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Chapter 7

Distributing Services
• Service Distribution

• services are intangible and experiential in nature

• service distribution does not typically involve

moving items

through a chain of firms that begins with a

manufacturer and ends

with a consumer – as the process for goods

• services – therefore- are delivered directly from
the services

producer to the consumer

• Services cannot be owned due to the absence
of tangible

• this implies that there are no titles or rights to
most services that

cannot transferred to the agent along a

delivery channel
• thus the primary function that distribution
channels serve –

inventorying, securing and taking titles to

goods – have no
• there are three participants in the service
delivery process : the

service provider, customer, and the service

• two types of channel delivery modes for service:
direct channels of

service delivery and indirect or alternative

channels of service delivery ( franchisees, agents
and brokers, and electronic channels)
• the direct distribution of services takes place
when a service provider directly delivers the
service to the customer without any intermediaries

• Hasbro is a worldwide leader in

entertainment products and services, such
as GI Joe, Candy Land, the Easy Bake Oven,
and Monopoly
• Hasbro is a $3 billion company with brands
in 100 countries and launching 1,000 new
products each year
• the company attributes its success to
staying ahead and anticipating the changing
needs of the marketplace by making games
• even with big brands and successful
products, Hasbro knows that if its marketing
and distribution strategies are not executed
correctly, the products will fail
• world-class logistics and an efficient supply
chain are critical for Hasbro to remain
competitive and work with powerful retail
• primarily, the company distributes through
big-box retailers such as Wal-Mart, Target,
and Toys “R” Us
• due to this concentrated distribution strategy,
it is easier for Hasbro to make changes and
launch products, resulting in a tighter supply
• it would be substantially harder with a lot of
little retailers. However, the company does use
alternate distribution channels to reach
consumers where they shop, such as
drugstores, wholesale clubs, online and smaller
toy stores
• in these alternate distribution channels, Hasbro
knows that it needs to provide a different
• certain items may be bundled together,
resulting in a higher ticket item, but
appropriate for the channel

• Hasbro works with the channel members to

make sure their brand is marketed correctly,
but the company also makes sure its
products fit correctly in retailers’ product
mix and merchandising
• financial services are perishable, intangible, and
variable with direct distribution to the customer
• ICICI Bank Ltd.

• ICICI Prudential Life Insurance has developed a multi-

channel distribution strategy to market its insurance
• this distribution strategy includes bankassurance
(offering banking and insurance products at one place),
direct marketing through individual agents and financial
service consultants and corporate agents
• ICICI Prudential runs its operations at 23 locations and
some of them have many branches
• in the year ending March 2008 the company had issued
• the company has a network of about 30,000
advisors as well as 12 bankassurance tie ups
• today ICICI Prudential commands over 40 per
cent of the retail insurance market among the top
private players in the country
• Distributing through the meal dabba: ICICI
Prudential’s intermediary channel of service
delivery in metropolitan Mumbai
• ICICI Prudential Life Insurance has discovered an
innovative way to distribute its products and
services to potential customers in Mumbai
• the company found that over 200,000 office goes
• in 2004-05 the company undertook a successful
pilot study to understand the marketing
effectiveness of micro marketing:
communicating the value benefits of the service
through local media
• the company sends around 50, 000 direct
mailers to office goers in Mumbai by hanging a
mailer to the handles of meal boxes
• the distribution of these mailer is timed
perfectly for maximum effectiveness – they are
distributed around the end of the financial year
when most employees are thinking of saving on
• the conversion rate of interested policy seekers in
policy holders in very encouraging through this
direct marketing medium – 4% to 5 % of prospects
convert to customers
• the franchisee is a service outlet licensed by a
principal to deliver a unique service concept it has
created or popularised for business reasons :
lowered marketing risk and wider reach
• a service organization provides licenses to
franchisees to sell its services according to
standards or rules set by the organization
• for examples, Café Coffee Day has many
• the benefits for the franchisees include an
established business format, national or regional
brand marketing, and the minimised risk of starting
a business
• picture this…
• Lakme India: Delivering Beauty and Grooming
Service through franchising
• The beauty and fitness business in India is
estimated to be over Rs. 15,000 crore
• The services offered by most of the major brands
within this sector include Shanaz Hussain, VLCC,
Personal Point, and Lakme Beauty
• direct distribution or company-owned channels

