Chapter 4:

Distributing Services
Through Physical and
Electronic Channels

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 1

A Framework For Developing Effective

Service Marketing Strategies: Overview
Understanding Customer Needs, Decision Making,
and Behavior in Service Encounters
Chapter 2

Building the Service Model

Part II: Chapters 3-7

Managing the Customer Interface

Part III: Chapters 8-11

Implementing Profitable Service Strategies

Part IV: Chapters 12-15

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 1 - 44

Building The Service Model

Part II: Chapters 3-7
The Value Proposition

Develop service concept: core &

supplementary elements

Select physical & electronic

channels for service delivery

Value Exchange

Set prices with reference to

costs, competition & value
The Business Model

Educate customers & promote

the value proposition

Position the value proposition

against competing alternatives

Overview of Chapter 4
Distribution in a Services Context
Determining Type of Contact: Options for Service
Delivery
Place and Time Decisions
Delivering Services in Cyberspace
The Role of Intermediaries
The Challenge of Distribution in Large Domestic
Markets
Distributing Services Internationally

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 2

Distribution in a Services Context

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 3

Applying the Flow Model of

Distribution to Services
Distribution embraces three interrelated elements:
Information and promotion flow
o

To get customer interested in buying the service

Negotiation flow
o

To sell the right to use a service. Ex Selling club membership

Product flow
o

To develop a network of local sites. Ex Setting up e-learning center for

distribution of educational services

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 4

Information and Physical Processes of

Augmented Service Product (Fig 4.1)
Information
processes
Payment

Information
Consultation

Core

Billing

Exceptions

Ordertaking

Hospitality

Safekeeping

Physical
processes

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 6

Using Websites for Service Delivery

Information
Read brochure/FAQ; get schedules/
directions; check prices

Consultation

Payment

Conduct e-mail dialog

Use expert systems

Pay by bank card

Direct debit

Billing
Receive bill
Make auction bid
Check account status

Order-taking

Core

Exceptions
Make special requests
Resolve problems

Make/confirm reservations
Submit applications
Order goods, check status

Hospitality
Record preferences

Safekeeping

Track package movements

Check repair status

Core: Use Web to deliver information-based core services

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 7

Determining Type of Contact:

Options for Service Delivery

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 8

Six Options for Service Delivery

When, where and how to deliver the service

Availability of Service Outlets

Type of Interaction between Customer
and Service Organization
Customer goes to service organization

Service organization comes to customer

Customer and service organization

transact remotely (mail or electronic
communications)

Single Site

Multiple Sites

Theater
Barbershop

Bus service
Fast-food chain

House painting
Mobile car wash

Mail delivery

local tv station

Broadcast network

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 10

Channel Preferences Vary

among Customers
For complex and high-perceived risk services, people
tend to rely on personal channels Ex. Corporate Loan
Individuals with greater confidence and knowledge
about a service/channel tend to use impersonal and
self-service channels
Customers with social motives tend to use personal
channels
Convenience is a key driver of channel choice

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 11

Place and Time Decisions

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 12

Places of Service Delivery

Cost, productivity, and access to labor are key
determinants to locating a service facility
Locational constraints
o

Operational requirements

Airports(noise, environmental factors)

o

Geographic factors

Ocean Beach resorts

o

Need for economies of scale

Hospitals -Multiple Facilities

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 13

Places of Service Delivery

Ministores
o

Creating many small service factories to maximize geographic

coverage

ATM's
o

Operating within premises of service provider of complimentary field

Subway fast food in premises of a theater

Locating in multipurpose facilities

o

Proximity to where customers live or work

Malls located near heart of cities. Currently airports are

also preferred locaitons

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 14

Time of Service Delivery

Traditionally, schedules were restricted
o
o
o

Service availability limited to daytime, 40 to 50 hours a week

Sunday historically considered as a rest day in Christian tradition,
Saturday in Jewish tradition, and Friday in Muslim tradition

Today
o

For flexible, responsive service operations:

24/7 service24 hours a day, 7 days a week, around the

world
8-8 Banking -ICICI Bank

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 15

Delivering Services in Cyberspace

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 16

Delivering Services in Cyberspace

Developments in telecommunications and computer
technology
o

Swisstel 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
o
o
o

Banking and service transactions by voice telephone

Funds transfer over mobile
mChek

Courtesy of Swissotel Hotels & Resorts

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 17

Service Delivery Innovations

Facilitated by Technology
Technological Innovations
Development of smart mobile telephones and PDAs as well as Wi-Fi
high-speed Internet technology that links users to Internet from almost
anywhere
o Voice-recognition technology
o Websites
o Smart cards
o

Store detailed information about customer

Act as electronic purse containing digital money

Increase accessibility of services

Deliver right information or interaction at right time
Create and maintain up-to-date real-time information

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 18

e-Commerce: Move to Cyberspace

Internet facilitates 5 categories of flow
o
o
o
o
o

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
Broad selection

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 19

Role of Intermediaries

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 21

Splitting Responsibilities For

Supplementary Service Elements (Fig 4.3)
As created by
originating firm

As enhanced
by distributor

Core

Core product

As experienced
by customer

Supplementary
services(outsourcing)

Core

Total experience
and benefits

Challenges for original supplier

Act as guardian of overall process

Ensure that each element offered by intermediaries fits overall service concept
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 22

Franchising (1)
Popular way to expand delivery of effective service
concept
Franchising is a fast growth strategy, when
o
o
o
o

Resources are limited

Long-term commitment of store managers is crucial
Local knowledge is important
Fast growth is necessary to preempt competition

