distributing services

Distributing Services

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Page 1: Distributing Services

Distributing Services

Page 2: Distributing Services

• Companies best equipped for the twenty-first century will consider investment in real time systems as essential to maintaining their competitive edge and keeping their customers.


Think globally, act locally. JOHN NAISBITT

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• Distribution of core & supplementray service elements.

• Creation of Place & Time Utility.• Role delivery plays in service marketing strategies

both locally & globally.

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• How can service be distributed? What are the main modes of distribution?

• What are the distinctive challenges of distributing people processing, possession processing, and information-based services?

• What are the implications for a firm of delivering through both physical and electronic channels?

• What roles should intermediaries play in distributing services?

• What are the drivers of globalization of services and their distribution?

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Applying the Flow Model of Distribution to Services

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• Information and promotion flow : distribution of information and promotion materials relating to the service offer. The objective is to get the customer interested in buying the service.

• Negotiation flow: reaching an agreement on the service features and configuration and the terms of the offer so that a purchase contract can be closed. The objective is to sell the right to use a service (e.g. sell a reservation or ticket).

• Product flow : Many services, especially those involving people or possession processing, requires physical facilities for delivery. Here, distribution strategy requires development of a network of local sties.

Distribution embraced 3 interrelated elements

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Information and Physical Processes of the Augmented Service Product







Physical Processes



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Using Websites for Service Delivery

SafekeepingTrack package movements

Check repair status

CORE: Use Web to deliver information-based core services


ConsultationConduct e-mail dialogUse expert systems

Order-TakingMake/confirm reservationsSubmit applicationsOrder goods, check status

HospitalityRecord preferences

BillingReceive bill

Make auction bidCheck account status

ExceptionsMake special requests

Resolve problems

PaymentPay by bank card

Direct debit

InformationRead brochure/FAQ; get schedules/

directions; check prices

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Determining the type of contact• Decisions on where,when and how to deliver

service have important effects on the nature of customers service experiences

• Determine the type of encounters with service personnel, & the price and other costs incurred to obtain the service.

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Options for Service Delivery

• 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.)

There are 3 types of interactions between customers and

service firms

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Method of Service Delivery

Availability of Service Outlets

Nature of interaction between Customer and Service Organization

Single Site Multiple Sites

Customer goes to service organization



Bus service

Fast-food chain

Service organization goes to customer

House painting

WM Repairman

Mail delivery

Breakdown road service

Customer and service organization transact at arm’s length

Credit card company

Local TV station

Broadcast network

Telephone company

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Customers visit the service site

• Catchment area studies(Retail Gravity Models)Aid decisions on where to locate supermarkets and similar large stores relative to prospective customers’ homes & workplaces.

Construction of an expressway or the introduction of a new bus or rail service may have significant effect on travel patterns. e.g. Golden Quadilateral which connects the 4 metros passes through high density population towns to maximise traffic.– Bangalore & Hosur on Mumbai-

Chennai link– Ahmedabad on Delhi-Mumbai


Traffic counts & pedestrian counts help to establish how many prospective customers pass by certain locations in a day.

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Service Providers go to their customers• Going to the customers site is unavoidable

whenever the object of the service is some immovable physical item. e.g. a milling machine to be repaired, or a house that requires pest control treatment.

• Going to the customers site is optional whenever it’s more expensive & time consuming for the service provider to send personnel & their equipment to the customer.e.g.

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• Lifeline express travels around the hinterland of India providing quality healthcare to the needy & poor.

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Examples• Decorative paint Co’s send

expert personnel (Painters) to customer’s home to assess their house painting requirements in terms of product, shade,quantity & timelines for completion.

• The schedules are then designed for job execution.

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• Service providers are more likely to visit corporate customers at their premises than to visit individuals in their homes,reflecting the large volume associated with B-2-B transactions.

• There may be a profitable niche in serving individuals who are willing to pay a premium for the convenience of receiving personal visits e.g., family doctors.

