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Chapter 6
Distributing Services
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Objectives Outline (1 of 3)
6.1 Know the four key questions that form the foundation of
any service distribution strategy: What? How? Where?
When?
6.2 Know how services can be distributed using three main
options.
6.3 Recognize the issues of delivering services through
physical and electronic channels
6.4 Describe the where (place) decisions of physical
channels, and be familiar with the strategic and tactical
location considerations.
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Objectives Outline (2 of 3)
6.5 Describe the when (time) decisions of physical channels
and the factors that determine extended operating hours.
6.6 Understand the role, benefits, and costs of using
intermediaries in distributing services.
6.7 Know why franchising is such a common way of
delivering services to end users.
6.8 Understand the challenges of distribution in large
domestic markets and go international
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Objective Outline 6.1
• Know the four key questions that form the foundation of
any service distribution strategy: What? How? Where?
When?
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The foundation of any service
distribution strategy
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Distribution in a Services Context
• What is being distributed?
• How should a service be distributed?
• Where should a service facility be located?
• When should service be delivered?
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What is being distributed?
• In a typical service sales cycle, distribution embraces three
interrelated flows:
– Information and promotion flow
– Negotiation flow
– Product flow
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Factors affecting service distribution
• Components of the augmented service product
• Levels of Customer Contact with Service Organizations
• Objectives of service organization (eg.: positioning strategy)
• Characteristics of target customers
• The more complex and the higher the perceived risk → the higher
the reliance on personal channels.
• Consumers with higher confidence and knowledge about a service
n/or channels → use impersonal and self-service channels.
• Who looks for the instrumental aspects → prefer convenience → use
impersonal, self-service; who with social motives → tend to use
personal channels
• Convenience is the key driver of channel choice for the majority of
consumers:→ saving time and effort rather than money
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Objective Outline 6.2
• Know how services can be distributed using three main
options
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Options for Service Delivery
There are 3 types of interactions between customers and
service firms
• Customer goes to the service provider (or intermediary)
• Service provider goes to the customer
• Interaction at arm’s length (via the Internet, telephone, fax, mail, etc.)
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How should a service be distributed?
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Objective Outline 6.3
• Recognize the issues of delivering services through
physical and electronic channels
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Information and Physical Processes of the
Augmented Service Product
Information
Processes
Information
Payment Consultation
Order-
Billing Core
Taking
Exceptions Hospitality
Safekeeping
Physical
Processes
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Place vs. Cyberspace
❖ Place - customers and ❖ Required for people processing
suppliers meet in a physical services
❖ Offers live experiences, social
environment interaction, e.g., food services
❖ More emphasis on eye-catching
servicescape, entertainment
❖ Cyberspace - customers ❖ Ideal for info-based services
❖ Saves time
and suppliers do business
❖ Facilitates information gathering
electronically in virtual
❖ May use express logistics service
environment created by
to deliver physical core products
phone/internet linkages
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Delivering services through
electronic channels
• Information, consultation, order-taking, billing, and
payment can all be transmitted using online channels.
• Service businesses that involve physical core products are
closing physical branches and shifting delivery of many
supplementary services to the internet.
• Factors that attract customers to online services:
– Convenience
– Ease of search
– A broader selection
– Potential for better prices
– 24/7 service with prompt delivery
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Using Websites for Service Delivery
Information
Read brochure/FAQ; get schedules/
directions; check prices
Payment Consultation
Pay by bank card Conduct e-mail dialog
Direct debit Use expert systems
Billing Order-Taking
Receive bill Core Make/confirm reservations
Make auction bid Submit applications
Check account status Order goods, check status
Exceptions Hospitality
Make special requests
Record preferences
Resolve problems
Safekeeping
Track package movements
Check repair status
CORE: Use Web to deliver information-based core services
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E-Commerce:
Factors that Attract Customers to Virtual Stores
• Convenience (24-hour availability, save time, effort)
• Ease of obtaining information on-line and searching for desired items
• Better prices than in bricks-and-mortar stores
• Broad selection
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Objective Outline 6.4
• Describe the where (place) decisions of physical channels,
and be familiar with the strategic and tactical location
considerations
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Strategic and tactical location
considerations
• To develop a location strategy, a firm must understand
customer needs and expectations, competitive activity, and
the nature of the service operation.
• The following factors need to be considered for selecting a
specific site:
o Population size and o Competitors in this area
characteristics o Nature of nearby businesses
o Pedestrian and vehicular and stores
traffic o Availability of labor
and its characteristics o Availability of site locations,
o Convenience of access for rental costs and contractual
customers conditions, and regulations
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Strategic and tactical location
considerations
Places of service delivery
• Ministered:
– Creating many small service factories to maximize
geographic coverage (automated kiosks)
– Separating front and back stages of operation (Taco Bell)
– Purchasing space from another provider in
complementary field (Dunkin Donuts with Burger King)
• Locating in Multipurpose Facilities:
– Proximity to where customers live or work (service
stations)
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Strategic and tactical location
considerations
Places of service delivery
• Cost, productivity and access to labor are key determinants to
locating a service facility.
