1
DISTRIBUTING SERVICES
THROUGH
PHYSICAL AND
ELECTRONIC CHANNELS
Chapter 4
Chapter Overview
2
Distribution in a Services Context
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
3
Distribution in a Services
Context
Distribution in a Services
4
Context
In a services context, we
often don’t move physical
products
Experiences,
performances, and
solutions are not being
physically shipped and
stored
More and more
informational
transactions are
conducted through
electronic and not
physical channels
Applying the Flow Model of
Distribution to Services
5
The three interrelated elements of
distribution are:
Information and promotion flow
To get customer interested in buying the
service
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
6 Core Services
Most core services
require physical
locations
Many
supplementary
services are
informational; can
be distributed
widely and cost-
effectively via other
means
Information and Physical Processes
of Augmented Service Products
7
Using Websites for Service
8
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
Make special requests Hospitality
Resolve problems Record preferences
Safekeeping
Track package movements
Check repair status
CORE: Use Web to deliver information-based core services
9
Options for Service Delivery
Distribution Options for Serving
Customers
10
Customers visit service site
Convenience of service factory locations and
operational schedules important when customer
has to be physically present
Service providers go to customers
Unavoidable when object of service is immovable
More expensive and time-consuming for service
provider
Service transaction is conducted remotely
Achieved with help of logistics and
telecommunications
Six Options For Service
11
Delivery
Channel Preferences Vary Among
Customers
12
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 with social motives tend to
use personal channels
Convenience is a key driver of channel
choice
13
Place and Time Decisions
Place Decisions of Service
14
Delivery
Cost, productivity, and access to labor
are key determinants to locating a
service facility
Location constraints
Operational requirement (e.g., airports)
Geographic factor (e.g.,ski resorts)
Need for economies of scale (e.g.,
hospitals)
Place Decisions of Service
15
Delivery
Ministores
Creating many small service factories to
maximize geographic coverage
Separating front and back stages of operation
Purchasing space from another provider in
complementary field
Locating in Multipurpose Facilities
Proximity to where customers live or work
- Service Stations
- Service Perspectives 5.2
Time of Service Delivery
16
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,
all around the world
17
Delivering Services in
Cyberspace
Service Delivery Innovations
Facilitated by Technology
18
Technological Innovations
Development of “smart” mobile telephones and
PDAs, and presence of Wi-Fi
Voice-recognition technology
Websites
Smart cards
- Store detailed information about customer
- Act as electronic purse containing digital money
Electronic channels can be offered together
with physical channels, or replace physical
channels
E-Commerce: Move to
19
Cyberspace
What are the factors that encourage you
to use virtual stores?
Convenience
Ease of search
Broader selection
Potential for better prices
24-hour service with prompt delivery
E-Commerce: Move to
20
Cyberspace
Recent denvelopments: 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
21
Role of Intermediaries
Splitting Responsibilities
for Service Delivery
22
Challenges for original supplier
● Act as guardian of overall process
● Ensure that each element offered by intermediaries fits overall service
concept
Franchising
23
Franchisor provides training, equipment,
and support marketing activities.
Franchisees invest time and finance, and
follow copy and media guidelines of
franchisor.
Advantages:
Expand delivery of effective service
concept without a high level of monetary
investment
Franchisees are motivated to ensure good
customer service and high-quality service
Franchising
24
Disadvantages of franchising
Loss of control over delivery system and how
customers experience actual service
Effective quality control is difficult
Conflict between franchisees may arise
especially as they gain experience
Alternative: license another supplier to act
on the original supplier’s behalf to deliver
core product
Trucking companies
Banks selling insurance products
25
Challenge of Distribution in
Large Domestic Markets
The Challenge of Distribution in
Large Domestic Markets
26
Distributing services (i.e.,physical
logistics) faces challenges due to:
Distances involved
Multiple time zones
Multiculturalism
Differences in laws and tax rates
27
Distributing Services
Internationally
Factors Favoring Adoption of
Transnational Strategies
28
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 countries – ad agencies, logistics suppliers, Big 4
accounting firms
Government Drivers
Favorable trade policies, compatible technical standards, common
marketing regulations
Factors Favoring Adoption of
Transnational Strategies
29
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 and mobility of equipment,
digitization of voice
Cost Drivers
Economies of scale
How Service Processes Affect
International Market Entry
30
People processing services require direct
contact with customers
Export service concept
- Acting alone or in partnership with local suppliers
e.g., chain restaurants, hotels, car rental firms
Import ccustomers
- Inviting customers from overseas to firm’s home
country
e.g., hospitals catering to “medical tourism”
Transport customers to new locations
- Passenger transportation (air, sea, rail, road)
How Service Processes Affect
International Market Entry
31
Possession processing involves services to
customer’s physical possessions
- 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
Impact of Globalization Drivers on
Various Service Categories
32
Globalization People Possession Information
Drivers Processing Processing Based
Competition Simultaneity of Technology drives Highly vulnerable to
production and globalization of global dominance by
consumption limits competitors with competitors with
leverage of foreign technical edge. monopoly or
competitive competitive
advantage, but advantage in
management systems information.
can be globalized.
Market People differ Level of economic Demand for many
economically and development services is derived
culturally, so needs for impacts demand for to a significant
service and ability to services to degree from
pay may vary. individually owned economic and
goods. educational levels.
Impact of Globalization Drivers on
Various Service Categories
33
Globalization People Processing Possession Information
Drivers Processing Based
Technology Use of IT for delivery of Need for technology- Ability to deliver
supplementary services based service core services
may be a function of delivery systems through remote
ownership and depends on terminals may be a
familiarity with possessions requiring function of
technology. service and the cost investment in
trade-offs in labor computerization,
substitution etc.
Cost Variable labor rates Variable labor rates Major cost
may impact pricing in may favor low-cost elements can be
labor-sensitive services. locations. centralized and
minor cost
elements localized.
Government Social policies (e.g., Policies may Policies may
health) vary widely and decrease/increase impact demand and
may affect labor cost, cost and supply and distort
etc. encourage/discourag pricing
e certain activities
Barriers to
International Trade in Services
34
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, barriers still
exist:
Restrictions on international airline operating rights
Heavy taxation
Legal restrictions
Lack of broadly agreedupon accounting standards
Cultural issues