• Rental of both equipment & labor for special occasions

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The Service Transaction is conducted Remotely• Deal with a service firm

through remote transactions.

• Never see the service facilities or meet service personnel face to face.

• Fewer service encounters • Service encounters with

service personnel likely to be made via a call center or even more remotely by E Mail.

• Examples• Repair services of entry level

HP deskjet printers & scanners require customers to ship the product to a maintenance facility,where it is serviced & then returned.

• Information based product that was earlier delivered on CD is now delivered almost instantaneously through internet to almost any point in the world.

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Wholesale Retail Multilevel Electronic Direct Salesforce Agent/DSA



Distribution Channels

Channel Preferences vary among consumers


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• Implication of use of different channels to deliver the same service – Different cost implications for a service organisation.– Dramatically affects the nature of the service experience for customer.

• Customer choice among personal,impersonal & self service channel.– For complex & high perceived risk services,people tend to rely on personal

channels.– Consumers with higher confidence and knowledge about a service and/or

the channels are more likely to use impersonal and self-service c channels. – Customers who look for the instrumental aspects of a transaction prefer

more convenience.(Saving time & effort)– Customer with social motives tends to use personal channels.

• Sophisticated consumers take advantage of price variations among channels & markets, a strategy known as arbitraging. Customers seek the advise of a MF broker & then put application directly with the fund house to save entry load of 2.25%.

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Creating Place & Time Utilities• Understanding customer needs & expectation.• Competitive activity• Nature of the service operation.

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Place vs. Cyberspace

Place - customers and suppliers meet in a physical environment

Cyberspace - customers and suppliers do business electronically in virtual environment created by phone/internet linkages

Required for people processing services

Offers live experiences, social interaction, e.g., food services

More emphasis on eye-catching servicescape, entertainment

Ideal for info-based services Saves time Facilitates information gathering May use express logistics service

to deliver physical core products

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Where should services be delivered?• Decision to locate service facility

– Locating backstage elements where cost, productivity & access to labor are key determinants.

– Customer convenience & preference.1. Access frequently purchased services facing active

competition2. Customers may be willing to travel farther from

their homes or workplaces to reach speciality services

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Locational Constraints

• Airports(BIAL) are often inconveniently located relative to travellers homes,offices, or destinations.

• Ski resorts have to be in the mountains and ocean beach resorts on the coast(Location constraint imposed by geographic factors such as terrain & climate)

Operational requirements set tight constraints for some services

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Ministores• Multisite service businesses

involves creating numerous small service factories to maximize geographic coverage.

• Automated Kiosks, Vending machines

• ATM’s located within stores,hospitals,colleges, airports & office buildings.

• Firms offering one type of service business are purchasing space from another provider in a complementary field.

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Locating in Multipurpose facilities• Modern buildings are often

designed to be multipurpose, featuring not only office or production space but also such services as a bank, a restaurant,a hair salon, several stores & a health club.

• Siting Retail : Transportation routes and in bus,rail and air terminals-designed as part of the infrastructure for air transportation services- are being transformed into vibrant shopping malls.

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• OMC’s have developed chains of retail stores to complement the fuel pumps at their service stations ,thus offering customers the convenience of one stop shopping for

• Fuel & Lubricants• Vehicle supplies & Repair• Food and Beverages• Selection of basic household


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Physical Outlet for an information Service

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When should service be delivered?

Past Standards• Most retail and professional

services followed a traditional schedule of being available about 40 or 50 hours a week.

• This routine reflected – Social norms– Legal requirements – Union agreements as to what

were appropriate hours for people to work & for enterprises to sell things.

Today’s standard• 24/7 service :

Hotels,Restaurant,Internet Cafes,Airlines,City Transport, Hospitals,Coffee Parlours

• Some firms have resisted the trend towards 7 day operations : Banks

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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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Technology revolutionizes service deliverySome Examples

• Development of “smart” mobile telephones and PDAs (personal digital assistants) that can link users, wherever they may be, to the Internet.

