SM 18 March | Amazon.Com | Franchising

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 distribution • services – therefore- are delivered directly from the services producer to the consumer

• Services cannot be owned due to the absence of tangible components • 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 intermediaries • 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 stores • 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 chain • 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 multichannel distribution strategy to market its insurance products • 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 markets • 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 divisions

• 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 segment • Barista opened coffee bars in 2000 seeing growth in coffee retailing • companies positioned their brand and products differently in the coffee retailing space • CCD reaped the benefits of carving out a unique position in the marketplace 18

• target the youth segment with spending power • 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 position • Barista positioned the coffee retail brand as a meeting place for coffee-loving business executives • 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 franchisor • 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 etc. • 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 Kreme • 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 Holidays) • 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. • GLOBAL PRICING STRATEGY: Such control 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

• SEEDING THE MARKET WITH HIGH PRICED NEW 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 game) • 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 machine

• 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 accessories •Today the company serves more than 1.6 billion customers annually throughout Asia, the

• look at the market positioning of the brand…! • 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 wants 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 motivation) • and operations (logistics, IT, and communications) • 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 apparel • 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-questionsasked and no-time-limit” exchange policy can be seen as an augmented product offered by Giordano

• Giordano focuses on the concept of value-formoney • 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


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 markets?

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, wellmannered, 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 communication • 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 shopping).


• ‘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 efficiency • 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 provider

• • •

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 plate • 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 serviceperformance 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 • 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.

Service Blueprint

Proce ss Points of contact Eviden ce

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 Components

Blueprint for Express Mail Delivery Service
PHYSICAL CUSTOMER EVIDENCE Truck Packaging Forms Hand-held Computer Uniform Customer Calls Customer Gives Package Truck Packaging Forms Hand-held Computer Uniform Receive Package

CONTACT PERSON (On Stage) (Back Stage)

Line of interaction
Driver Picks Up Package Deliver Package

Line of visibility
Customer Service Order

Line of internal interaction
SUPPORT PROCESS Dispatch Driver Airport Receives & Loads Fly to Sort Center Load on Airplane Sort Packages Fly to Destination Unload & Sort Load On Truck

Blueprint for Overnight Hotel Stay Service

Hotel Exterior Cart for Parking Bags

Desk Registration Papers Lobby Key

Elevators Hallways Room

Cart for Bags

Room Amenities Bath


Delivery Tray Food Appearance


Bill Desk Lobby Hotel Exterior Parking Check out and Leave


Arrive at Hotel

Give Bags to Bellperson

Check in

Go to Room

Receive Bags

Sleep Shower

Call Room Service

Receive Food


Line of Interaction
Greet and Take Bags Process Registration Deliver Bags Deliver Food Process Check Out

Line of Visibility
Take Bags to Room Take Food Order


Line of Internal Interaction
Registration System Prepare Food Registration 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 tradeoffs? •  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 requested

3. What would you do if you were Allan Moulter
at Quality Care? • effect of new technology on customer satisfaction • 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

STARBUCKS: DELIVERING CUSTOMER SERVICE • 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 ways

• to address these problems, Starbucks was considering investing an additional $40 million in labor in its stores

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