The UPS Store Retail and franchising $138-$470
6 Ace Hardware Hardware $286-$2,100
7 Planet Fitness Fitness $1,100-$4,200
8 Jersey Mike’s Subs Restaurant $237-$767
9 Culver’s Fast food $2,000-$4,700
10 Pizza Hut LLC Fast food $357-$2,200
Disadvantages of Franchising
● Loss of control
● Priorities and procedures may be different
● Legal disputes

12. Other Intermediaries

Licensing another supplier to act on the original supplier’s behalf to deliver the core product.
● Trucking companies regularly make use of independent agents instead of
locating company-owned branches in each of the different cities they serve.
Other service distribution agreements can be contractual.
● Banks seeking to move into investment services will often act as the distributor
for mutual fund products created by an investment firm lacking extensive
distribution channels of its own.

13. The Challenge of Distribution in Large

Domestic Markets
Physical logistics
Multiculturalism
Laws and tax rates

14. Distributing Services Internationally

Many firms distribute their services internationally,
including:
● CNN
● Reuters
● Google
● AMEX
● Starbucks
● Hertz
● Citibank
● McKinsey

15. Factors Favoring Adoption of

Transnational Strategies
Market Drivers: Consumer needs, presence of global customers, availability of international
channels.
Competition Drivers: Transnational policies of competitors, presence of many competitors —
domestic and international.
Technology Drivers: Enhanced performance and capabilities in telecommunications,
computerization, and software; miniaturization of equipment; and the digitization of voice,
video, and text.
Cost Drivers: Economies of scale, sourcing efficiencies as a result of favorable logistics,
lower operating costs for telecommunications and transportation.
Government Drivers: Favorable trade policies, compatible technical standards, and common
marketing regulations.

16. How Does the Nature of a Service Affect

International Distribution ?
People-Processing Services
● Export the service concept. Acting alone or in partnership with local suppliers, the
firm establishes a service factory in another country.
● Import customers. Customers from other countries are invited to come to a
service factory with distinctive appeal or competences in the firm’s home country.
● Possession-Processing Services
● Most services in this category require an ongoing local presence,
regardless of whether customers drop off items at a service facility or
have a service staff visit the customer’s site.
Information-Based Services
● Export the service to a local service factory. The service can be made available in
a local facility that customers visit.
● Import customers. Customers may travel abroad to visit a specialist facility, in
which case the service takes on the characteristics of a people-processing
service.
● Export the information via telecommunications and transform it locally. The data
are increasingly downloaded from the company’s website in that country by
customers themselves.

17. Barriers to International Trade in

Services
Notable developments in International Trade:
● NAFTA, linking Canada, Mexico, and the United States.
● Latin American economic bloc Mercosur.
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), linking
11 Asian and American countries (but not the United States)
● Birth of European Union, now 27 countries-strong.
Barriers:
● Government restrictions.
● Entry into regulated markets such as finance, telecom and healthcare.
 18. How to Enter International Markets ?
A firm’s ability to go international depends on:
● how a firm can protect its intellectual property (IP) and control its key sources of
value creation, and
● whether the level of desired interaction with the customer is high or low.

19. Conclusion
What? How? Where? When? Responses to these four questions form the foundation of any
service distribution strategy.
The customer’s service experience is a function of
● how the different elements of the Flower of Service are distributed and delivered
through selective physical and electronic channels
In addition to “what” and “how,” a service marketing strategy must address issues of place
and time.
They must pay attention to:
● speed,
● scheduling,
● electronic access as to the more traditional notion of physical location.
The rapid growth of the Internet and broadband mobile communications is exciting for
service firms.
In the heat of globalization, important questions are raised concerning:
● the design and implementation of franchising
● international service distribution strategies.