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Chapter5.DistributingServicesthroughPhysicalandElectronicChannelsEssentialsofServicesMarketing,SecondEdition

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Chapter 5. Distributing Services through Physical and


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Bytheendofthischapter,thereadershouldbeableto:

LO1Knowthefourkeyquestionsthatformthefoundationofanyservice

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distributionstrategy:What?How?Where?andWhen?
LO2Describethethreeinterrelatedflowsthatshowwhatisbeingdistributed.

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LO3Illustratehowservicescanbedistributedusingthethreemainoptions.

LO4Explainwhatdeterminescustomerschannelpreferences.

LO5Describethewhere(place)andwhen(time)decisionsofphysicalchannels.

LO6Discussthefactorsthathavefueledthegrowthofservicedeliveryvia
cyberspace.
LO7Understandthepartplayedbyintermediariesindistributingservices.

LO8Explainwhatdetermineswhichmarketentrystrategyafirmshoulduse
whenitgoesglobal.

OpeningVignette:BeingGlobalinanInstant?....OrDoesItTakeForever?
Someservicesspreadlikewildfireandatincrediblespeed.Forexample,LaurenLukes
panacea81hasbecomeoneoftheworldsmostpopularYouTubechannelsinlessthan12
months.Ithasover88millionviews,andLukehasbecomeanInternetcelebritywithher
shortvideotutorialsshowingviewershowtoapplymakeupforvariousoccasions.Shewas
namedthemostinfluentialmakeupmentorbyAlluremagazinein2010.Relatedservices,
includingtheBritishmakeupartistswebsite,havebeenhugelysuccessful.

Otherservices,however,maytakedecadestoachieveglobaldistribution.Thinkofhow
longittookStarbucksorglobalsupplychainsolutionsproviderssuchasFedExorDHLto
achieveaglobalpresence!Thesecontrastingexamplesshowboththediversityofthe
servicesectorandtheimportanceofdifferentiatinginformationprocessingandpeopleor
possessionprocessingservices.Informationprocessingservicescanbedistributedrapidly.
Peopleorpossessionprocessingservicesrequirethebuildingoffacilitiesineverymarket

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wheretheywantpresence.Thereisalsotheneedforthegrowingfirmtodealwithlocal
labor,building,foodhygieneregulations,andmore.Theserequirealotoffinances,aswell
asalotofmanagementtime!

Figure5.1.LaurenLukesmakeupvideosonYouTubeareviewedby
hundredmillionsofaudienceglobally.

Figure5.2.AfterthesuccessofherYouTubemakeupvideos,LaurenLuke
launchedhercosmeticsline,ByLaurenLuke,withSephora.

Distribution in a Services Context


LO1
Knowthefourkeyquestionsthatformthefoundationofanyservicedistributionstrategy:
What?How?Where?andWhen?
What?How?Where?When?Developingresponsestothesefourquestionsiskeytoany
servicedistributionstrategy.Thecustomersserviceexperiencedependsonhowthe
differentelementsoftheFlowerofServicearedistributedanddeliveredthroughphysical
andelectronicchannels.

What Is Distributed?
LO2
Describethethreeinterrelatedflowsthatshowwhatisbeingdistributed.
Ifyoumentiondistribution,manypeoplearelikelytothinkofmovingboxesthrough
physicalchannelstodistributorsandretailersforsaletoendusers.Inservices,though,often
thereisnothingtomove.Experiences,performances,andsolutionsarenotphysically
shippedandstored.Howthendoesdistributionworkinaservicescontext?Distributionhas
threeinterrelatedflows,whichhelpstoaddressthequestionofwhatisdistributed:
Informationandpromotionflowdistributionofinformationandpromotional
materialsrelatingtotheserviceoffer.Theobjectiveistogetthecustomerinterestedin
buyingtheservice.
Negotiationflowreachinganagreementontheservicefeaturesandconfiguration,and
thetermsoftheoffersothatapurchasecontractcanbeclosed.Theobjectiveisoftentosell
therighttouseaservice(e.g.,sellareservationoraticket).
Productflowmanyservices,especiallythoseinvolvingpeopleprocessingorpossession
processing,requirephysicalfacilitiesfordelivery.Forinformationprocessingservices,such
asInternetbankinganddistancelearning,theproductflowcanbeviaelectronicchannels,
usingoneormorecentralizedsites.
Theflowperspectivecanrelatetothecoreserviceaswellastothesupplementaryservices
oftheFlowerofService.Informationflowrelatestotheinformationandpossibly
consultationpetals.Negotiationsflowispresentinordertakingandpotentiallybillingand
paymentpetals,andproductflowrelatestotheremainingpetalsandcoreservice.

Distribution Options for Serving Customers: Determining the Type of


Contact
Howshouldservicesbedistributed?Here,akeyquestionis:Doestheserviceorthefirms
positioningstrategyrequirecustomerstobeindirectphysicalcontactwithitspersonnel,
equipment,andfacilities?(AswesawinChapter1,thisisunavoidableforpeopleprocessing
servicesbutmaynotbenecessaryforothercategories.)Ifso,docustomershavetovisitthe
facilitiesoftheserviceorganization,orwilltheserviceorganizationsendpersonneland
equipmenttocustomersownsites?Alternatively,cantransactionsbetweenprovidersand
customersbecompletedatarmslengththroughtheuseofeithertelecommunicationsor
physicalchannelsofdistribution?(Thethreepossibleoptionsareshowninthefirstcolumn
ofTable5.1.)Foreachofthesethreeoptions,shouldthefirmhavejustasingleoutletor
offertoservecustomersthroughmultipleoutletsatdifferentlocations?
Table5.1.Sixoptionsforservicedelivery

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LO3
Illustratehowservicescanbedistributedusingthethreemainoptions.

Customers Visit the Service Site


Whencustomershavetovisittheservicesite,twokeyfactorsneedtobeconsidered:
TheconvenienceofserviceoutletlocationsElaboratestatisticalanalysisusingretail
gravitymodelsissometimesusedtohelpfirmsmakedecisionsonwheretolocate
supermarketsorsimilarlargestores,relativetothehomesandworkplacesoffuture
customers.
OperationalhoursManybanks,forinstance,areextendingtheiropeninghourstomeet
theneedsofbusyprofessionalswhodonothavetimetotakecareoftheirbankingneeds
duringofficehours.

Service Providers Go to Their Customers


Forsometypesofservices,theserviceprovidervisitsthecustomer.CompassGroup,the
largestfoodserviceorganizationintheUnitedKingdomandIreland,providescateringand
supportservicestoover8,500locations.Theymustvisitthecustomerssitebecausethe
needislocationspecific.Whenshouldserviceprovidersgotheircustomers?
Goingtothecustomerssiteisunavoidableiftheobjectoftheserviceissomeimmovable
physicalitem,suchasatreetobepruned(Figure5.3),installedmachinerytoberepaired,
orahousethatrequirespestcontroltreatment.

Figure5.3.Treepruningisaservicethathastobeprovidedonsite.

InremoteareaslikeAlaskaorCanadasNorthwestTerritory,serviceprovidersoftenfly
tovisittheircustomersbecausethelatterfinditsodifficulttotravel.Australiaisfamousfor
itsRoyalFlyingDoctorService,inwhichphysiciansflytomakehousecallsatfarmsand
sheepstationsintheoutback.
Ingeneral,serviceprovidersaremorelikelytovisitcorporatecustomersattheiroffices
thantovisitindividualsintheirhomes,reflectingthelargervolumeassociatedwith
businesstobusiness(B2B)transactions.However,itmaybeprofitabletoserveindividuals
whoarewillingtopayapremiumfortheconvenienceofreceivingpersonalvisits.One
youngveterinarydoctorhasbuiltherbusinessaroundhousecallstocareforsickpets.She
hasfoundthatcustomersarewillingtopayextraforservicethatnotonlysavesthemtime,
butisalsolessstressfulfortheirpets,comparedtowaitinginacrowdedveterinaryclinic.
Otherconsumerservicesofthiskindincludemobilecarwashing,officeandinhome
catering,andmadetomeasuretailoringservicesforbusinesspeople.
Agrowingserviceactivityinvolvestherentalatthecustomerssiteofbothequipmentand
laborforspecialoccasionsorinresponsetocustomerswhoneedtoexpandtheirproductive
capacityduringbusyperiods.ServiceInsights5.1describestheB2BservicesofAggreko,an
internationalcompanythatrentsgeneratingandcoolingequipmentaroundtheworld.

