CHAPTER 5: Distributing Services Through Physical and Electronic Channels

page 109

I. DISTRIBUTION IN A SERVICES CONTEXT

1. What is being distributed?
In a service context, we often don’t move physical products.
Experiences, performances, and solutions are not physically shipped and stored.
Meanwhile, informational transactions are increasingly conducted via electronic channel
In a typical sales cycle, distribution embraces three interrelated flows, which partially
address the question of what is distributed:

- 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

- Product flow—many services, especially those involving people processing (spa, nail
store) or possession processing (car maintenance), require physical facilities for
delivery. The objective is to develop a network of local sites. For information-
processing services, such as Internet banking, distance learning, broadcast news,
and entertainment, the product flow can be undertaken via electronic channels,
employing one or more centralized sites.

eg. Starbucks
1. Information and Promotion Flow
- Website and Mobile App: Provides
details on menu, promotions, and
events. The app allows online
ordering, rewards tracking, and
store locator.
- Social Media: Active presence on
Facebook, Instagram, Twitter, and
YouTube, sharing new products,
brand stories, and engaging with
customers.
- Email Marketing: Sends emails
about promotions, special events,
and new products to Starbucks Rewards members.
2. Negotiation Flow
- In-Store Consultation and Ordering: Baristas advice on drink options and
customization (e.g., sugar levels, milk types).
- Online and App Ordering: Allows pre-ordering and payment with customization
options and store pick-up.
- Loyalty Program: Starbucks Rewards lets customers earn points on purchases,
redeemable for free drinks and other perks.
3. Product Flow
- Facilities: Stores are designed to be comfortable spaces with the necessary
equipment for high-quality drinks.
- Professional Staff: Baristas are trained for excellent beverage preparation and
customer service.
- Supply Chain and Inventory Management: Ensures high-quality coffee beans and
ingredients are available globally.
- Online Services: Partnered with beFood, GrabFood for delivery, expanding service
reach and convenience.

2. DISTINGUISHING BETWEEN DISTRIBUTION OF SUPPLEMENTARY AND CORE

SERVICES.
2.1. SUPPLEMENTARY AND CORE SERVICES
- Core services for people processing and possession processing services require
physical locations.
- Core services for mental stimulus processing and information processing can be
distributed electronically.
- Supplementary services can be tangible or intangible in nature; can be distributed
widely and cost-effectively via nonphysical channels.
- Telephone
- Internet
2.2. RELATION OF DISTRIBUTION FLOW
The flow perspective on what is distributed can relate to the core service as well as to
supplementary services and can be mapped back to the “flower of service”. (FIGURE 5.1
page 111: Information and Physical Processes of the Augmented Service Product) Chapter
4 có nói rõ
- Information Flow: This flow focuses on the exchange of information between the
service provider and the customer. It encompasses the information petal (providing
product details, instructions, etc.) and potentially the consultation petal (offering
advice, answering questions).
- Negotiations Flow: This flow deals with reaching an agreement on the service itself.
It primarily relates to the order-taking petal (selecting service options, customizing
the service) and might also involve the billing and payment petal (negotiating
discounts, payment terms).
- Products Flow: This flow deals with the tangible or intangible elements delivered as
part of the core service. It encompasses the remaining petals (exceptions,
safekeeping, hospitality) and the core service itself. Let's break these down
further:
● Exceptions - Handling situations where things don't go according to
plan (e.g., product replacements, refunds).
● Safekeeping - Taking care of customer belongings during service
delivery (e.g., storing luggage at a hotel).
● Hospitality - Creating a welcoming and comfortable environment for
the customer (e.g., friendly greetings, comfortable seating).
● Core Service - The fundamental service offered (e.g., cleaning a car,
providing legal advice).
- Information, consultation, order-taking, billing, and payment can all be transmitted
using the digital language of computers.
- Information: You visit an online store's website. The website displays product
information (descriptions, specifications, images) using digital code that your
computer interprets and displays visually.
- Consultation: You might utilize a virtual assistant or chatbot on the website to
ask questions about products, sizing, or compatibility. These interactions
involve sending and receiving text messages, which are essentially digital
code understood by the computer systems behind the scenes.
- Order-taking: Once you've chosen your items, you add them to your online
shopping cart. This action involves sending digital signals from your computer
to the website's server, indicating your chosen products and quantities.
- Billing: During checkout, you enter your shipping and billing information. This
data is again transmitted digitally from your computer to the website's server.
- Payment: You choose a payment method, like a credit card. The website
securely transmits your encrypted payment information to the payment
processor. This secure transmission relies on complex digital protocols and
encryption to safeguard your financial details.

- Even service businesses that involve physical core products, such as retailing and
repair, are shifting delivery of many supplementary services to the Internet, closing
physical branches, and relying on speedy business logistics to enable a strategy of
arm’s-length transactions with their customers.
- Thế Giới Di Động (TGDĐ), one of Vietnam's largest mobile phone and
electronics retailers. tham khảo
- Shifting supplementary services online:
- Product research and
reviews: TGDĐ's website
allows customers to
research products online,
read reviews, and compare
specifications before visiting
a store (or even making a
purchase online).
- Virtual consultations:
TGDĐ offers online chat
support and phone
consultations with product
specialists, allowing customers to get expert advice without
physically visiting a store.
- Closing physical branches: The business results for October just
announced by Mobile World Investment Corporation (MWG) reveal
that the company will consider closing about 200 stores in the last
months of 2023. This allows them to concentrate resources on their
online presence and optimize their physical footprint.
- Speedy business logistics: TGDĐ offers various delivery options,
including same-day delivery for certain items, in-store pickup of online
orders, and home appliance installation services. This efficient
logistics network enables them to fulfill online orders quickly and
conveniently.
 - Arm's-length transactions: By offering comprehensive online
resources, support, and fulfillment options, TGDĐ empowers
customers to complete transactions with minimal in-person interaction.
This allows for a more streamlined and potentially more cost-effective
business model for TGDĐ.
- Impact: This shift has led to several outcomes:
● Increased online sales: TGDĐ has seen significant growth in
online sales, demonstrating the customer convenience and
effectiveness of their online services.
● Improved customer experience: By offering online resources
and support, TGDĐ empowers customers to make informed
decisions and receive assistance remotely.
● Operational efficiency: Consolidating physical locations and
leveraging online platforms can streamline operations and
potentially reduce overhead costs.
- The distribution of information, consultation, and order-taking (or reservations and
ticket sales) has reached extremely sophisticated levels in some global service
industries, requiring a number of carefully integrated channels targeted at key
customer segments.