Study shows significant attrition rate among franchisors

in the early years of a new franchise system
o
o

One-third of all systems fail within first 4 years

Three-fourths of all franchisors cease to exist after 12 years

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 23

Franchising (2)
Disadvantages of franchising
Some loss of control over delivery system and, thereby, over how
customers experience actual service
o Effective quality control is important yet difficult
o Conflict between franchisees may arise especially as they gain
experience
o

Alternative: license another supplier to act on the

original suppliers behalf to deliver core product, for
example:
o
o

Trucking companies
Banks selling insurance products

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 24

The Challenge of Distribution in

Large Domestic Markets

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 26

The Challenge of Distribution In Large

Domestic Markets
Marketing services (i.e., physical logistics) face
challenges due to:
o
o

Distances involved (geographic areas)

Multiculturalism (especially, immigrants and indigenous people)

Large U.S. companies counter this by:

o
o

Targeting specific market segments

Seeking out narrow market niches

Serving multiple segments across a huge geographic

area is biggest marketing challenge

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 27

Distributing Services
Internationally

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 29

How Service Processes Affect

International Market Entry (1)
People processing services require direct contact with
customers
o

Export service concept

Acting alone or in partnership with local suppliers

For example, e.g., chain restaurants, hotels
o

Import customers

Inviting customers from overseas to firms home country

For example, hospitals catering to medical tourism
o

Transport customers to new locations

Passenger transportation ( expanding air, sea, rail, road

routes)

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 30

How Service Processes Affect

International Market Entry (2)
Possession processing involves services to customers
physical possessions
For example, repair and maintenance, freight transport. The spare
part can be transported to another location for repair.
Service personnel can visit customers site. Ex R & D Engineers

Information-based services include mental processing

services and information processing services
o

Export the service to a local service factory

Hollywood film shown around the world in theaters

o
o

Import customers : Student Exchange programs

Export the information via telecommunications and transform it locally

Data can be downloaded via CDs or DVDs

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 31

Barriers to International Trade

in Services
Passage of free-trade legislation is important facilitator
of transnational operations
o

Notable developments: NAFTA, Latin American economic blocs, EU

Despite efforts of WTO and GATT, operating in

international markets still difficult
o
o
o
o
o
o
o

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

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 32

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
o Corporate customers seek to
standardize and simplify
suppliers used in different
countriesad agencies,
logistics suppliers
o

Fig 4.6 Courtesy of DHL International Ltd.

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 33

Factors Favoring Adoption of

Transnational Strategies
Competition drivers
o Competitors from overseas; interdependence of countries
o Firms may be obliged to follow competitors into new markets to
protect own positions elsewhere
Technology drivers
o Advances in information technologyminiaturization/mobility of
equipment, digitization of voice
Cost drivers
o Economies of scale
Lower operating costs- Ex Low cost labor in India
Government drivers
o Favorable trade policies, compatible technical standards,
common marketing regulations

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 34

Modes of Internationalization
Export information-based services
o
o

Transmit via electronic channels

Store in physical media, ship as merchandise

Use third parties to market/deliver service concept

o
o
o
o
o

Licensing agents
Brokers
Franchising
Alliance partners
Minority joint ventures

Control service enterprise abroad

o
o

Direct investment in new business

Buyout of existing business

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 35

Impact of Globalization Drivers on

Various Service Categories (1) (Table 4.2)
Globalization People processing
drivers
Competition

Market

Possession
processing

Simultaneity of
Technology drives
production and
globalization of
consumption limits
competitors with
leverage of foreign
technical edge
competitive advantage
in front stage of service
factory, but
management systems
can be globalized

Information
based
Highly vulnerable to
global dominance
by competitors with
monopoly or
competitive
advantage in
information. Eg
BBC

People differ
Level of economic Demand for many
economically and
development
services is derived
culturally, so needs impacts demand forto a significant
for service and abilityservices to
degree from
to pay may vary
individually owned economic and
goods
educational levels

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 36

Impact of Globalization Drivers on

Various Service Categories (2) (Table 4.2)
Globalization People processing
Possession
Information based
Drivers
processing
Technology Use of IT for delivery of Need for technology- Ability to deliver core

supplementary services based service delivery services through

may be a function of
systems depends on remote terminals may
ownership and familiaritypossessions requiring be a function of
with technology
service and the cost investment in
trade-offs in labor
computerization, etc.
substitution

Cost

Variable labor rates may Variable labor rates

impact on pricing in
may favor low-cost
labor-sensitive services locations

Major cost elements

can be centralized
and minor cost
elements localized

Government Social policies (e.g.,

Policies may
Policies may impact
health) vary widely and decrease/increase costdemand and supply
may affect labor cost, etc.and encourage/
and distort pricing
discourage certain
activities

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 37

Summary of Chapter 4:
Distributing Services (1)
Distribution relates to both core and supplementary services and
embraces three interrelated elements
o

Information and promotion flow, negotiation flow, product flow

Channel preferences vary among customers, options include:

o
o
o

Customers visit the service site

Service providers go to their customers
Service transaction is conducted remotely

Place and time decisions include where services should be delivered

in bricks-and-mortar context, when it should be delivered
Delivery in cyberspace is facilitated by technology and e-commerce
allows 24-hour delivery, saving time and effort
Intermediaries play roles in distributing services
o

Franchising brings both advantages and disadvantages to the firm

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 38

Summary of Chapter 4:
Distributing Services (2)
Service processes affect international market entry differently
There are different drivers of globalization of services and their
distribution
o
o
o
o
o

Market drivers
Competition drivers
Technology drivers
Cost drivers
Government drivers

People processing services, possession processing services, and

information-based services impact five groups of drivers differently

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 39