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ServiceInsights5.1:PowerandTemperatureControlfor

Rent
Youprobablythinkofelectricityascomingfromadistantpowerstationand
ofairconditioningandheatingasfixedinstallations.Sohowwouldyoudeal
withthefollowingchallenges?
Atthe2010FIFAWorldCupinSouthAfrica,theyneededtemporarypower
tosupportthebroadcastingofthe64matchestooverthreebillionpeople
worldwide.
AtropicalcyclonehasdevastatedthesmallminingtownofPannawonicain
WesternAustralia,destroyingeverythinginitspath,includingpowerlines,
andelectricalpowermustberestoredassoonaspossiblesothatthetown
anditsinfrastructurecanberebuilt.
InAmsterdam,organizersoftheWorldChampionshipIndoorWindsurfing
competitionneedtopower27windturbinesthatwillbeinstalledalongthe
lengthofahugeindoorpooltocreatewindsof2030mph(3248km/h).
AUSNavysubmarineneedsashorebasedsourceofpowerwhenitis
dockedataremoteNorwegianport.
SriLankafacesagreatshortageofelectricitygeneratingcapabilityafter
waterlevelsfalldangerouslylowatmajorhydroelectricdamsdueto
insufficientmonsoonrainstwoyearsinarow.
HotelsinFloridaneedtobedriedoutfollowingwaterdamageduetoa
hurricane.
Alarge,powergeneratingplantinOklahomaurgentlyseekstemporary
capacitytoreplaceoneofitscoolingtowerdestroyedinatornadothe
previousday.
TheCaribbeanislandofBonairerequiresatemporarypowerstationto
stabilizeitsgridafterfiredamagesthemainpowerplant,andresultingin
widespreadblackouts.
Theseareallchallengesthathavebeenfacedandmetbyacompanycalled
Aggreko,whichdescribesitselfasTheWorldLeaderinTemporaryUtility
RentalSolutions.Aggrekooperatesfrommorethan133locationsusing
morethan$1billionofrentalequipmenttoservecustomersinover100
countries.Itrentsafleetofmobileelectricitygenerators,oilfreeair
compressors,andtemperaturecontroldevicesrangingfromwaterchillersand
industrialairconditionerstogiantheatersanddehumidifiers.

Aggrekoscustomerbaseisdominatedbylargecompaniesandgovernment
agencies.Althoughmuchofitsbusinesscomesfrompredictedneeds,such
asbackupoperationsduringplannedfactorymaintenanceorthefilmingofa
JamesBondmovie,thefirmisreadytoresolveproblemsthatarise
unexpectedlyfromemergenciesornaturaldisasters.
Muchofthefirmsrentalequipmentiscontainedinsoundproofed,boxlike
structuresthatcanbeshippedanywhereintheworldtocreatethespecific
typeandlevelofelectricalpoweroutputorclimatecontrolcapabilityrequired
bytheclient.Consultation,installation,andongoingtechnicalsupportadd
valuetothecoreservice.Emphasisisplacedonsolvingcustomerproblems
ratherthanjustrentingequipment.Somecustomershaveaclearideaof
theirneedsinadvance.Othersrequireadviceonhowtodevelopcreativeand
costeffectivesolutionstowhatmaybeuniqueproblems.Stillothersare
desperatetorestorepowerthathasbeenlostbecauseofanunexpected
disaster.Inthelastmentionedinstance,speedisessentialbecause
downtimecanbeextremelyexpensiveandlivesmaydependonthe
promptnessofAggrekosresponse.
DeliveringservicerequiresAggrekotoshipitsequipmenttothecustomers
site.FollowingthePannawonicacyclone,AggrekosWestAustralianteam
swungintoaction,rapidlysettingupsome30generatorsrangingfrom60to
750kVA,pluscabling,refuelingtankers,andotherequipment.The
generatorsweretransportedbyfourroadtrains,eachcomprisingagiant
tractorunitpullingthree40foot(13m)trailers.Techniciansandadditional
equipmentwereflowninontwoHerculesaircraft.TheAggrekotechnicians
remainedonsiteforsixweeks,providing24/7servicewhilethetownwas
rebuilt.
Source:AggrekosInternationalMagazine,1997,www.aggreko.com
(http://www.aggreko.com) ,accessedMarch12,2012.

The Service Transaction Is Conducted Remotely


Acustomermayneverseetheservicefacilitiesormeetservicepersonnelfacetofacewhen
dealingwithaservicefirmthroughremotetransactions.Serviceencounterswithservice
personnelaremorelikelyviaacallcenteror,evenmoreremotely,bymailoremail.
Repairservicesforsmallpiecesofequipmentsometimesrequirecustomerstoshipthe
producttoamaintenancefacility,whereitisservicedandthenreturnedbymail(withthe
optionofpayingextraforexpressshipment).Manyserviceprovidersoffersolutionswith
thehelpoflogisticsfirmssuchasFedEx,andUPS.Thesesolutionsrangefromstorageand
expressdeliveryofsparepartsforaircraft(B2Bdelivery)topickupofdefectivecellphones
fromcustomershomesandreturnoftherepairedphonetothecustomer(B2Cpickupand
delivery,alsocalledreverselogistics).

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AnyinformationbasedproductcanbedeliveredalmostinstantlythroughtheInternetto
almostanypointontheglobe(Figure5.4).

Figure5.4.FinancialadvicecanbedeliveredthroughtheInternet.

Channel Preferences Vary among Consumers


LO4
Explainwhatdeterminescustomerschannelpreferences.
Theuseofdifferentchannelstodeliverthesameservicehasvastlydifferentcostsfora
serviceorganization.Italsoaffectstheserviceexperienceofthecustomer.Although
electronicselfservicechannelstendtobethemostcosteffective,notallcustomersliketo
usethem.Thismeansthat,ifwewanttomovecustomerstonewelectronicchannels,we
mayrequiredifferentstrategiesfordifferentsegments.

Wealsoneedtorecognizethat

someproportionofcustomerswillnevervoluntarilychangefromtheirpreferredhigh
contactdeliveryenvironments.Recentresearchhasexploredhowcustomerschooseamong
personal,impersonal,andselfservicechannelsandhasidentifiedthefollowingkeydrivers
3

Forcomplexandhighperceivedriskservices,peopletendtorelyonpersonalchannels.
Forexample,customersarehappytoapplyforcreditcardsusingremotechannels,but
preferafacetofacetransactionwhenobtainingamortgage.
Individualswithhigherconfidenceandknowledgeaboutaserviceand/orthechannelare
morelikelytouseimpersonalandselfservicechannels(Figure5.5).

Figure5.5.Frequenttravelersareoftenwillingtouseselfcheckintoavoid
queues.

Customerswholookforthefunctionalaspectsofatransactionprefermoreconvenience.
Thisoftenmeanstheuseofimpersonalandselfservicechannels.Customerswithsocial
motivestendtousepersonalchannels.
Convenienceisakeydriverofchannelchoiceforthemajorityofconsumers.Service
conveniencemeanssavingtimeandeffortratherthansavingmoney.Acustomerssearch
forconvenienceisnotjustforthepurchaseofcoreproductsbutalsoextendstoconvenient
timesandplaces.Peoplewanteasyaccesstosupplementaryservices,too,especially
information,reservations,andproblemsolving.
Serviceprovidershavetobecarefulwhenchannelsarepriceddifferently.Increasingly,
customersaresmartandtakeadvantageofpricevariationamongchannelsandmarkets.
Thisstrategyiscalledchannelarbitrage.

Forexample,customerscanaskthe

expensivefullservicebrokerforadvice(andperhapsplaceasmallorder)andthenconduct
thebulkoftheirtradesviathemuchlowerpriceddiscountbroker.Serviceprovidersneed
todevelopeffectivestrategiesthatwillenablethemtodelivervalueandcaptureitthrough
theappropriatechannel.

