Chapter 4.

Distributing Services Through Physical and Electronic Channels

Objectives of the Chapter

How can services be distributed? What are the main modes of distribution? What are the distinctive challenges of distributing people processing services, possession processing services and information based services? What are the implications for a firm of delivering through both physical and electronic channels? What role should intermediaries play in distributing services? What are the drivers of globalization of services and their distribution?

Distribution in a Services Context

Elements of Sales Cycle

Distribution embraces three interrelated elements;

Information and promotion flow
To get the customer interested in buying the product

Negotiation flow
To sell the right to use a service

Product Flow
To develop a network of local sites

Distinguishing between Distribution of Supplementary and Core Service

Core services for people and possession processing service require physical location Core services for mental stimulus and information processing can be distributed electronically Supplementary services can be tangible and intangible in nature; latter can be distributed widely and cost-effectively via non-physical channels such as telephone, internet, etc

Determining the Type of Contact

Distribution Options for Serving Customers

Customers visit the service site

Convenience of service factory locations and operational schedules assume great importance when a customer has to physically present Example saloon shop, transportation services

Service providers go to customers

Unavoidable whenever the object of the service is some immovable physical item Example Postage delivery service, house painting

Service transaction is conducted remotely

Achieved mainly through logistics and telecommunications Example Cable service, Credit Card Service

Channel Preferences Vary Among Customers

For complex and high-perceived risk services, people tend to rely on personal channels
Example Applying for loan, medical surgery

Individuals with greater confidence and knowledge about a service/channel tend to use impersonal and self-service channels
Example Internet Payment of Bills

Customers with social motives tend to use personal channels Convenience is a key driver of channel

Place and Time Decisions

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, ocean beach resorts

Need for economies of scale

Hospitals

Places of Service Delivery

Ministores
Creating many small service factories to maximize geographic coverage
Automated kiosks

Collaboration with a complementary field

Bank outlets inside supermarkets

Locating in multipurpose facilities

Proximity to where customers live or work
Service stations providing fuel, vehicle supplies, food, household products

Time of Service Delivery

Traditionally, schedules were restricted

Service availability limited to daytime, 40 to 50 hours a week Sunday historically considered as a rest day (varying according to the beliefs) For flexible, responsive service operations: Some organizations still avoid 7-day operations, for example:
24/7 service24 hours a day, 7 days a week, around the world Banking services being closed on Sundays

Today

Factors Driving for Extended Operating Hours

Economic pressure from consumers Changes in legislation Economic incentives to improve asset utilization Availability of employees to work during unsocial hours Automated self-service facilities

Delivering Service in Cyberspace

Delivering Service in Cyberspace

Developments in telecommunications and computer technology

Swissotel Hotels & Resorts
Its revamped website more than doubled online revenues within 7 months of launch Best Rate Guarantee was a key driver of its success

Banking and service transactions by voice telephone

Service Delivery Innovations Facilitated by Technology

Development of smart mobile telephones and PDAs as well as Wi-Fi high-speed Internet technology that links users to Internet from almost anywhere

Voice-recognition technology
Websites Smart cards
Store detailed information about customer Act as electronic purse containing digital money

e-Commerce: Move to Cyberspace

Internet facilitates 5 categories of flow

Information Negotiation Service Transactions Promotion

Electronic channels offer complement/alternative to traditional physical channels Convenience (24-hour availability, save time, effort) Ease of obtaining information online and searching for desired items Better prices than in many bricks-and-mortar stores

e-Commerce: Move to Cyberspace

Amaozon.com pioneered the move to cyberspace

e-Commerce: Move to Cyberspace

Recent Developments link Websites, Customer Management (CRM) systems, and mobile telephony Integrating mobile devices into the service delivery Infrastructure can be used as means to:
Access services Alert customers to opportunities/problems Update information in real time

Role of Intermediaries

Franchising
Popular way to expand delivery of effective service concept Franchising is a fast growth strategy, when

Resources are limited Long-term commitment of store managers is crucial Local knowledge is important

Study shows significant attrition rate among franchisors in the early years of a new franchise system

One-third of all systems fail within first 4 years Three-fourths of all franchisors cease to exist after 12 years

Franchising

Disadvantages of franchising
Some loss of control over delivery system and, thereby, over how customers experience actual service Effective quality control is important yet difficult Conflict between franchisees may arise especially as they gain experience

Alternative: license another supplier to act on the original suppliers behalf to deliver core product, for example:
Banks selling insurance products

The Challenge of Distribution in Large Domestic Markets

Marketing services face challenges due to:

Distances involved Multiculturalism Differences in laws and tax rates

Large U.S. companies counter this by:

Targeting specific market segments Seeking out narrow market niches

Serving multiple segments across a huge geographic area is biggest marketing challenge

Distributing Services Internationally

How Service Processes Affect International Market Entry

People processing services require direct contact with customers Export service concept
Acting alone or in partnership with local suppliers Example, e.g., chain restaurants, hotels, car rental firms

Import customers
Inviting customers from overseas to firms home country Example, hospitals catering to medical tourism

Transport customers to new locations

How Service Processes Affect International Market Entry

Possession processing involves services to customers physical possessions

Example, repair and maintenance, freight transport

Information-based services include mental processing services and information processing services
Export the service to a local service factory
Hollywood film shown around the world

Import customers Export the information via telecommunications and transform it locally
Data can be downloaded via CDs or DVDs

Barriers to International Trade in Services

Passage of free-trade legislation is important facilitator of transnational operations

Notable developments: NAFTA, Latin American economic blocs, EU

Despite efforts of WTO and GATT, operating in international markets still difficult
Restrictions on international airline operating rights Administrative delays Limited availability of work permits Heavy taxation Legal restrictions Lack of broadly agreed accounting standards Cultural issues

Factors Favoring Adoption of Transnational Strategies

Transnational strategy involves integration of strategy formulation and its implementation across all countries in which company elects to do business Market drivers

Common customer needs across countries Corporate customers seek to standardize and simplify suppliers used in different countriesad agencies, logistics

Factors Favoring Adoption of Transnational Strategies

DHL combines multiple transport modes to create Integrated Logistics Solutions for its global customer base

Factors Favoring Adoption of Transnational Strategies

Competition drivers
Competitors from overseas; interdependence of countries Firms may be obliged to follow competitors into new markets to protect own positions elsewhere

Technology drivers
Advances in information technology miniaturization/mobility of equipment, digitization of voice

Cost drivers
Economies of scale Lower operating costs

Government drivers
Favorable trade policies, compatible technical standards, common marketing regulations

How Nature of Service Affects Opportunities for Internationalization

People Processing Services

Need to maintain local presence If customers are mobile, then the same efficiency of service should be provided at all branches

Possession Processing Services

Local presence has to be maintained However, some items can be sent to distant centers for repairs

Information-Based Services
Technology has made it easy to deliver information-based services around the world Financial services, news, entertainment, education, etc

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