• a range of service offerings are distributed

directly from the provider to customer
• national level chains and international levels
with multiple service outlets are direct channels
of service delivery because the service marketer
retains complete control over the market benefits
of distribution
• consistency in service and establishment of
standards aids the service provider to monitor
the service rewards
• company-owned channels allow the service
• CCD is a classic example of company owned
direct channels of service

delivery in India
• while Starbucks Coffee is a classic example of
company owned direct

channels of service delivery in international

• Café Coffee Day is a division of India's largest
coffee conglomerate,

Amalgamated Bean Coffee Trading Company Ltd.

(ABCTCL), popularly

known as Coffee Day

• Coffee Day has its business spanning the
entire value chain of coffee consumption in
India: the company retains complete control
and consistency in the service delivery
through the operations of its five business

• Its different divisions include: Coffee Day

Fresh n Ground (which owns 400 Coffee bean
and powder retail outlets), Coffee Day Xpress
(which owns 895 Coffee Day Kiosk), Coffee
•Café Coffee Day (CCD) pioneered the café
concept in India in 1996 by opening its first
café at Brigade Road in Bangalore
• till about the late 1990’s coffee drinking in
India was restricted to the intellectual, the
South Indian traditionalist, and the five star
coffee shop visitor
• CCD identified and responded to a clear
but unsatisfied the market need for a
relaxed and fun “hangout” for the emerging
urban youth in the country
• Amalgamated Bean Coffee Trading Company
pioneered the F&B concept of “out-of-home
premium coffee consumption” for the youth
• Barista opened coffee bars in 2000 seeing
growth in coffee retailing
• companies positioned their brand and
products differently in the coffee retailing
• CCD reaped the benefits of carving out a
unique position in the marketplace 18
• target the youth segment with spending
• to satisfy the market need to socialize,
meeting place for friends, networking, etc.
• set up outlets close to colleges, software
companies, and shopping malls

• initiated joint product promotions with
youthful brands (Channel V) to craft a brand
• Barista positioned the coffee retail brand as
a meeting place for coffee-loving business
• meeting place for conducting business while
savouring the aroma of coffee

• accurate targeting of its customer segment

• helped CCD to differentiate the brand by

crafting a unique position in the youth
consumer’s mind
• Barista positioned the benefits of its brand
as premium coffee retail outlet for upwardly
mobile business execs
• let us now examine how Lakme India Limited
is an application of indirect channels of
service delivery
• Lakme the first beauty brand in India and now owned
by HLL forayed into the beauty salon business
through franchise outlets
• with over 100 franchised outlets across the country
Lakme has earned years of experience as a successful
• innovator in a wide range of high quality skin care,
colour cosmetics, and beauty services
• before selecting a franchisee the company ensures
that the franchisee shares Lakme’s philosophy of
excellent service delivery and customer orientation
• Franchising enables Lakme to drive down product and
inventory costs
• Lakme the franchisor provides extensive
marketing support to the franchisees both at the
national level and individual level
• Lakme carries out advertising campaigns and
special events at the national level for the benefit
of its franchisees
• Lakme for example to extend the service reach of
its franchisees organizes and promotes branded
shows such as the Lakme Bridal Show, Lake Cool
Colours Show, Hot Styles Hair Service Road Show
• Lakme believes in empowering its franchisees
DUNKIN’ DONUTS (educational video case)
• what are the key learnings from the video case
screened before you just now
• Dunkin’ Donuts (the world leader in quick service
coffee shop food and beverage category ) has
many strengths (quality and freshness, flavor and
variety, good value, convenient locations, strong
brand presence)
• however, the company has to deal with powerful,
new competitors, including Starbucks and Krispy
• the company continues to be a major brand with
• additionally, corporate training enforces the
company standards to deliver a consistent
product year after year and across all restaurants
and franchises
• Dunkin’ Donuts does not target one customer
segment; rather, it reaches across all
demographic strata
• promotional campaigns and diversity of locations
support this strategy
• to meet market demand, the company is
expanding into the coffee market by offering
specialty coffee drinks in addition to its standard
• agents and brokers