Place and Time Decisions


LO5
Describethewhere(place)andwhen(time)decisionsofphysicalchannels.
Howshouldservicemanagersmakedecisionsonplaceswhereserviceisdeliveredand
timeswhenitisavailable?Theanswer:startbyunderstandingcustomerneedsand
expectations,competitiveactivity,andthenatureoftheserviceoperation.Aswenoted
earlier,thedistributionstrategiesusedforsomeofthesupplementaryserviceelements
maydifferfromthoseusedtodeliverthecoreproductitself.Forinstance,asacustomer,
youreprobablywillingtogotoaparticularlocationataspecifictimetoattendasporting
orentertainmentevent.Butyouprobablywantgreaterflexibilityandconveniencewhen
reservingaseatinadvance,soyoumayexpectthereservationservicetobeopenfor
extendedhours,toofferbookingandcreditcardpaymentbyphoneortheweb(Figure5.6),
andtodeliverticketsthroughpostalorelectronicchannels.

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Figure5.6.Itisconvenienttomakeonlinetransactionslikereservations
withacreditcard.

Where Should Service Be Delivered in a Brick-and-Mortar Context?


Decidingwheretolocateaservicefacilityforcustomersisverydifferentfromdeciding
wheretolocatethebackstageelements.Forcustomers,convenienceandchannel
preferencearethedecidingfactors.Forbackstageelements,cost,productivity,andaccess
tolaboraretypicallythedecidingfactors.Firmsshouldmakeiteasyforpeopletoaccess
frequentlypurchasedservices,especiallythosethatfaceactivecompetition.

Examples

includeretailbanksandfastfoodrestaurants.However,customersmaybewillingtotravel
fartherfromtheirhomesorworkplacestoreachspecialtyservices(Figure5.7).

Figure5.7.Millionsofpeoplefromaroundtheworldwerewillingtotravel
toShanghaitoseetheWorldExpo.

Ministores

Aninterestinginnovationamongmultisiteservicebusinessesinvolvescreatingnumerous
smallservicefactoriestomaximizegeographiccoverage.
Automatedkiosksisoneexample.ATMsoffermanyofthefunctionsofabankbranch
withinaselfservicemachinethatcanbelocatedwithinstores,hospitals,colleges,airports,
andofficebuildings.Automatedvendingmachinesforstampspurchaseandpaymentofbills
isanotherexample(Figure5.8).

Figure5.8.Automatedkioskssellingstampsareaformofministore.

Anotherapproachresultsfromseparatingthefrontandbackstagesoftheoperation.
TacoBellsinnovativeKMinusstrategyinvolvesrestaurantswithoutkitchens.

Food

preparationtakesplaceinacentrallocation.Themealsarethenshippedtorestaurants
(whichcannowdevotemoreoftheirexpensivefloorareatocustomeruse)andtoother
pointsofaccess(suchasmobilefoodcarts)wherethefoodcanbereheatedbeforeserving.
Locating in Multi-purpose Facilities

Themostobviouslocationsforconsumerservicesareclosetowherecustomersliveor
work.Modernbuildingsoftenaredesignedtobemultipurpose,featuringnotonlyofficeor
productionspacebutalsosuchservicesasabank(oratleastanATM),arestaurant,ahair
salon,severalstores,andmaybeahealthclub(Figure5.9).Somecompaniesevenincludea
childrensdaycarefacilitytomakelifeeasierforbusyworkingparents.

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Figure5.9.Manyofficebuildingsnowincludeshops.

Interestisgrowinginlocatingretailandotherservicesontransportationroutesandinbus,
rail,andairterminals.Mostmajoroilcompanieshavedevelopedchainsofsmallretail
storestocomplementthefuelpumpsattheirservicestations,thusofferingcustomersthe
convenienceofonestopshoppingforfuel,vehiclesupplies,food,andaselectionofbasic
householdproducts(Figure5.10).Truckstopsonmajorhighwaysoftenincludelaundry
centers,restrooms,ATMs,Internetaccess,restaurants,andinexpensiveaccommodationin
additiontoavarietyofvehiclemaintenanceandrepairservices.Airportterminals
designedaspartoftheinfrastructureforairtransportationserviceshavebeentransformed
intovibrantshoppingmalls.

Figure5.10.AgasstationwithasupermarketinBeijing.

Locational Constraints

Althoughcustomerconvenienceisimportant,operationalrequirementsmayrestrictchoice
oflocations.
Majorhospitalshavedifferenthealthcareservicesatasinglelocation,requiringavery
largefacility.Customerswhoneedcomplex,inpatienttreatmentmustgototheservice
factoryratherthanbetreatedathome.However,anambulanceorevenahelicoptercan
besenttopickthemup.
Airports,forinstance,areofteninconvenientlylocatedrelativetotravelershomes,offices,
ordestinations.Becauseofnoiseandenvironmentalfactors,findingsuitablesitesfor
constructionofnewairportsorexpansionofexistingonesisaverydifficulttask.(Agovernor
ofMassachusettswasonceaskedwhatwouldbeanacceptablelocationforasecondairport
toserveBostonhethoughtforamomentandthenresponded,Nebraska!)Onewayto
makeairportaccessmoreconvenientistoinstallfastraillinks,suchasSanFranciscos
BARTservice(Figure5.11)orLondonsHeathrowExpress.

Figure5.11.SanFranciscosBARTservicehelpspassengersgettothecity
fromtheairportmoreconveniently.

Adifferenttypeoflocationconstraintisimposedbyothergeographicfactors,suchas
terrainandclimate.Bydefinition,skiresortshavetobeinthemountainsandoceanbeach
resortsonthecoast(Figure5.12).

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Figure5.12.ThescenicReacaResort,oneofthemostpopularand
developedbeachesinViadelMar,Chile,issubjectedtoalocation
constraint.

When Should Service Be Delivered?


Inthepast,mostretailandprofessionalservicesinindustrializedcountriesfolloweda
traditionalscheduleofbeingavailableabout40or50hoursaweek.Thesituation
inconveniencedworkingpeoplewhohadtoshopeitherduringtheirlunchbreaksoron
Saturdays.Today,thesituationhaschanged.Forsomehighlyresponsiveserviceoperations,
thestandardhasbecome24/7service24hoursaday,7daysaweek,aroundtheworld.
(Foranoverviewofthefactorsbehindthemovetomoreextendedhours,seeService
Insights5.2)Somefirms,however,haveresistedthetrendtosevendayoperations.
AtlantabasedChickfilA,ahighlysuccessfulrestaurantchain,declaresthatbeingclosedon
Sundayispartofourvalueproposition,andclaimsthatgivingmanagersandcrewsaday
offisafactorinthefirmsextremelylowturnoverrate.

ServiceInsights5.2:FactorsThatEncourageExtended

OperatingHours
Atleastfivefactorsaredrivingthemovetowardextendedoperatinghours
andsevendayoperations.ThetrendthatoriginatedintheUnitedStatesand
Canadahassincespreadtomanyothercountriesaroundtheworld.
Economicpressurefromconsumers.Thegrowingnumberoftwoincome
familiesandsinglewageearnerswholivealoneneedtimeoutsidenormal
workinghourstoshopanduseotherservices.Onceonestoreorfirminany
givenareaextendsitshourstomeettheneedsofthesemarketsegments,
competitorsoftenfeeltheneedtofollow.Chainstoreshavefrequentlyled
theway.
Changesinlegislation.Supporthasdeclinedforthetraditionalreligious
viewthataspecificday(SundayinpredominantlyChristiancultures)should
belegalizedasadayofrestforoneandall,regardlessofreligiousbeliefs.In
amulticulturalsociety,itisdifficulttodecidewhichdayshouldbespecialfor
observantJewsandSeventhDayAdventists,SaturdayistheSabbathfor
Muslims,Fridayistheholydayandagnosticsoratheistsarepresumably
indifferent.TherehasbeenagradualerosionofsuchlawsinWesternnations
inrecentyears.
Economicincentivestoimprovetheuseofassets.Agreatamountofmoney
isoftentiedupinservicefacilities.Theincreaseincostofextendinghours
tendstoberelativelysmall,andifitreducescrowdingandincreases
revenues,thenitisanattractiveoption.Therearecostsinvolvedinshutting
downandreopeningafacilitysuchasasupermarket.Climatecontroland
somelightingmustbeleftrunningallnight,andsecuritypersonnelmustbe
paid24/7.So,evenifthenumberofextracustomersservedisminimal,there
arebothoperationalandmarketingadvantagestoremainingopen24hours.
Availabilityofemployeestoworkduringunsocialhours.Changing
lifestylesandadesireforparttimeemploymenthavecreatedagrowinglabor
poolofpeoplewillingtoworkeveningsandnights.Theyincludestudents
lookingforparttimeworkoutsideclassroomhours,peopleworkingasecond
job,parentsjugglingchildcareresponsibilities,andotherswhosimplyprefer
toworkbynightandrelaxorsleepbyday.
Automatedselfservicefacilities.Selfserviceequipmenthasbecome
increasinglyreliableanduserfriendly.Manymachinesnowacceptcard
basedpaymentsinadditiontocoinsandbanknotes.Therefore,installing
unattendedmachinesmaymakesenseforlocationsthatcannotsupporta
staffedfacility.Unlessamachinerequiresfrequentservicingorisparticularly
easilyvandalized,theextracostofgoingfromlimitedhoursto24hour
operationisminimal.Infact,itmaybesimplertoleavemachinesrunning
continuouslythantoturnthemonandoff.