II. DISTRIBUTION OPTIONS FOR SERVING CUSTOMERS: DETERMINING THE

TYPE OF CONTACT
1. How should services be distributed?
Here, the key question is:
1. Does the service or the firm’s positioning strategy require customers to be in
direct physical contact with its personnel, equipment, and facilities?
2. Do customers have to visit the facilities of the service organization, or will the
latter send personnel and equipment to customers’ own sites?
3. Can transactions between provider and customer be completed at arm’s
length through the use of either telecommunications or physical channels of
distribution?
2. Distribution Options for Serving Customers
- Customers visit service site: Convenience of service factory locations and operational
schedules important when customer has to be physically present.
- Service providers go to customers
- Unavoidable when the object of service is immovable.
- More expensive and time-consuming for service providers.
- Service transaction is conducted remotely: Achieved with help of logistics and
telecommunications. A customer may never see the service facilities or meet service
personnel face-to-face when dealing with a service firm through remote transactions.

3. Six Options for Service Delivery

- TABLE 5.1 Six Options for Service Delivery

TABLE 5.1 Six Options for Service Delivery

NATURE OF INTERACTION AVAILABILITY OF SERVICE OUTLETS

 BETWEEN CUSTOMER AND
SERVICE ORGANIZATION SINGLE SITE MULTIPLE SITES

Theater Car rental chain

Customer goes to service organization Barbershop Fast-food chain
Service organization comes to House painting Mail delivery
customer Mobile car wash

Customer and service organization

transact remotely (mail or electronic Credit card company Broadcast network
communications) Local TV station Telephone company

1. Customers Visit the Service Site

- The convenience of service factory locations and operational schedules assume
great importance when a customer has to be physically present—either throughout
service delivery or even just to initiate and terminate the transaction.
- Elaborate statistical analysis, in the form of retail gravity models, is sometimes used
to aid decisions on where to locate supermarkets and similar large stores relative to
prospective customers’ homes and workplaces.
- Traffic and pedestrian counts help to establish how many prospective customers
pass by certain locations in a day. Construction of an expressway or the introduction
of a new bus or rail service may have a significant effect on travel patterns and, in
turn, determine which sites are now more desirable—and which are less so.

2. Service Providers Go to Their Customers

- Going to the customer’s site is unavoidable whenever the object of the service is
some immovable physical item, such as a tree to be pruned, installed machinery to
be repaired, or a house that requires pest-control treatment.
- In other instances, going to the customer is optional. Because it’s more expensive
and time consuming for the service firm to send personnel and their equipment to
travel to the customer rather than vice versa, the trend has been toward requiring
customers to come to the service provider instead
- In general, service providers are more likely to visit corporate customers at their
premises than to visit individuals in their homes, reflecting the larger volume
associated with business-to-business (B2B) transactions. However, there may be a
profitable niche in serving individuals willing to pay a premium for the convenience of
receiving personal visits.

3. The Service Transaction Is Conducted Remotely

- When you deal with a service firm through remote transactions, you may never see
the service facilities and meet service personnel face-to-face. There tend to be
service encounters, and those encounters that you do have with service personnel
are more likely to be made via a call center or, even more remotely, by mail or email
- Any information-based product can be delivered almost instantaneously through the
Internet to almost any point on the globe. As a result, telecommunications services
are now directly competing with physical logistics services.

4. Channel Preferences Vary among Consumers

The use of different channels to deliver the same service not only has different cost
implications for a service organization, but it also drastically affects the nature of the service
experience for the customer.
Recent research has explored how customers choose among personal, impersonal, and
self-service channels and has identified the following key drivers:
- For complex and high-perceived risk services, people tend to rely on personal
channels.`
- eg: Imagine buying a house. It's a big decision with many details. Most people
would prefer a real estate agent (personal) to guide them through the process
rather than relying solely on a website (impersonal).
- Individuals with higher confidence and knowledge about a service and/or the channel
are more likely to use impersonal and self-service channels
- eg: You're comfortable using a bank's mobile app (self-service) to transfer
money because you understand how it works (high knowledge). But for
complex and high-perceived risk services like I said before, like a complex
financial product like investing, you might seek a financial advisor's help
(personal) for better guidance.
- Customers who look for the functional aspects of a transaction prefer more
convenience. This often means the use of impersonal and self-service channels.
Customers with social motives tend to use personal channels.
- eg: For functional aspects like buying train tickets, customers would prefer
self-service channels but for social motives such as counseling, customers
tend to use personal channels by visiting the facility.
- Convenience is a key driver of channel choice for the majority of consumers. Service
convenience means saving time and effort rather than saving money.
- eg: Most people would rather book a movie ticket online (self-service) than
wait on hold to talk to someone (personal). Saving time and effort
(convenience) is a bigger driver than potentially finding a cheaper ticket price.
Service providers have to be careful when channels are priced differently—increasingly,
sophisticated customers take advantage of price variation among channels and markets, a
strategy known as channel arbitrage.