• Use of voice recognition technology, which allows customers to give information and request service simply by speaking into a phone or microphone.

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• Creation of Web sites that – Provide information – Take orders – Serve as a delivery channel

for information –based services.

• Commercialization of smart cards containing a microchip that can stereo detailed information about the customer and act as an electric purse containing digital money.

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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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Linking CRM systems & mobile telephony

• Integrating mobile devices into the service delivery infrastructure can be used for 1. Increasing the accessibility of services 2. Alerting by delivering the right information or interaction at the

right time 3. Updating to create and maintain up-to-date, real-time information

• Customers can set stock alerts on 1. Broker’s Web site and get an e-mail or SMS alert when a

certain price or transaction has been conducted.2. Debit/Credit of Savings Bank A/c 3. Use of Credit/debit card at any merchant establishment

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The role of intermediaries

How should a service provider work in partnership with one or more intermediaries to deliver a

complete service package to customers?

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Splitting Responsibilities for Delivering Supplementary Services

As created by originating firm

As enhanced by distributor

As experienced by customer



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Franchising• A popular way to expand delivery of an effective

service concept to multiple sites,without the level of investment capital that would be needed for rapid expansion of company owned and managed sites.

• Most commonly associated with fast food outlets.

• Significant attrition rate among franchisors in the early years of a new franchise system – 1/3rd of all systems fail within the 1st 4 years & 3/4th of all franchisors cease to exist after 12 years.

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Franchising is a fast growth strategy, when

• Resources are limited

• Long-term commitment of store managers is


• Local knowledge is important

• Fast growth is necessary to pre-empt competition

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Success factors for franchisors1. Achieve a larger size with a more recognizable brand

name.2. Offering franchisees fewer supporting services but

longer term contracts.3. Fewer headquarters staff per outlet.

Role of franchisor4. Provides training in how to operate & market the

business.5. Sells necessary supplies.6. Provides promotional support at a national or regional

level to augment local marketing activities.

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Disadvantages of Franchising• It entails some loss of control over the delivery

system and,thereby,over how customers experience the actual service.

• Franchisors usually seek to exercise control over all aspects of the service performance through a contract that specifies adherence to tightly defined service standards,procedures, scripts, and physical presentation.

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Master Franchising• Involves delegating the responsibility for

recruiting,training, and supporting franchisees within a given geographic area. e.g.

• Mc Donald’s master franchisee in India– Hardcastle Restaurants Pvt. Ltd.(West & South)– Connaught Plaza Restaurants Private Ltd. (North &

East)• Domino’s Pizza master franchisee in India

– Jubilant Foodworks

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Licensing• Another supplier to act on the original supplier’s

behalf to deliver the core product.• Trucking Co’s regularly make use of independent

entities rather than buy their own trucks and employ full time drivers– Independent agents,instead of locating company

owned branches in each of the different cities they serve.

– Contract with independent “owner operators” who drive their own trucks

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Distributing Services Internationally

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Service Process and Market Entry• People Processing Services

– Export the service concept – Import customers– Transport customers to new locations

• Possession Processing Services – Most require an ongoing local presence, whether it is the

customers dropping off items or personnel visiting customer sites

• Information Based Services – Export the service to a local service factory – Import customers – Export the information via telecommunications and transform it


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Export the Service Concept

• Firm establishes a service factory in another country either alone or in partnership with local suppliers.

• Objective : Reach out to new customers, or to follow existing corporate or individual customers to new locations.

• Examples : Chain restaurants (Planet Hollywood) Hotels,Car rental firms,fitness clinics (Gold Gym of Arnold Schwarzneggar), Banks,

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Import Customers- Medical Tourism

• Customers from other countries are invited to come to a service factory with distinctive appeal or competencies in the firm’s home country. E.g.

• A No. of patients from USA & Europe travel to India for an array of medical interventions by Western trained specialists,ranging from hip replacements to cosmetic surgery.