Delivering Services in Cyberspace


LO6
Discussthefactorsthathavefueledthegrowthofservicedeliveryviacyberspace.
Developmentsintelecommunicationsandcomputertechnologyhavegivenrisetomany
newapproachestoservicedelivery.Inthehospitalityindustry,reservationsareincreasingly
handledviafirmswebsites.Forexample,SwisstelHotels&Resorts(Figure5.13)hadan
entirecampaigntoincreaseonlinebookings,especiallyamongtheimportantbusiness
travelersegment.Withinsevenmonthsofitslaunch,itsrevampedwebsite
(www.swissotel.com (http://www.swissotel.com))morethandoubledonlinerevenues.

Figure5.13.SwisstelHotels&Resorts,anawardwinninghotel,prides
itselfonprovidinghighlevelofservicetoitsguestsworldwide.

IfwelookattheeightpetalsoftheFlowerofService,wewillseethatnofewerthanfive
supplementaryservicesareinformationbased(Figure5.14).Information,ordertaking,
consultation,billing,andpayment(e.g.,viacreditcard)canallbetransmittedthroughthe
onlinechannel.Infact,manybusinesseshavemovedthemajorityoftheircustomersto

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onlinechannels(Figure5.15).

Figure5.14.InformationandphysicalprocessesoftheFlowerofService.

Figure5.15.Manycompanieshavemovedtheircustomerstoonline
channels.

Thedistributionofinformation,consultation,andordertaking(orreservationsandticket
sales)hasreachedextremelysophisticatedlevelsinsomeglobalserviceindustrieslike
hotels,airlines,andcarrental.Thisrequirestheintegrationofdifferentchannelsforitskey
customersegments.Forinstance,StarwoodHotels&ResortsWorldwidewhosenearly
1,000hotelsincludesuchbrandsasSt.Regis,WHotel,Westin,LeMridien,andSheraton
hasmorethan30globalsalesoffices(GSOs)aroundtheworldtomanagecustomer
relationshipswithkeyglobalaccounts,offeringaonestopsolutiontocorporatetravel
planners,wholesalers,meetingplanners,incentivehouses,andmajortravelorganizations.
8

Thecompanyalsooperates12customerservicingcenters(CSCs)strategicallyplaced

aroundtheglobetocoveralltimezonesandkeylanguagerequirementstoprovideone
stopcustomerserviceforitsguests,includingworldwidehotelreservations,enrolmentand
redemptionofStarwoodsloyaltyprogram,andgeneralcustomerservice.Youonlyneedto
callonetollfreenumbertobookanyStarwoodhotel.Alternatively,youcanreserverooms
throughelectronicchannels.

Service Delivery Innovations Facilitated by Technology


Morerecently,entrepreneurshavetakenadvantageoftheInternettocreatenewservices.
Threeinnovationsofparticularinterestare:
DevelopmentofsmartcellphonesandotherdevicessuchastheiPad,netbooksandWi
FihighspeedInternettechnologythatcanlinkuserstotheInternetwherevertheymay
be(Figures5.16and5.17).

Figure5.16.PDAsandothersmartmobiledevicesnowconnectpeople
eveninremoteplaces.

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Figure5.17.Ciscoisoneoftheleadingcompaniesthatprovidesintegrated
networksolutionsandservices.

Usageofvoicerecognitiontechnologythatallowscustomerstogiveinformationand
requestservicesimplybyspeakingintoaphoneormicrophone.
Commercializationofsmartcardscontainingamicrochipthatcanstoredetailed
informationaboutthecustomerandactasanelectronicpursecontainingdigitalmoney.
Theultimateinselfservicebankingwillbewhenyoucannotonlyuseasmartcardasan
electronicwalletforawidearrayoftransactions,butalsorefillitfromaspecialcardreader
connectedtoyourPC.
Electronicchannelscanbeofferedtogetherwithphysicalchannelsortaketheplaceof
physicalchannelsfordeliveringinformationbasedservices.ServiceInsights5.3describesa
multichannelapplicationforelectronicbanking.

ServiceInsights5.3:MultiChannelBankingwithout

BranchesatFirstDirect
FirstDirect,adivisionofHSBC,hasbecomefamousastheoriginatorofthe
conceptofaretailbankwithoutbranches.In2010,FirstDirectwasnamed
bestfinancialserviceprovideratthe2010Which?Awards.Itservesmore
than1.2millioncustomersthroughouttheUnitedKingdom(andabroad)
throughcallcenters,awebsite,textmessagingoncellphones,andaccessto
HSBCslargenetworkofATMs.
InJanuary2000,FirstDirectbythattimedescribingitselfasthelargest
virtualbankintheworldannouncedthatitwouldtransformitselfintoane
bankandsetthestandardforebanking.Attheheartofthestrategyisa
multichannelapproachtobankingthatcombinesFirstDirectstelephone
bankingexperiencewiththestrengthsoftheInternetandtheversatilityofcell
phonetechnologiestodeliverasuperiorserviceatfiercelycompetitiveprices.
AsnotedbychiefexecutiveAlanHughes:Wearethefirstbankintheworld
toreengineerourentirebusinessfortheeage.Thescaleoftheinitiative
createsanewcategoryofebankingandsetsabenchmarkfortheindustry
aroundtheglobe.Morethanabank,www.firstdirect.com (http://www.firstdirect.com)
willbethefirstInternetbankingstore.
By2008,80%ofallcustomercontactwithFirstDirectand43%ofsaleswere
viaechannels.Some890,000customerswereusingInternetbanking,and
370,000wereusingSMS(shortmessageservice)textmessaging.Thebank
sentoutsome2.6milliontextmessagesamonth.
AcentralelementinthisstrategyistoofferBritainsmostcomprehensivecell
phonebankingservice,recognizingthatalmostalladultsintheUnited
Kingdomeitherownoruseacellphone.ThroughSMStextmessages,First
Directcustomershaveaccesstoministatementsforuptothreeaccountsand
canbeadvisedwhencreditsordebitsenterorleavetheaccount.Inaddition,
theyarealertedautomaticallyiftheiraccountsgointothered.FirstDirect
wasthefirstbanktoadaptitsonlinebankingsothatitworkedwellwiththe
iPhone.

Althoughpersontopersonvoicetelephonestillremainsthebackboneofthe
banksrelationshipwithitscustomers,inAugust2005thebanklauncheda
newwebchatservice,enablingcustomerstotalkwithbankingrepsthrough
akeyboardandmouseratherthanbyphone.Itpromotesthisserviceas
offeringtheimmediacyofaphoneconversationwiththeconvenienceofe
mail.
Isthisnontraditionalstrategyworking?Theevidencesuggestsaresounding
yes.Anindependentglobalsurveyof25,000customersoffinancial
organizationsworldwidefoundthat,amongallbankssurveyed,FirstDirect
hadthegreatestproportionofcustomerspreparedtorecommendtheirown
bank.Forthepast16years,FirstDirecthashadthehighestcustomer
satisfactionratingofbanksintheUnitedKingdom.
Source:AnneMarieCagnaandJeanClaudeLarrch,FirstDirect2005:
TheMostRecommendedBankintheWorld.Fontainebleau,France:
INSEAD,2005pressreleasesdistributedonwww.firstdirect.com
(http://www.firstdirect.com) ,accessedMarch12,2012.

