SERVICE MANAGEMENT, T.Y.

BBA(SEM V), VNSGU-SURAT

CHAPTER 4

SERVICE PLACE

MEANING
Distribution includes the flow of services from service provider to customer and can be performed by
service providers themselves or by a service intermediary, such as a travel agent booking tickets on
major airlines for customers.
The network through which distribution takes place is known as the distribution channel and it consists
of independent organizations involved in the process of making a service available for consumption by
customers.

SERVICE DISTRIBUTION DECISIONS

Service distribution involves 3 most important decisions. They are;
1. Location of Services
2. Channel of Distribution
3. Coverage of service

1. LOCATION OF SERVICE:

The most important decision element in the distribution strategy is about the location of the service.
Location must be such that it attracts the maximum number of consumers. There are 2 problems in
deciding about the location;
1. The inseparability characteristic of service such as those of doctors, teachers, consultants,
mechanics etc. possess a distribution constraint (limitation) since they are able to serve only a
limited, localised market.
2. The other characteristic of services which affects the distribution strategy is the fixed location
of services such as universities, restaurants, and hospitals which necessitates the customer to
go to the service location rather than vice-versa.
In deciding where to locate the service, the following questions must be raised as they would help in
arriving at the right decision;
i) How important is the location of the service to the customers? Will an inconvenient location result
into purchase being postponed or being taken over by a competitor? The answer is 'yes' in case of
services such as dry cleaning, fast food outlets where convenience is the most critical factor. The
answer is no in case of services provided by doctors and beauty parlors, where the customer's
involvement with the provider of the service is very high and the decision is made on the basis of
reputation, competence and past experience.
ii) Is the service, technology-based or people-based? How flexible is the service? Can the equipment
and people be moved to another location without any loss in quality of service?

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iii) How important are complementary services to the location decision? Can the customers be
increased by locating services where complementary products or services already exist? Garages and
mechanic shops located next to petrol stations are examples of complementary location decision.
There are many important factors to be considered in decisions about service location:
 Service inseparability
 Perishability
 The role of the consumer as co-producer of the service
 Customer needs and wants
 Importance of geographical location as part of the service
 Target markets
 Proximity(Nearness)
 Image
 Parking facility
 Convenience
 Accessibility to other services

2. CHANNEL OF DISTRIBUTION:

The second decision variable in the distribution strategy is whether to sell directly to the customers or
through intermediaries. In case of services which are inseparable form the performer, direct sale is the
only possible way of reaching the consumer. In case of other services such as hotels, airlines, property,
life insurance, they may operate through middlemen.
Distribution in services can be broadly classified into two categories- direct sales and sales via
intermediaries. The following table provides examples of both of these categories:

Direct Sales Sales via Intermediaries

Electronic channels e.g., Agents & Brokers e.g., travel /

ATMs, Online courses insurance agents
Franchisee e.g., McDonald's

3. COVERAGE:

The third decision variable in the distribution strategy is how to provide the service to a maximum
number of customers in the most cost-effective manner (if the service is not of the kind that is
inseparable). Some of the recent innovations in the area are rental or leasing, franchising and service
integration.

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METHODS / CHANNELS OF DISTRIBUTION IN SERVICE

Services can be distributed through direct channel or through intermediaries. The following figure
shows different types of channels used by service firms. Service Principal means the Service Provider
company.

FLOWCHART OF SERVICES DISTRIBUTION

SERVICE PRINCIPAL SERVICE CONSUMER

SERVICE PRINCIPAL AGENTS/BROKERS SERVICE CONSUMER

SERVICE SERVICE
PRINCIPAL AGENTS FRANCHISER CONSUMER

SERVICE AGENTS ELEC.CH SERVICE

FRANCHI.
PRINCIPAL CONSUMER

From the above figure we can say that there are two types of channels in service business;
1. Direct channel
2. Sales through intermediaries

1) DIRECT CHANNEL
Direct sales has specific marketing advantages as they help in maintaining better control over how the
service is provided or performed and also in obtaining direct feedback from customers. There are
obvious problems also in direct sales, like; problems of expanding the business and coping with high
workloads where the services of a particular individual may be in demand or direct sale means limited
geographic market coverage.

