DISTRIBUTING SERVICES

THROUGH
PHYSICAL AND ELECTRONIC CHANNELS
DISTINGUISHING BETWEEN DISTRIBUTION OF SUPPLEMENTARY AND CORE
SERVICES

Distribution can relate to the core service as well to supplementary services. That's
an important distinction, as many core services require a physical location, which
severely restricts distribution. For instance, you can consume Dhaba food only at a
Dhaba style outlet, and a live performance of a show must take place at a theater.

However, many supplementary services are informational in nature and can be

distributed widely and cost-effectively via other means. Prospective Goa Holiday
customers can get information and consultation from a travel agent, either face to
face, online, by phone, or even by mail, and then make a booking through one of
these same channels.

When you look at the eight petals of the "flower of service," you can see that no
fewer than five supplementary services are information-based . Information,
consultation, order taking, billing, and payment (e.g., via credit card) can all be
transmitted using the digital language of computers.

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 new strategy
of arm's-length transactions with their customers.
 Options for Service Delivery
There are 3 types of interactions between customers and service firms

• 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.)
 Method of Service Delivery
Availability of Service Outlets

Nature of Interaction Single Site Multiple Sites

between Customer and
Service Organization
Customer goes to •Theater •Bus service
service organization
•Barbershop •Fast-food chain
Service organization •House painting •Mail delivery
goes to customer
•Mobile car wash •Auto club road service
Customer and service •Credit card company •Broadcast network
organization transact at
•Local TV station •Telephone company
arm’s length
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.

The tradition of having customers visit the service site for services that don't involve
people processing is now being challenged by advances in telecommunications
and business logistics. The result is increased availability of services delivered at
arm's length.
Service Providers Go to Their Customers

For some types of services, the supplier visits the customer. A catering company,
which provides food services to a wide array of customers, from schools and
hospitals to outdoors parties, must necessarily bring its equipment, food products,
and personnel to the customer's site, because the need is location-specific. In fact,
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 remote areas service providers often fly to visit their customers, because the latter
find it so difficult to travel. Australia is famous for its Royal Flying Doctor Service,
whose physicians fly into farms and sheep stations in the Outback.

One young veterinarian has built her business around making house calls to sick
pets. She has found that customers are glad to pay extra for a service that not only
saves them time, but is also less stressful for their pets than waiting in a crowded
veterinary clinic, full of other nervous animals and their worried owners.
The Service Transaction Is Conducted Remotely

When you deal with a service firm through remote transactions, you may never see
the service facilities or meet service personnel face to face. There tend to be fewer
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.

Repair services for small pieces of equipment sometimes require customers to ship
the product to a maintenance facility, where it is serviced and then returned.

Many service providers offer solutions with the help of integrated logistics firms
such as FedEx or UPS. These solutions range from storage and express delivery of
spare parts for aircraft (B2B delivery) to pickup of defective mobile phones from
customers' homes and subsequent return of the repaired phone to the customer
(B2C pickup and delivery).

Any information-based product can be delivered almost instantaneously through the

Internet to almost any point in the world. As a result, physical logistics services are
now competing with telecommunications services.
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; it also dramatically affects the nature of the
service experience for the customer

Banking services, for instance, can be delivered remotely via computer or mobile
phone, a voice response system, a call center, and automatic teller machines; or
face to face in a branch, or, in the case of private banking, through a direct visit to a
wealthy customer's home.
 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. For example, customers are happy to apply for credit cards using
remote channels, but prefer a face-to-face transaction when obtaining a high value
bank loan.

• Individuals with greater confidence and knowledge about a service and/or the
channel are more likely to use impersonal and self-service channels.

• Customers who look for the instrumental aspects of a transaction prefer more
convenience, and this often means the use of impersonal and self-service
channels. Customers with social motives tend to use personal channels.

• Convenience is a key driver of channel choice for the majority of consumers.