E-Commerce: The Move to Cyberspace


Amazon.compioneeredtheconceptofthevirtualstore,butnowthousandsexistallover
theworld.Amongthefactorsattractingcustomersintovirtualstoresare:
Convenience

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Easeofsearch(obtaininginformationandsearchingfordesireditemsorservices)
Abroaderselection
Potentialforbetterprices
24/7servicewithpromptdelivery.Thisisparticularlyappealingtocustomerswhosebusy
livesleavethemshortoftime(seeServiceInsights5.4).
Thinkabouttheproductsthatyou,yourfamily,andfriendshavepurchasedlatelythrough
theInternet.Whydidyouselectthischannelratherthanalternativeformsofservice
delivery?

ServiceInsights5.4:Onlinevs.BrickandMortar:theGreat

ShoppingRace
Tocomparetheresultsofonlineshoppingversusshoppingatretailstores,
theWallStreetJournalsenttworeportersoutonanassignmentthedayafter
Thanksgiving,whichistraditionallyoneofAmericasbusiestshoppingdays
oftheyear(retailerscallitBlackFridaybecausetheymakesomuchprofitson
thatday,itputsthembackintheblackfortheyear).Bothreporterswere
givenabudgetof$2,000andanidenticallistof12presentstopurchase.
Thesegiftsrangedfromavarietyofunbrandeditems(acashmeresweaterfor
sister,asportswatchforhusband)toaBarbieMagicPegasusforafouryear
oldgirlandaMicrosoftXbox360videogamesystemforan11yearoldboy.
Atthattime,thisgamesystemwasnewand,therefore,hardtofind.One
reporterwenttoahugemallatShortHillsinNewJersey.Thesecond
reporterstayedhome,shoppedonline,andordereditemstobedelivered
overnight.Thegoalwastoseehowquicklythereporterscouldcompletethe
assignmentandwhocouldgetthebestgiftsfortheleastamountofmoney.
Inasimilarrace,aprofessionalshopperandawebexpertweregiventhe
sameassignment.Theprofessionalshopperwassenttothesamemallas
thereporter.Theresults?Thewebexpertcompletedthetaskinjustlessthan
threehoursandhad$800leftover.However,afewoftheitemshehad
purchasedwereconsideredpoorerqualitythanthoseboughtatthemall.The
professionalshoppercameinsecond.Hesaved$500buttooksevenhours
and15minutes.Thetworeporterswerelast.Thereportershoppingonline
spent$1,906andtooksevenhoursand40minutes,butadmittedhehad
becomedistractedandwastedtimesurfingtheweb.Thereportershoppingat
themalltookeighthoursandspent$1,836.However,neitherreporter
managedtobuytheXbox360.
Source:EllenGamermannandReedAlbergotti,TheGreatHoliday
ShoppingRace,TheWallStreetJournal,December34,2005,P6P7.

Websitesarebecomingincreasinglysophisticated,butalsomoreuserfriendly.Theyoften
simulatetheservicesofawellinformedsalesassistantinsteeringcustomerstowarditems
thatarelikelytobeofinterest.Someevenprovidetheopportunityforliveemailorchat
dialogwithhelpfulcustomerservicepersonnel.Facilitatingsearchesisanotheruseful
serviceonmanysites,rangingfromlookingatwhatbooksareavailablebyaparticular
authortofindingschedulesofflightsbetweentwocitiesonaspecificdate.
Particularlyexcitingarerecentdevelopmentsthatlinkwebsites,customerrelationship
management(CRM)systems,andmobiletelephony.Integratingmobiledevicesintothe
servicedeliveryinfrastructurecanbeusedasameansto(1)accessservices(seeService
Insights5.5),(2)alertcustomerstoopportunitiesorproblemsbydeliveringtheright
informationorinteractionattherighttime,and(3)updateinformationinrealtimeto
ensureitiscontinuouslyaccurateandrelevant.

Forexample,customerscansetstock

alertsontheirbrokerswebsiteandgetanemailorSMSalertwhenacertainpricelevelis
reached(orbreached)(Figure5.18)orwhenaparticulartransactionhasbeenconducted,or
theycanobtainrealtimeinformationonstockprices.Customerscanrespondbyaccessing
thebrokerageandtradedirectlybyvoiceorviaanSMSinterface,astheyprefer.

Figure5.18.SMSpricealertwhenapricelevelofastockisreached.

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ServiceInsights5.5:WIZZIT:ReachingOuttotheUnbanked

inSouthAfrica
Banksareveryoftenassociatedwithphysicalbuildingsandbranches,aswell
asATMnetworks.WIZZITPayments(Pty)Ltd(WIZZIT),however,isabank
thatdoesnotdistributeitsservicesusingthenormaldistributionchannels.
WIZZITstaglineisLive.life.anywhere:WithWIZZITyouhaveyourbankin
yourpocket.Transactfromwhereveryouare,wheneveryouwantto24/7.It
isavirtualbank,asithasnobranches.Instead,WIZZITusesthecellphone
asadistributionplatform.InSouthAfrica,thereare16millionpeople
withoutbankaccounts.Openinganaccountatbankbranchesisinconvenient
aspeoplehavetotravelalongdistance,anditisconsideredexpensivefor
theruralfolks.However,35%ofSouthAfricasunbankedalreadyowncell
phones.

Toreachitscustomers,WIZZITgoesintotheruralareastoshowthevillagers
howelectronicmoneyworksandhowtheycanbenefitfromit.Theyalsouse
theWIZZKids,whoareyoungindividualsfromthelowerincomegroup,to
teachpotentialcustomersaboutWIZZIT.TheseWIZZKidsearnacommission
foreachnewcustomertheysignup.Tomaketheirservicesappealingtothe
lowincomeconsumer,WIZZITdoesnothaveaminimumbalance
requirement,hasnomonthlyfees,anddoesnotchargepenaltiesfornonuse.
Paymentisbytransaction,andtheamountdependsonthetransactiontype.
Customerscanusetheircellphonestomakepersontopersonpayments,
transfermoney,makepurchasesforprepaidelectricityandpayfortheircell
phonesubscriptions.CustomersarealsoprovidedwithaMaestrobranddebit
card,whichtheycanusetomakepurchasesandwithdrawmoneyatany
SouthAfricanATM.

Withinitsfirsttwoyears,WIZZITacquired50,000customers.By2008,ithad
anestimatedcustomerbaseof250,000customers.PeopleuseWIZZIT
becausetheyfinditconvenient,affordable,andsecure.
Sources:GautamIvatury,andMarkPickens,MobilePhoneBankingand
LowIncomeCustomers:EvidencefromSouthAfrica,whitepaper,
ConsultativeGrouptoAssistthePoor/TheWorldBankandUnitedNations
Foundation,2006CellPhoneBankingReinventedSAComputer
Magazine,October2005DuncanMcLeodWavingtheWand,Financial
Mail,25November2005,http://www.wizzit.co.za/(http://www.wizzit.co.za/) ,
accessedMarch12,2012.

The Role of Intermediaries


LO7
Understandthepartplayedbyintermediariesindistributingservices.
Manyserviceorganizationsfinditcosteffectivetooutsourcecertaintasks.Often,theseare
supplementaryserviceelements.Forinstance,despitetheirincreaseduseoftelephonecall
centersandtheInternet,cruiselinesandresorthotelsstillrelyontravelagentstohandlea
largeportionoftheircustomerinteractionssuchasgivingoutinformation,taking
reservations,acceptingpayment,andticketing.
Howshouldaserviceproviderworkinpartnershipwithoneormoreintermediariesto
deliveracompleteservicepackagetocustomers?InFigure5.19,weusetheFlowerof
Serviceframeworktoshowanexampleinwhichthecoreproductandcertain
supplementaryelementslikeinformation,consultation,andexceptionaredeliveredbythe
originalsupplier.Thedeliveryofothersupplementaryservicesisdelegatedtoan
intermediarytocompletetheofferingasexperiencedbythecustomer.Inotherinstances,
severalspecialistoutsourcersmightbeinvolvedasintermediariesforspecificelements.The
challengefortheoriginalsupplieristooverseetheoverallprocess.Thesupplierhasto
makesurethateachelementofferedbyintermediariesfitstheoverallserviceconceptto
createaconsistentandseamlessbrandedserviceexperience.