a) Direct Sales Through Electronic Channel: To overcome such problems companies are finding out
possibilities of direct sales through electronic channels.
• Examples of Electronic channels are television, telephone, internet, e-commerce and so on.
• Electronic channels are becoming more and more popular in the distribution of services.
• Electronic channels do not require direct human-to-human interaction.
Electronic channels are useful to service organizations in many ways:
Consistent delivery for standardized services Wide distribution
Low cost Customer choice and ability to customize
Customer convenience Quick customer feedback
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Challenges associated with the use of using Electronic channels for the distribution of services are:
• No control on electronic environment.
• Inability to customize.
• Customer involvement.
Electronic channels of delivery often make use of self-service technologies;

Self-Service Technologies (SSTs):

 One major change that has occurred in recent times is the replacement of service employees by
self-service technologies. Self Service technologies(SSTs) are technological interfaces that allow
customers to produce services independent of direct service employees.
 SSTs are commonly used in many service industries as they benefit both the customers(quicker
service, more convenient and consistent service quality) and company (greater reach and lower
service delivery costs per customer). This fundamental shift in service delivery mechanisms
does not mean that companies can afford to now overlook customer service.
 SSTs are technological platform allowing customers to produce services without involvement of
direct service employee. Self-Service technologies are replacing many face-to-face service
interactions with the intention to make service transactions more accurate, convenient and
faster.
 Automatic Teller machines (ATMs), Self pumping at gas stations, Self-ticket purchasing on the
Internet and Self-check-out at hotels are some of the examples of self-service technologies.

Customers love SSTs when;

1. SSTs help them out in different situations. For example, when the customer requires to
withdraw cash during night time in emergency.
2. SSTs are better than the interpersonal (face to face interaction) alternatives and save the
customers time, money and psychological costs. The internet allows customers to shop at any
time and complete transactions more quickly than they would in person.
3. when SSTs work as they are expected to work then the customers are impressed

Customers hate SSTs;

1. when they fail
2. when they are poorly designed technologies that are difficult to use for the customers.
3. when the customer messes up. Customers dislike using technologies they feel they cannot
perform adequately. Although they feel partial responsibility, they will stay away from using
them in future.
4. when technology or process fails, SSTs hardly provide ways to recover the service on the spot.
In such cases, customers have to call or visit the company, in particular what they were trying
to avoid by using the self service technology.

b) Franchising: The other recent trend in distribution of services is that of franchising. Franchising is
the granting of rights to another person or institution to exploit a trade name, trade mark or product in
return for a lump-sum payment or a royalty.

Franchise has following features:

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a. Ownership of name, idea, process or equipment and goodwill by one person.

b. the owner grants a license to another person and permits him to use his brand name, idea, process,
equipment and goodwill associated with his rights.
c. the regulations related to operation of the business is included with the license agreement.
d. the licensee has to make the payment in the form of royalty for using the rights of doing business as
per the agreement.

Examples: In service Industries franchises operate in the area of hotels, restaurants, car rentals, fast
food outlets, beauty parlours, pest control, travel agencies, office services, packers and movers,
couriers, business centres, etc. (eg, Shahnaz Hussain Beauty Parlors)

Advantages:
1. There are usually training materials already developed, for both franchisees and their workers.
2. Expansion through franchising can proceed quickly.
3. The franchiser need apply only minimal controls; it does not have to develop as large a
bureaucracy to govern the business.
4. A franchiser's overhead is lower because the franchisee does hiring, collections, local
promotions, etc.
5. There are economies of scale to advertising and promotion.
6. The franchisee is responsible for most of the cost control.
7. There is often less risk attached to franchise expansion than with the creation of new service
ventures that may not have been tested as well.
8. Franchises usually have a better record for staying viable business than the typical service
business startup.
9. Local operators are committed because they have their own capital at risk.
10. The service tasks, service standards, and service delivery systems are usually well defined and
structured, and thus they work well. They have been prototyped, and many of the potential
problems with the operations have already been identified and ironed out.