• Even after paying for travel & accomodation,the total cost usually amounts to far less than patients would pay in their home countries,with the added attraction of recuperating under vacation like conditions at an often exotic location.

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Transport Customers to new locations

• Embarking on international service takes the form of opening new routes to desired destinations e.g. passenger transportation

• This strategy is generally used to attract new customers,in addition to expanding choices for existing customers.

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Possession processing services• Providing service to the

customers physical possession. e.g. repair & maintenance, freight transport & warehouseing

• 2 Approaches– Expert personnel flown in

from a base in another country when the item to be serviced is immovable. E.g. machinery,medical equipment

– A transportable item or equipment may be shipped to a foreign service centre for repair, maintenance, or upgrade. e.g. electronic measurement Instruments

MRO’s by Lufthansa Technik in JV with GMR group

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Information based services

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Export the service to a local service factory• The service can be made available in a local

facility that customers visit. e.g.• A film made in Bollywood is screened in movie

theaters around the world.• Professional courses designed in one country

are offered by approved institutions/ teachers elsewhere. (Chartered Financial Analyst of USA)

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Import Customers

• Customers may travel abroad to visit a specialist facility, in which case the service takes on the characteristics of a people processing services.For instance, a large no. of indian students study at US,Canada & Australia universities.

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Export the information via telecommunications & transform it locally

• The data can be downloaded from another country for physical production in local markets(even by customers themselves), rather than ship object based services stored on physical media such as CD’s or DVD’s from their country of origin.

• A local presence may be necessary – To Build personal Relationship– Conduct on-site research as in

consulting or auditing.– Fulfill legal requirements (News

Channels -Star Ananda,a 26:74 JV between News Corp & ABPLtd.)

• Bank customers requiring cash/making payment in another country need only visit a local ATM connected to a global network such as VISA

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Barriers to International Trade in Services

• Operating successfully in international markets remains difficult for certain services despite efforts of the WTO and control relaxations

• Barriers include – Refusal by immigration offices to issue work permits – Heavy taxes on foreign firms– Domestic preference policies – Legal restrictions – Lack of broadly-agreed accounting standards – Cultural differences (esp. for entertainment industry)

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Forces for Internationalization

Market drivers

Competition drivers

Technology drivers

Cost drivers

Government driversImpact will vary by service type (people, possessions, information)

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Modes of Internationalization• Export information-based services

– transmit via electronic channels – store in physical media, ship as merchandise

• Use third parties to market/deliver service concept

– licensing agents– brokers– franchising– alliance partners– minority joint ventures

• Control service enterprise abroad

– direct investment in new business– buyout of existing business

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Impact of Globalization Drivers on Different Service Categories

Globalization Drivers

People Processing

Possession Processing

Information Based

Competition Simultaneity of production and consumption limits leverage of foreign competitive advantage, but management systems can be globalized

Technology drives globalization of competitors with technical edge.

Highly vulnerable to global dominance by competitors with monopoly or competitive advantage in information.

Market People differ economically and culturally, so needs for service and ability to pay may vary.

Level of economic developments impacts demand for services to individually owned goods

Demand for many services is derived to a significant degree from economic and educational levels.

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Impact of Globalization Drivers on Different Service Categories

Globalization Drivers

People Processing

Possession Processing

Information Based

Technology Use of IT for delivery of supplementary services may be a function of ownership and familiarity with technology.

Need for technology- based service delivery systems depends on possessions requiring service and the cost trade-offs in labor substitution

Ability to deliver core services through remote terminals may be a function of investment in computerization etc.

Cost Variable labor rates may impact on pricing in labor-sensitive services.

Variable labor rates may favor low-cost locations.

Major cost elements can be centralized & minor cost elements localized.

Government Social policies (e.g., health) vary widely and may affect labor cost etc.

Policies may decrease/increase cost & encourage/discourage certain activities

Policies may impact demand and supply and distort pricing