Figure5.19.Splittingresponsibilitiesforservicedelivery.

Franchising
Evendeliveryofthecoreproductcanbeoutsourcedtoanintermediary.Franchisinghas
becomeapopularwaytoexpanddeliveryofaneffectiveserviceconcept,embracingallof
the7Ps(seeChapter1)tomultiplesites.Thisisdonewithoutthelevelofmonetary

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investmentthatwouldbeneededforrapidexpansionofcompanyownedandcompany
managedsites.Afranchisorrecruitsentrepreneurswhoarewillingtoinvesttheirowntime
andequityinmanagingapreviouslydevelopedserviceconcept.Inreturn,thefranchisor
providestrainingonhowtooperateandmarketthebusiness,sellsnecessarysupplies,and
providespromotionalsupportatanationalorregionalleveltoaddtolocalmarketing
activities.Theseactivitiesarepaidforbythefranchisee,butthefranchiseemustfollowthe
copyandmediaguidelinesofthefranchisor.
Franchisingisanattractivestrategyforgrowthorientedservicefirmsbecausefranchisees
10

arehighlymotivatedtoensurecustomerserviceandhighqualityserviceoperations. A
11

newfranchisebusinessopenseveryeightminutesofeverybusinessday. Although
franchisingismostcommonlyassociatedwithfastfoodrestaurants(foranexample,see
Figure5.20),theconcepthasbeenappliedtoaverywidevarietyofbothconsumerand
12

B2Bservicesandnowspanssome75differentproductcategories. Newconceptsare
createdandcommercializedallthetimeincountriesaroundtheworld.Thefastestgrowing
categoriesofconceptsarerelatedtohealthandfitness,publications,security,andconsumer
services.Thefranchiseindustryaccountsforapproximately50%ofallretailsalesand

13

servicesintheUnitedStates.Oneoutofevery12businessesisafranchisedbusiness. In
yourownroleasaconsumer,youprobablypatronizemorefranchisesthanyourealize.

Figure5.20.SubwayisapopularAmericanfastfoodfranchise.

Nevertheless,thereisahighdropoutrateamongfranchisorsintheearlyyearsofanew
franchisesystem,withonethirdofallsystemsfailingwithinthefirstfouryearsandnoless
14

thanthreequartersofallfranchisorsceasingtoexistafter12years. Successfactorsfor
franchisorsinclude:
Theabilitytoachievealargersizewithamorerecognizablebrandname
Offeringfranchiseesfewersupportingservicesbutlongertermcontracts
Havingloweroverheadperoutlet
Providingaccurateandrealisticinformationaboutexpectedcharacteristicsoffranchise
operations,andsupportgiven
15

Buildingacooperativeratherthancontrollingrelationship

Becausegrowthisveryimportanttoachieveanefficientscale,somefranchisorsuse
masterfranchising.Masterfranchiseesoftenareindividualswhohavealreadysucceeded
asoperatorsofoneorseveralindividualfranchiseoutlets.Theyhavetheresponsibilityfor
recruiting,training,andsupportingfranchiseeswithinagivengeographicarea.
Whilefranchisinghasmanysuccessstories,italsohassomedisadvantages.
Lettingfranchiseestakeoverservicedeliveryandotheractivitieswillresultinsomeloss
ofcontroloverthedeliverysystemand,thereby,overhowcustomersexperiencetheactual
service.
Makingsurethatanintermediaryhasexactlythesameprioritiesandproceduresaslaid
downbythefranchisorisdifficult.However,itisnecessaryforeffectivequalitycontrol.
Franchisorsusuallytrytocontrolallaspectsoftheserviceperformancethroughacontract.
Thiscontractusuallyhasclausesthatstatethatfranchiseeshavetofollowthedefined
servicestandards,procedures,scripts,andphysicalpresentationstrictly.Franchisorsmay
alsocontroltheappearanceoftheservicescape,employeeperformance,andelementslike
asservicetimetables.
Anongoingproblemisthat,asfranchiseesgainexperience,theymaystarttofeelthat
theyshouldnotbepayingthevariousfeestothefranchisors.Theymayalsobelievethat
theycanoperatethebusinessbetterwithouttherestrictionsthatcomeaboutbecauseof
thecontract.Thisoftenleadstolegalfightsbetweenthetwoparties.
Analternativetofranchisingislicensinganothersuppliertoactontheoriginalsuppliers
behalftodeliverthecoreproduct.Truckingcompaniesregularlymakeuseofindependent
agents(Figure5.21)insteadoflocatingcompanyownedbranchesineachofthedifferent
citiestheyserve.Theymayalsochoosetocontractwithindependentowneroperators
16

whodrivetheirowntrucks.

Figure5.21.Truckingcompanieslicensejobstolocalfirmsinremote
areas.

Otherservicedistributionagreementsincludefinancialservices.Banksseekingtomoveinto
investmentservicesoftenwillactasthedistributorformutualfundproductscreatedby
investmentfirmsthatlackextensivedistributionchannelsoftheirown.Manybanksalso
sellinsuranceproductsunderwrittenbyaninsurancecompanies.Theycollectacommission
onthesalebutnormallyarenotinvolvedinhandlingclaims.

Distributing Services Internationally

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Distributing Services Internationally


Manyfirmsdistributetheirservicesinternationally,includingCNN,Reuters,Google,
AMEX,Starbucks,Hertz,Citibank,andMcKinsey.Whenservicecompaniesplantogo
global,howshouldtheyenternewmarkets?

How to Enter International Markets?


LO8
Explainwhatdetermineswhichmarketentrystrategyafirmshouldusewhenitgoes
global.
Thestrategythatismostsuitableforenteringanewinternationalmarketdependson(1)
howafirmcanprotectitsintellectualproperty(IP)andcontrolitskeysourcesofvalue
creation,and(2)whetherthelevelofdesiredinteractionwiththecustomerishighorlow
(seeFigure5.22).

Figure5.22.Howtogointernational?

InthecasewhereafirmsIPandvaluecreationsourcescanbeprotectedthroughcopyright
orotherlegalmeans,andifonlylowcustomercontactisrequired(i.e.,theserviceis
distributedatarmslengthviatheInternetortelephone),thenacompanycansimply
exporttheservice.Inthesecases,thereislittleriskoflosingthebusinesstolocal
competitors,distributors,orotherlocalpartners.Examplesincludedatabaseservices(e.g.,
ThomsonReutersSocialSciencesCitationIndexrelatedservices),onlinenews(e.g.,those
offeredbyCNNortheFinancialTimes),onlineadvertising(e.g.,assoldgloballybyYahoo
orGoogle),andthedownloadingofmusic,films,ebooks,andsoftware.Ifthesefirmsdo
establishalocalpresenceininternationalmarkets,itisusuallytoorganizetheirlocal
corporatesalesandmarketing(e.g.,YahooandGooglehavesalesteamsinmanycountries
17

thatselltheiradvertisingservices)ratherthandelivertheserviceitself.