• an agent is an intermediary who acts on

behalf of a service principal (such as a real
estate agent) or a customer and is authorised
to make arrangements between the principal
and the customer
• a broker is an intermediary who brings buyers
and sellers together while assisting in
negotiation on price, time, and demand of
service, and mode of service delivery
• Real estate brokers, insurance brokers, and
security brokers
• two main categories of travel intermediaries
exist: tour packagers (Cox and Kings) and
retail travel agents (Thomas Cook), Kuoni
Voyages, SOTC World Tours, and Mahindra
• the logistics industry also presents good
examples of agents: Gati, DHL, DTDC, Patel
Roadways, Agarwal Packers and Movers etc
• Real estate: large builders such as Shobha
Developers and Delhi Land Foundation
undertake both realty agency and brokerage
services for residential, industrial, and
•Electronic channels

• electronic channels deliver information,

education, and entertainment to consumer
and business markets via technology and
electronic channels of communication
• motion pictures (movies), news, music,
banking and financial service, multimedia,
databases, distance learning, remote health
services, video gaming, mobile computing,
videoconferencing, TV sets, direct-to-home
TV, cable TV , the Internet

• brings you the best shopping

experience on the Internet
• Founded in January 2000, is a
subsidiary of Wal-Mart Stores, Inc.
• sells more than a 1,000,000 products (1
million items) available online which gives
customers the convenience of ordering
products online and picking them up at a
local Wal-Mart
• Nintendo Entertainment Systems: the world
champion in the gaming industry loses its
market leader position to Sony Play Station
• convergence of services marketing
applications and technology driven by direct
and indirect channels of distribution
NINTENDO: the global gaming giant.
• The 100 year old company of the same name began
marketing the Nintendo game machine as
‘Famicom’ a family computer – which doubled up as
a video game device once connected to the family
TV set.

• The company test marketed its computer in New

York in 1984 and by 1991 had achieved a greater
penetration with its product than had by any other
home computer or personal computer: 30 million
Nintendo machines had been sold to consumers.

• NEW PRODUCT INVENTION: Nintendo carefully

controlled the demand of its video games for its
machines by designing the Nintendo machine with a
• Therefore, a software developer who sought
to sell a game software to Nintendo had to
license it to the company. Nintendo’s
licensing agreements required that the
software developers do not sell the same
game to competitors.


enabled the Nintendo to keep the games
scarce and relatively higher priced at $ 40 a
cartridge and prevented imitator games
from eroding its market share. Nintendo’s
U.S. sales rose from $800 million in 1987 to
$ 3 billion in 1991 resulting in an 80 per cent
PRODUCTS: Sega, Nintendo’s closest market
competitor, launched a flank attack to blunt the
market leader’s edge by introducing a
technologically more advanced machine:
‘Genesis’ a 16-bit system in 1991 and ‘Sonic the
Hedgehog’ in 1992
• Nintendo launched a ‘fighter brand’ to stop the
advance of Sonic in the market with the
introduction of the ‘Super Family Computer’
accompanied by a market-skimming strategy
with the product priced at US$ 200
• the price of Sonic was revised to match the $200
price tag of Super and both firms seeded the
next generation 16 bit products with the sale of a
large number of high priced games ($50 per
• what was Nintendo’s market leadership the
result of?
- product design
• Nintendo was successful in meeting an emerging
need among middle class families in advanced
markets for a simple, user-friendly source of
entertainment that did not intimidate the user
(family computer that played video games)
• Nintendo’s Famicom and Super products were
sold across toy stores and were priced at just
under $100 and $200 a piece
• the competitive structure of the global market for
gaming machines changed with the entry of Sony:
Sony PlayStation (32 bit with graphics, colours,
and sound) using a CD-ROM based gaming
• in five years (1993-98) Sony, a nicher in the
gaming business, emerged as the market
leader displacing Nintendo from the top
position by eroding 50 per cent of the
company’s market share
• Sony PlayStation offered 500 games versus
95 by N 64 with Sony’s CD-ROM based
approach making the gaming platform PC
compatible rather than game machine
compatible (cartridge)
• technology and marketing interact in
• The company was spun off
in 1999 from Encyclopædia Britannica Inc.,
which owns the Encyclopædia Britannica, to
develop the Britannica as an online resource
• The channel strategy was to give content
away free, and for the website to act as a
portal that would aggregate content from
the Internet
• Barnes & Noble, Inc. is the largest book
retailer in the United States, operating
mainly through its Barnes & Noble
• Before Barnes & Noble created its web site,
it sold books directly to customers through
mail-order catalogs (direct channel).
• It first began selling books online in the late
1980s, but the company’s web site was not
launched until May 1997
• The site now carries over 1 million titles in
more than 25 languages (direct channel)
•, Inc. is an American electronic
commerce company and is the world’s largest
online retailer
• Revenue : US$ 19.166 billion (2008)