• Locational constraints:
– Operational requirements (airports)
– Geographic factors (ski resorts)
– Need for economies of scale (hospitals)
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The importance of channel
integration
• A service that is delivered through multiple channels
requires a seamless and consistent user experience.
• New delivery channels are prone to inconsistent and
disjointed experiences for customers
• Service providers need effective pricing strategies to
deliver value and capture it through the appropriate
channel.
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Channel preferences vary among
customers
• For complex and high-perceived risk services, people tend
to rely on personal channels.
• Individuals with greater confidence and knowledge about a
service/channel tend to use impersonal and self-service
channels
• Customers who are more technology savvy often prefer
remote channels
• Customers with social motives tend to use personal
channels
• Convenience is a key driver of channel choice
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Objective Outline 6.5
• Describe the when (time) decisions of physical channels
and the factors that determine extended operating hours
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TIME FACTOR IN DELIVER SERVICE
• Deciding the opened time
• Time factor and demand-supply management
▪ Service supply management
▪ Demand management
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“24/7” - Factors Encouraging
Extended Operating Hours
❖Economic pressure from
consumers
❖Changes in legislation
❖Economic incentives to
improve asset utilization
❖Availability of employees to
work nights, weekends
❖Automated self-service
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Time of Service Delivery
• Traditionally, schedules were restricted.
– Service availability limited to daytime, 40–50 hours a
week
• Today:
– For flexible, responsive service operations
▪ 24/7 service – 24 hours a day, 7 days a week, around
the world
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Objective Outline 6.6
• Understand the role, benefits, and costs of using
intermediaries in distributing services.
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The Role of Intermediaries
• Challenges for original supplier:
– Act as guardian of overall process
– Ensure that each element offered by intermediaries fits
overall service concept
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The role of intermediaries in service delivery
• Be the co-producer
• “Stock” and sell product to end users
• Responsible for supplementary services like information, advice, order taking, billing and
payment …
• Risk sharing
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Objective Outline 6.7
Know why franchising is such a common way of delivering
services to end users.
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Franchising
Franchising is a fast growth strategy, when
• Resources are limited
• Long-term commitment of store managers is crucial
• Local knowledge is important
• Fast growth is necessary to pre-empt competition
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Franchising
• Popular way to expand delivery of effective service
concept, without a high level of monetary investments
compared to rapid expansion of company-owned and -
managed sites
• Franchisor provides training, equipment and support
marketing activities. Franchisees invest time and finance,
and follow copy and media guidelines of franchisor
• Growth-oriented firms like franchising because franchisees
are motivated to ensure good customer service and high-
quality service operations
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Franchising
• Study shows significant attrition rate among franchisors in
the early years of a new franchise system:
– One third of all systems fail within first four years
– Three fourths of all franchisors cease to exist after 12
years
• Disadvantages of franchising:
– Some loss of control over delivery system and, thereby,
over how customers experience actual service
– Effective quality control is important but yet difficult
– Conflict between franchisees may arise especially as
they gain experience
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Franchising
• Alternative: license another supplier to act on the original
supplier’s behalf to deliver core product
• For example:
– Trucking companies
– Banks selling insurance
products
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Objective Outline 6.8
• Understand the challenges of distribution in large domestic
markets and go international
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Challenges of distribution in large
domestic markets
• There are special challenges in federal nations covering a
large geographic area:
– the distances involved and the existence of multiple
time zones
– multiculturalism is also an issue, leading to segmenting
issues
– there are differences between the laws and tax rates of
the various states or provinces and those of the
respective federal governments
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Forces that drive service firms to go
international
• Factors favoring adoption of
transnational strategies:
– Market Drivers
▪ common customer
needs across many
countries
▪ global customers who
demand consistent
service from suppliers
around the world
▪ availability of
international channels
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Forces that drive service firms to go
international
– Competition Drivers
▪ presence of competitors from different
▪ countries
▪ interdependence of countries
▪ transnational policies of the competitors
– Technology Drivers
▪ enhanced performance and capabilities in
telecommunications, computerization, and software
▪ miniaturization of equipment
▪ digitization of voice, video, and text
▪ the growing availability of broadband
telecommunication channels
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Forces that drive service firms to go
international
– Cost Drivers
▪ economies of scale
▪ sourcing efficiencies
▪ improved performance and lower operating costs for
telecommunications and transportation
– Government Drivers
▪ favourable trade policies
▪ compatible technical standards
▪ common marketing regulations
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Challenges of distributing services
internationally
• Airline access:
– If one country is willing to allow entry by a new carrier
but the other is not, access will be blocked
– Capacity limits at certain major airports lead to denial
of new or additional landing rights for foreign airlines
• Financial, healthcare, and telecommunications service
markets are typically very highly regulated
• Companies that offer a global reservation service and
connect this with local facilities and/or micro entrepreneurs
often face regulatory roadblocks
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Determinants of international market
entry strategies
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