Someserviceslikefastfood,globalhotelchains,andcourierservicesallowafirmtocontrol
itsIPandsourcesofvaluecreation.Thisisdonethroughbranding,havingaglobalcustomer
base,andglobalresources,capabilities,andnetworks.Withoutthese,itwouldbecome
impossible,oratleastverydifficult,todelivertheserviceatalevelcustomersare
expecting.Here,customercontactisoftenatamoderatelevel.Firmsinthiscategorycan
expandgloballythroughlicensing,franchising,orjointventureswithoutlosingcontrol.For
example,intermsofbranding,brandssuchasStarbucksandHardRockCafaddvalue,and
coffeeoutletswithoutthesebrandsdonthavethesameattractionforcustomers.Large
globalhotelchainslikeStarwoodHotels&ResortsorHiltoncontrolcustomerrelationships
withmillionsofcustomerintheirloyaltyprogramsandthroughglobalsalesoffices,whichin
turnthenfeedbusinesstolocallyownedandoperatedproperties.Thesepropertiesneedthe
customertrafficfromtheglobalchain.Tociteanotherexample,unliketheglobalcourier
servicefirmthathasglobalresources,capabilities,andnetwork,alocalcourierservice
providerisnotabletosourceforinboundshipmentsfromaroundtheworld.Theyalso
cannotdeliveroutboundshipmentsonagloballevel.Thus,theglobalcourierservicefirm
cansafelyappointalocalagentwithouthavingtofearthatthatagentwill,atsomepoint,
becomeacompetitor.
Finally,thereareserviceswheretheaddedvaluecomesmainlyfromtheskillsand
knowledgeoftheserviceprovider,andwhereahighdegreeofcustomercontactisneeded
todelivervalue.Theseareoftenknowledgebased,professionalservices.Examplesinclude
creativedesignofadvertisingcampaignsandmanagementconsultingprojects.Forsuch
services,valueistypicallycreatedbythefirmsemployeesthroughtheirknowledgeandthe
relationshiptheyhavebuiltwiththeirclients.Itisdifficulttocontrolthesourcesofvalue
creationforsuchservices.Forexample,ifafirmworkedthroughalicenseeorjointventure
partner,itwouldfacetheriskthatonceskilltransfertothatpartnerhashappenedaftera
fewyearsofoperation,thatpartnerwouldbeabletodelivertheservicewithoutthe
supportofthefirm.Whenthishappens,thepartnerislikelytoshowincreasingresistanceto
payinglicensingfeesorsharingprofits.Theyarethenlikelytorenegotiatethetermsofthe
venture,andcouldeventhreatentogoindependentandcuttheoriginalservicefirmout.
Hence,itisnecessaryforfirmsinthiscategorytohavetightcontroloveritslocalresources.
Thisusuallyincludeshavingthelocalstaffonitsownpayroll,withcarefullywritten
contractsthatprotectthefirmsIPandcustomerbase.Here,themosteffectivewaysto
enteranewmarketaretypicallythroughforeigndirectinvestmentbysettingupabranch
18

office,asubsidiary,orthroughmergersandacquisitions.

Chapter Summary
LO1What?How?Where?When?Responsestothesefourquestionsformthe
foundationofanyservicedistributionstrategy.
LO2Whatisdistributed?Theflowmodelofdistributioncanbemappedontothe
FlowerofServiceconceptandincludesthefollowingflowsofservicedistribution:
Informationandpromotionflows(includestheinformationandpotentiallyconsultation
petals).
Negotiationflow(includestheordertakingandpotentiallyalsobillingandpayment
petals).
Productflow(includestheremainingpetalsoftheFlowerofServiceandthecoreproduct).
Aservicedistributionstrategyencompassesallthreeflows.

LO3Howcanservicesbedistributed?Servicescanbedistributedthroughthree
mainmodes:
Customersvisittheservicesite(e.g.,forpeopleprocessingservicessuchasanMRIscan).
Serviceprovidersgototheircustomers(e.g.,asforhighnetworthprivatebanking
services).

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Servicetransactionsconductedremotely(i.e.,atarmslengthsuchasforSkypeorbuying
atravelinsuranceonline).
LO4Customerpreferencesdrivechannelchoice.Customersoftenpreferremote
channelsbecauseoftheirconvenienceandwhentheyhavehighconfidenceinandknowledge
abouttheproductandaretechnologysavvy.However,consumersrelymoreonpersonal
channelswhentheperceivedriskishighandwhentherearesocialmotivesbehindthe
transaction.

LO5Whereandwhenshouldservicebedelivered?Theplaceandtimedecisions
mustreflectcustomerneedsandexpectations.
Customerconvenienceandoperationalrequirementsarethemainfactorstoconsider.
Recentlocationtrendsincludeministores,sharingretailspacewithcomplementary
providers,andlocatinginmultipurposefacilities(e.g.,ATMsinofficebuildings).
Thereisamovetowardextendedoperatinghours,withtheultimategoalof24/7service
everydayoftheyear,oftenachievedthroughtheuseofselfservicetechnology.

LO6Informationbasedcoreandsupplementaryservicescanbeoffered24/7on
theInternet.RecenttechnologicaldevelopmentslinkCRMsystems,mobiletelephones,
websitesandsmartcardstoprovideincreasinglyconvenientandsophisticatedservices.
LO7Servicefirmsfrequentlyuseintermediariestodistributesomeofthe
supplementaryservices(e.g.,cruiselinesstillusetravelagenciestoprovideinformation,
takereservations,collectpayment,andoftenbundlecomplementaryservicessuchasair
travel).
Serviceorganizationsmayfinditcosteffectivetooutsourcecertaintasks.
Thechallengefortheservicefirmistoensurethatoverallserviceisseamlessand
experiencedasdesired.
Franchisingisfrequentlyusedtodistributethecoreservice.Thereareadvantagesand
disadvantagestofranchising:
Itallowsfastgrowth,andfranchiseesarehighlymotivatedtoensurecustomer
orientation,highqualityserviceoperations,andcosteffectiveoperations.
Disadvantagesoffranchisingincludethelossofcontroloverthedeliverysystemandthe
customersserviceexperience.Hence,franchisorsoftenenforcestrictqualitycontrolsover
allaspectsoftheoperation.

LO8Thestrategyforenteringinternationalmarketsdependon:
Howafirmcancontrolitsintellectualproperty(IP)anditssourcesofvaluecreation.
Thedegreeofcustomerinteractionrequiredforthecreationoftheservice.
IfthevalueliesintheIP,thentheservicecansimplybeexporteddirectly,likefore
books,music,andsoftware.
IfIPcontrolandcustomercontactrequirementsaremoderate,thenuselicensing,
franchising,orjointventures.
Ifthereisahighdegreeofinteractionrequired,andcontrolofIPislow,thenhaveforeign
directinvestmentsbysettingupabranch,asubsidiary,orgoinginthroughmergersand
acquisitions.

Unlock Your Learning

ThesekeywordsarefoundwithinthesectionsofeachLearningObjective(LO).Theyare
integraltounderstandingtheservicesmarketingconceptstaughtineachsection.Havinga
firmgraspofthesekeywordsandhowtheyareusedisessentialtohelpingyoudowellon
yourcourse,andintherealandverycompetitivemarketingsceneoutthere.
LO21Informationflow

2Negotiationflow
3Productflow
4Promotionflow

LO35Convenience
6Customervisitstheservicesite
7Locationspecific
8Operationalhours
9Remotetransactions
10Reverselogistics
11Serviceprovidersvisitthecustomer
LO412Channelarbitrage
13Channelchoice
14Channelpreferences
15Impersonalchannels
16Personalchannels
17Selfservicechannels

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LO51824/7
19Automatedkiosks
20Backstageelements
21Brickandmortar
22Distributionstrategies
23Locationalconstraints
24Ministores
25Multipurposefacilities
26Pointsofaccess
LO627Cyberspace
28Ecommerce
29Electronicchannels
30Mobiletelephony
31Multichannel
32Onlinechannel
33Physicalchannels
34Smartcards
35Smartcellphones
36Servicedeliveryinnovations
37Virtualstores
38Voicerecognitiontechnology
LO739Brandedexperience

40Franchisee
41Franchising
42Franchisor
43Independentagents
44Intermediaries
45Licensing
46Masterfranchising
47Outsource
LO848Branchoffice

49Control
50Customercontact
51Distributeserviceinternationally
52Foreigndirectinvestment
53Intellectualproperty
54Jointventures
55Mergersandacquisitions
56Subsidiary
57Valuecreation

Howwelldoyouknowthelanguageofservicesmarketing?Quizyourself!

Notfortheacademicallyfaintofheart

Foreachkeywordyouareabletorecallwithoutreferringtoearlierpages,give
yourselfapoint(andapatontheback).Tallyyourscoreattheendandseeifyou
earnedtherighttobecalledaservicesmarketeer.

Score
011ServicesMarketingisdoneagreatdisservice.
1220Themidnightoilneedstobelit,pronto.
2130Iknowwhatyoudidntdoallsemester.
3140Acloseshavewithsuccess.
4150Now,goforthandmarket.
5157Thereshouldbeamarketingconceptnamedafteryou.