• Operating income US$ 842 million (2008)

• Net income: US$ 645 million (2008)

• Employees 20,500 (2008)

• Jeff Bezos founded, Inc. in
1994 and launched it online in 1995. It
started as an on-line bookstore but soon
diversified to product lines of DVD, music
CDs and MP3s, computer software, video
games, electronics, apparel, furniture,
food, and toys
•Amazon has steadily branched into retail
sales of software, consumer electronics,
kitchen items, sporting goods, gourmet
health and personal-care items, beauty
products, and clothing,
• Let us first understand the company that is
profiled in this case study and then attempt an
analysis of the company case
• Giordano is a Hong Kong based company that
was established in 1981
• Giordano is a leading international private
label and multi brand retailer of men’s,
women’s, and children’s apparel and
•Today the company serves more than 1.6
billion customers annually throughout Asia, the
• look at the market positioning of the
• Giordano is very clear about its
differentiation strategy in global markets
• the marketer positions itself as a retailer
of casual apparel catering to a market that
is young and with a thirst for refreshing
fashions and affordable clothes!
• “simple pleasure of basic fashion” - the
brands easy-going
mix of relaxed and casual apparel
enhance the global appeal
of the brand
• the brand prides itself in dressing the
youth in a preppy look
• the positioning of the apparel brand has
attracted the attention of academicians and
the global success story has also featured
as a HBS case study
• jeans, khaki trousers, oxford shirts, polo
neck T-shirts the merchandise can be easily
mixed to match the mood, occasion or place
• What is the three central learnings of this
company case

• the case study demonstrates the power of

a tight integration of marketing,
operations, and human resource
management to deliver “value-for-money”

• the case study further demonstrates how a

strong and clearly visible emphasis on
• the success of Giordano is attributed to
five critical factors:

1. Providing excellent customer service

2. Understanding consumers’ needs and


3. Stringent selection and training of staff

4. Short design to production cycles

5. Effective inventory control and profitable

sales turnover
• from a management perspective, the case
can be used to…
• highlight the applications of marketing
strategy: delivered

through a clear focus on service staff

(selection, training, and

• and operations (logistics, IT, and
• combined with an organizational culture
that encourages staff
1. Describe and evaluate Giordano’s product,
business, and corporate strategies.
• Product Strategy. Giordano sees itself as
being more than just a retailer of casual
• it was able to successfully incorporate
customer service as part of its product
• How…?

• Besides its brand name, logo, style, and

quality, excellent service has become part
of the tangible products sold at Giordano
•For instance, Giordano’s “no-questions-
asked and no-time-limit” exchange policy
can be seen as an augmented product
offered by Giordano
• Giordano focuses on the concept of value-for-
• Giordano is constantly aiming to improve the
value of the product
• Customers are often encouraged to request
certain product adaptations if current
products fail to meet their expectations
• this can be illustrated by its dedication to
training and motivating its front-line staff as
well as its no-questions-asked return policy
1. Describe and evaluate Giordano’s current
positioning strategy. Should Giordano
reposition itself against its competitors in its
current and new markets, and should it have
different positioning strategies for different

• Giordano’s is positioning on the basis of three

strategies: that of “value-for-money” or
“quality merchandise at affordable prices”
[product differentiation]
• high level of service provided to customers
[service differentiation]
• sales staff are dedicated, ever-smiling, well-
mannered, and helpful [personnel
• What are Giordano’s Key Success Factors (KSFs) and
sources of competitive advantage? Are its
competitive advantages sustainable, and how would
they develop in the future?