Franchising also has limitations;

1. A poor operation run by a franchisee will carry the organisation’s name and reputation down.
2. The franchisor makes less profit through this system of distribution than theywould make
through direct expansion.
3. Franchisees may not get profits as expected and hence they may become demotivated. This can
result into downfall in business.

2) SALES VIA INTERMEDIARIES

There are two types of intermediaries in service business. They are agents and brokers.
• An agent is an intermediary who is authorized to negotiate on behalf of the service principal
with the customers.
• Brokers are the middlemen who bring buyers and sellers together and assist in negotiation.
• Agents and Brokers are different intermediaries , both of them perform similar functions.
Service companies enjoys following benefits in using Agents and Brokers for service distribution:
• Low selling and distribution costs.
• Specialized skills and knowledge of Agents and Brokers.
• Wider representation in the market.
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• Knowledge of the local market.

• Customer choice.
However there are some Challenges that a service organization has to face in using Agents and Brokers
as intermediaries. These are:
• Loss of control in pricing and other aspects of marketing.
• Some Agents and Brokers represent multiple Service Principal and as such special focus can’t be
provided to any of the Service Principals.

ROLE OF CUSTOMERS IN SERVICE DELIVERY

In many services, customers have to remain present where the service is to be delivered. For example,
during operation, patients have to remain present. Customers can talk with the employees present
there.
Example: In a classroom, students (customers) are sitting in the college interacting with the professor
and other students as they consume the educational services. Since these customers are present
during service production, customers can help in producing services or customers can get detract from
the successful delivery of the service. for example, if students are well prepared before the lecture,
then service can be successful easily. But if students are not prepared and keep talking with other
students then service can fail.

The Importance of Customers in Service Delivery

In many situations, employees, customers and even others in the service environment interact with
each other to produce the final service outcome.
Customers who are not prepared about what they want to order can take a lot of time of the salesman
in the retail shop. The level of participation of customers can be high, medium or low and it varies
across different services.
In some cases, all that is required is the customers physical presence (low level of participation), with
the employees of the firm doing all of the service production work, for example in a GAZAL concert.
The listeners must only remain present to receive the entertainment service.
In other cases, consumer participation is more required. For example, in a MALL, customers have to
move around to select the products that they like. Employees in the mall can only help them if
required.

Other customers’ influences on the service experience

There are many ways that other customers can influence the service experience. For example in a bank
there are many customers waiting in a queue. If any customer fights with the employee because he is
not satisfied with the employee, then all the other customers are also psychologically affected. Hence
other customers can affect the service outcome. Customers will notice each other because they are
close to each other. They are influenced by each others’ behavior.

Customers as a Productive Process:

In services, customers are also called "partial employees" of the organization. That means customers
help the service provider in creating the service. Example: In a MALL, customers themselves see the
product and choose them. Here the employees are not required to show the products to the
customers. Hence customers themselves produce the service without the need of service provider.

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Hence we can say that customers play a role in producing the service. hence customers are the part of
service provider. Therefore they are called partial employees.
Hence, we can say that if customers participate more, then quantity of service can be increased. And if
customers participate less, then quality and quantity is only in the hands of the service providers.

Customers as Contributors to Service Quality and Satisfaction:

Another role customers can play in services delivery is that they can create their own satisfaction and
quality of service.
Think about service such as health care, education, personal fitness, and weight loss, where the service
outcome is highly dependent on the customer’s participation. For example, if the customer wants to
lose weight, then customer himself have to work more at home and gym. Here service provider can
only guide him. Hence if customers participate more, then they themselves will be more satisfied and
the service will be a quality one.
In such types of services, if customers do not participate effectively, then the quality of the service will
be affected. Hence they might be less satisfied finally.

Customers as Competitors:
In certain services, customers perform the whole service. for example, in a mall, customers move
around, select the product and buy it. Here service providers have to play minimum role only during
the payment. Hence customers can be seen as a competitor by the service provider. The service that
had to be given by the service provider, is now produced by the customer himself. Hence he is known
as a competitor of service provider.
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