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KnowYourESM
ReviewQuestions
1.Whatismeantbydistributingservices?Howcananexperienceor
somethingintangiblebedistributed?
2.Whatarethedifferentoptionsforservicedelivery?Foreachoftheoptions,
whatfactorsdoservicefirmsneedtotakeintoaccountwhenusingthat
option?
3.Whatarethekeyfactorsdrivingplaceandtimedecisionsofservice
distribution?
4.Whatrisksandopportunitiesareentailedforaretailservicefirminadding
electronicchannelsofdelivery(a)parallelingachannelinvolvingphysical
stores,or(b)replacingthephysicalstoreswithacombinedInternetandcall
centerchannel?Giveexamples.
5.Whyshouldservicemarketersbeconcernedwithnewdevelopmentsin
mobilecommunications?
6.Whatmarketingandmanagementchallengesareraisedbytheuseof
intermediariesinaservicesetting?
7.Whyisfranchisingapopularwaytoexpanddistributionofaneffective
serviceconcept?Whataresomedisadvantagesoffranchising,andhowcan
theybemitigated?
8.Whatfactorsdoservicecompaniesneedtounderstandtochooseastrategy
forgoinginternationalthatstillallowsittocontrolitsIPandsourcesofvalue
creation?

WorkYourESM
ApplicationExercises
1.Anentrepreneuristhinkingofsettingupanewservicebusiness(youcan
chooseanyspecificbusiness).Whatadvicewouldyougiveregardingthe
distributionstrategyforthisbusiness?AddresstheWhat?How?Where?
When?ofservicedistribution.
2.Thinkofthreeservicesyoubuyoruseeithermostlyorexclusivelyviathe
Internet.Whatisthevaluepropositionofthischanneloveralternative
channels(e.g.,phone,mail,orbranchnetwork)?
3.Whichmarketentrystrategyintoanewinternationalmarketshould(a)an
architecturaldesignfirm,(b)anonlinediscountbroker,and(c)asatelliteTV
channelconsiderandwhy?

Endnotes
1 .http://en.wikipedia.org/wiki/Lauren_Luke (http://en.wikipedia.org/wiki/Lauren_Luke)and
www.bylaurenluke.com (http://www.bylaurenluke.com),accessedMarch12,2012.

2 .Recentresearchontheadoptionofselfservicetechnologiesincludes:MatthewL.
Meuter,MaryJoBitner,AmyL.Ostrom,andStephenW.Brown,Choosingamong
AlternativeServiceDeliveryModes:anInvestigationofCustomerTrialofSelfService
Technologies,JournalofMarketing69(April2005):6183JamesM.Curranand
MatthewL.Meuter,SelfServiceTechnologyAdoption:ComparingThreeTechnologies,
JournalofServicesMarketing19,no.2(2005):103113.

3 .Thesectionwasbasedonthefollowingresearch:NancyJoBlack,AndyLockett,
ChristineEnnew,HeidiWinklhofer,andSallyMcKechnie,ModellingConsumerChoiceof
DistributionChannels:anIllustrationfromFinancialServices,InternationalJournalof
BankMarketing20,no.4(2002):161173JinkookLee,AKeytoMarketingFinancial
Services:theRightMixofProducts,Services,ChannelsandCustomers,JournalofServices
Marketing16,no.3(2002):238258andLeonardL.Berry,KathleenSeiders,andDhruv
Grewal,UnderstandingServiceConvenience,JournalofMarketing66,no.3(July2002):
117.JiunShengC.LinandPeilingHsieh,TheRoleofTechnologyReadinessin
CustomersPerceptionandAdoptionofSelfServiceTechnologies,InternationalJournalof
ServiceIndustryManagement17,no.5(2006):497517.

4 .PaulF.NunesandFrankV.Cespedes,TheCustomerHasEscaped,Harvard
BusinessReview81,no.11(2003):96105.

5 .MichaelA.Jones,DavidL.Mothersbaugh,andSharonE.Beatty,TheEffectsof
LocationalConvenienceonCustomerRepurchaseIntentionsacrossServiceTypes,Journal
ofServicesMarketing17,no.7(2004):701712.

6 .JamesL.Heskett,W.EarlSasserJr.,andLeonardA.Schlesinger,TheServiceProfit
Chain.NewYork:TheFreePress,1997,218220.

7 .www.swissotel.com (http://www.swissotel.com)and
http://www.eyefortravel.com/node/9187(http://www.eyefortravel.com/node/9187),accessed
March12,2012.

8 .JochenWirtzandJeannetteP.T.Ho,WestininAsia:DistributingHotelRooms
Globally,inJochenWirtzandChristopherH.Lovelock,eds.ServicesMarketinginAsiaA
CaseBook.(Singapore:PrenticeHall,2005,253259).www.starwoodhotels.com
(http://www.starwoodhotels.com),accessedMarch12,2012.

9 .KatherineN.Lemon,FrederickB.Newell,andLorenJ.Lemon,TheWirelessRules
foreService,inRolandT.RustandP.K.Kannan,eds.NewDirectionsinTheoryand
Practice.(NewYork:Armonk,M.E.Sharpe,2002,200232).
10.JamesCrossandBruceJ.Walker,AddressingServiceMarketingChallengesthrough
Franchising,inTeresaA.SwartzandDawnIacobucci,eds.HandbookofServicesMarketing
&Management.(ThousandOaks,CA:SagePublications,2000,473484)LaventAltinay,
ImplementingInternationalFranchising:theRoleofIntrapreuneurship,International
JournalofServiceIndustryManagement15,no.5(2004):426443.

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09/09/2015

Chapter5.DistributingServicesthroughPhysicalandElectronicChannelsEssentialsofServicesMarketing,SecondEdition

11.QuickFranchiseFacts,FranchisingIndustryStatistics,
http://www.azfranchises.com/franchisefacts.htm (http://www.azfranchises.com/franchisefacts.htm),
accessedMarch12,2012.
12.BarryQuinnandNicholasAlexander,InternationalRetailFranchising:aConceptual
Framework,InternationalJournalofRetail&DistributionManagement30,no.5(2002):
264276.
13.InternationalFranchiseAssociationEducationalFoundationInc.,FranchiseIndustry
Gains300ConceptsinOneYear,November19,2007in
http://www.franchise.org/FranchiseNewsDetail.aspx?id=36416
(http://www.franchise.org/FranchiseNewsDetail.aspx?id=36416),accessedMarch12,2012Quick

FranchiseFacts,FranchisingIndustryStatistics,
http://www.azfranchises.com/franchisefacts.htm (http://www.azfranchises.com/franchisefacts.htm),
accessedMarch12,2012
http://www.franchiseek.com/USA/Franchise_USA_Statistics.htm
(http://www.franchiseek.com/USA/Franchise_USA_Statistics.htm),accessedMarch12,2012.

14.ScottShaneandChesterSpell,FactorsforNewFranchiseSuccess,SloanManagement
Review39,(Spring1998):4350.
15.FirdausAbdullahandMohdRashideeAlwi,MeasuringandManagingFranchisee
Satisfaction:aStudyofAcademicFranchising,JournalofModellinginManagement3,no.2
(2008):182199formorearticlesonfactorsthataffectthesuccessoffranchises,seeScott
WeavenandDebraGraceFranchiseePersonality:anExaminationintheContextof
FranchiseUnitDensityandServiceClassification,EuropeanJournalofMarketing43,no.
1/2(2009):90109.
16.Foradiscussiononwhattowatchforwhenpartsoftheserviceareoutsourced,see
LaurenKellerJohnson,OutsourcingPostsaleService:IsYourBrandProtected?Before
YouSpinOffRepairs,orPartsDistribution,orCustomerCallCenters,ConsidertheConsas
wellasthePros,SupplyChainStrategy1,no.5(July2005):35.
17.Formoreinformationonforeignmarketentrymodes,readShawnM.Carraherand
DianneH.B.Welsh,GlobalEntrepreneurship,KendallHuntPublishingInc.,2009.
18.J.J.Boddewyn,MarshaBaldwinHalbrichandA.C.Perry,ServiceMultinationals:
Conceptualization,MeasurementandTheory,JournalofInternationalBusinessStudies
(Fall1986):4158SandraVandermerweandMichaelChadwick,TheInternationalization
ofServices,TheServicesIndustriesJournal9,no.1(January1989):7993.

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