• Excellence in design: fast and market-driven new

product development, due to flat organizational
structure, excellent organizational
• Excellence in management of operations,
logistics and information technology systems:
this includes effective supply chain
management, integration of purchasing and
selling functions. Cost savings from efficient
• Excellence in marketing and branding: strong
positioning, brand equity for excellent service and
ability to deliver “value-for-money,” consistent
execution of advertising and promotion to
strengthen brand image.

• Excellence in service: continual commitment to

providing excellent customer service and response.
(e.g., selection, training and remuneration of
frontline staff) and information systems, and
performance monitoring (e.g., regular evaluations of
service standards at store level and mystery


• ‘process’ is an element of the extended marketing
mix of services marketing
• a process in services marketing outlines the
procedures and methods to be followed to produce
and deliver a service
• let us first fully understand what a process means
in services marketing
• a process comprises a series of logical steps that
can be broken down and flowcharted to achieve
• the outcome of a process in services marketing is
the design and management of new services
• service processes create major or radical services,
service line extensions, and service improvements
• radical innovations are new services for markets as
yet undefined
• eBay is a company that epitomizes radical innovations
• eBay is the world’s largest Internet retailing portal
with over 30 million active users and well over $ 20
billion merchandise traded across buyers and sellers
• innovations such as remote health systems: where
medical diagnosis, medical imaging, and video enabled
surgery have revolutionized the reach of medical
expertise across continents instantly
• the business process, knowledge process, and
• Service line extensions represent
augmentation of the existing service line
such as a restaurant offering new menus, an
airline offering new routes, and a university
offering new courses
• services improvements represent perhaps
the most common type of service innovation
to allow for the faster execution of an
existing service process: on the spot bank
account opening facility at SBI, automatic
teller machines that extend the service
• two types of processes are available for a service
• Line or flow operations
• Job Shop Operations
• in the line or flow operations process the activities
required to produce or deliver a service are arranged
in a logical flow or assembly line
• high coordination among service personnel and the
speed of operation are necessary for the process to
run smoothly
• In this process the output of a particular stage
becomes an input for the next stage
• the flow process is adopted by service providers
• picture this…

• You and your group of friends have entered a your

favourite food joint and placed an order for the meal
• you find the restaurant serves you the meal in 10
minutes flat
• the cooks followed a line operations wherein the fast
food meal is segregated into components – veggies,
meat, breads, sauces, toppings, cheese spreads,
pizza bases, French fries and so on
• the food components are processed and cooked in a
sequence and finally integrated on to the serving
• this process in quick, efficient, and manages high
• The job shop process on the other hand
determines the activities and their sequential
arrangement based on the type of job at hand
• this process is used to offer various services and
the need a similar work bench
• this process allows a service provider to
customize services according to customer needs
using one type of process set up
• for example your favourite café that you hand
out at serves a Cappuccino, Latte, and Espresso
using the same process set up at the food
counter: the coffee beans are ground and pressed
• to sum up, the marketing objective of service
development and design is to create new
services for the marketer
• because services are produced and consumed
simultaneously and often involve interaction
between employees and customers, it is also
critical that the new service development
process involves both employees and customers
• service personnel or employees are often the
service itself
• Service blueprinting

• service blueprinting is a service process that

maps all the processes and elements involved in
service creation and delivery including service
personnel and customers
• service blueprinting is a process in service
design that attempts to reduce the variability of
the service by standardizing the service-
performance process: and thereby adding an
assurance against service failure and adding
value to the customer
• Three elements of service blueprinting are used in
designing service products: customer role,
onstage and backstage employee actions, support
• PROCESS = Customer role/ line of interaction : all
steps performed by a customer in selecting,
purchasing, consuming, and evaluating a service
• when reading the flowchart of a service blueprint
customer role translates to customer actions and
corresponds to the horizontal flowchart notation
of the line of interaction
• in a blueprint the first horizontal line shows the
• POINTS OF CONTACT or onstage and
backstage or backstage employee actions
• onstage and backstage employee actions:
onstage employee actions can be any activity
performed by the service employee that can be
seen by the customer (order taking, sales
presentation, demo etc)
• backstage employee actions are those
activities that are performed by the service
personnel necessary to support the onstage
service personnel: billing, operations,
distribution planning etc.
•Support Processes are processes by service
personnel to produce and deliver services
(training is a support process)
• to read the support process look for the line
of internal interaction or the third horizontal
line which divides the internal process that
assist the service personnel in producing and
delivering a service; a vertical line passes
through the horizontal line to indicate a
service encounter
• EVIDENCE or Physical Evidence
Service Blueprinting
• A flowcharting tool for simultaneously
depicting the service process, the points of
customer contact, and the evidence of
service from the customer’s point of view.

Points of
Service Blueprint Components

Customer Actions

line of interaction

“Onstage” Contact Employee Actions

line of visibility

“Backstage” Contact Employee Actions

line of internal interaction

Support Processes
Service Blueprint
Blueprint for Express Mail Delivery Service
Truck Truck

Packaging Packaging
Forms Forms
Hand-held Computer Hand-held Computer
Uniform Uniform

Customer Customer Receive

Calls Gives Package

Line of interaction
(On Stage)

Picks Up Deliver

Package Package

Line of visibility
(Back Stage)


Line of internal interaction


Airport Fly to Load

Dispatch Unload
Receives Sort Fly to On
Driver &
& Loads Center Destination Truck
Load on Sort

Blueprint for Overnight Hotel Stay Service

Hotel Exterior Cart for Desk Elevators Cart for Room Menu Delivery Food Bill
Parking Bags Registration Hallways Bags Amenities Tray Desk
Papers Room Bath Food Lobby
Lobby Appearance Hotel Exterior
Key Parking

Arrive Give Bags Call Check out

Go to Receive Sleep Receive
at to Check in Room Eat and
Room Bags Shower Food
Hotel Bellperson Service Leave

Line of Interaction
(Back Stage) (On Stage)

Greet and
Process Deliver Deliver Process
Registration Bags Food Check Out

Line of Visibility
Take Bags Food
to Room Order
Line of Internal Interaction

Registration Prepare Registration

System Food System
• the primary focus of the case is on the
introduction of

technology as a means of delivering

services previously

delivered by service personnel

• the Quality Improvement case examines
the potential

introduction of an automated patient

check-in system in a

health care clinic

• the case illustrates and discusses issues
•Innovation in services

•Delivering services through technology

•New service development and implementation

•Customer acceptance of new technologies

• Describe the basic situation in the Quality

Improvement case. What decision is Allan Moulter
facing? What are the issues, challenges and
•  Allan Moulter, CEO of Quality Care has received a
consultant’s report recommending that they install
an automated check-in system for their healthcare
clients The issues revolve around costs v. benefits of
implementing the new system. Neither are clearly
• The recommended computer system would:

•  Ask questions about the person’s

condition and reason for the visit
• Route the patient to the right staff person

• Collect information that could later be used

for insurance reporting purposes, etc.
• All of this would be accomplished by the
patient inserting his/her card into the
computer and entering information as
3. What would you do if you were Allan Moulter
at Quality Care?
• effect of new technology on customer
• Quality Care should develop and install the new
reception system. It will increase value to the
customer as well as overall customer
satisfaction, improve employee morale, and
provide a strong financial return with a relatively
small risk
• The big payoff for installing this particular
system is stated as “in­creased customer
• Over the past two decades Starbucks has
become an extremely popular phenomenon
and is the dominant specialty-coffee brand in
the world with more than 4,500 retail outlets
in North America alone
• an aggressive retail outlet expansion
strategy in mind and was pursuing other
avenues of growth
• at the same time, however, the company
had gathered evidence that (1) customer
satisfaction was on the decline, (2) its brand
image was showing signs of strain, and (3) its
customer base had changed in significant

• to address these problems, Starbucks was

considering investing an additional $40
million in labor in its stores