Service convenience means saving time and effort rather than saving money. A
customer's search for convenience is not just confined to the purchase of core
products but also extends to convenient times and places. People want easy
access to supplementary services, too—especially information, reservations, and
problem solving.
Service providers have to be careful when channels are priced differently—
increasingly, sophisticated customers take advantage of price variations among
channels and markets, a strategy known as arbitraging.

For example, customers can ask the expensive full-service broker for advice (and
perhaps place a small order) and then conduct the bulk of their trades via the
much lower-priced discount broker. Service providers need to develop effective
strategies that will enable them to deliver value and capture it through the
appropriate channel.
PLACE AND TIME DECISIONS

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

Deciding where to locate a service facility for customers involves very different
considerations from locating the backstage elements, where cost, productivity
access to labor are often key determinants.

In the first instance, customer convenience and preference are key. Firms should
make it should be easy for people to access frequently purchased services facing
active competition.

Examples include retail banks and fast-food restaurants.

However, customers may be willing to travel farther from their homes or workplaces
to reach specialty services.
Locational Constraints

Although customer convenience is important, operational requirements set tight

constraints for some services. Airports, for instance, are often inconveniently
located relative to travelers' homes, offices, or destinations. Because of noise and
environments factors, finding suitable sites for construction of new airports or
expansion of existing ones is a very difficult task. One way to make airport access
more convenient is to install fast rail links, such as New Delhi railway station to Delhi
airport Metro connection, London's Heathrow Express, or the futuristic 260-mph
(420-km/h) service to Shanghai's new airport, the first in the world to use magnetic
levitation technology.

A different type of location constraint is imposed by other geo­graphic factors, such

as terrain and climate. By definition, ski resorts have to be in the mountains and
ocean beach resorts on the coast.

The need for economies of scale is another operational issue that may restrict
choice of locations. Major hospitals offer many different health care services at a
single location, requiring a very large facility. Customers requiring complex, in-
patient treatment must go to the service factory, rather than be treated at home.
However, an ambulance can be sent to pick them up.
Ministores

An interesting innovation among multisite service businesses involves creating

numerous small service factories to maximize geographic coverage.

Automated kiosks represent one approach. ATMs offer many of the functions of a
bank branch within a compact, self-service machine that can be located within
stores, hospitals, colleges, airports, and office buildings.

Increasingly, firms offering one type of service business are purchasing space from
another provider in a complementary field. Perhaps you've noticed small bank
branches inside supermarkets, and food outlets such as Subway sharing space with
a movie hall.
Locating in Multipurpose Facilities

The most obvious locations for consumer services are close to where customers
live or work. Modern buildings are often designed to be multipurpose, featuring not
only office or production space but also such services as a bank (or at least an
ATM), a restaurant, a hair salon, several stores, and maybe a health club. Some
companies even include a children's day care facility to make life easier for busy
working parents.

Most major oil companies 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, vehicle supplies, food, and a selection of basic
household products.

In one of the most interesting new retailing developments, airport terminals—

designed as part of the infrastructure for air transportation services—are being
transformed into vibrant shopping malls—a big change from the nondescript areas
where passengers and their bags used to be processed
When Should Service Be Delivered?

In the past, most retail and professional services followed a traditional schedule of
being available about 40 or 50 hours a week. In large measure, this routine
reflected social norms (and even legal requirements or union agreements) as to
what were appropriate hours for people to work and for enterprises to sell things.
The situation inconvenienced working people, who had to shop either during their
lunch break or on Saturdays.

Today, the situation has changed. For some highly responsive service options,
the standard has become 24/7 service—24 hours a day, 7 days a week, around
the world.
DELIVERING SERVICES IN CYBERSPACE

Developments in telecommunications and computer technology have spurred many

new approaches to service delivery.

Not all customers like to use self-service equipment, so migration of customers to

new electronic channels may require different strategies for different segments, as
well as recognition that some proportion of customers will never shift voluntarily
from their preferred high-contact delivery environments.
THE ROLE OF INTERMEDIARIES

Many service organizations find it cost-effective to outsource certain tasks. Most

frequently, this delegation concerns supplementary service elements. For instance
despite their increased use of telephone call centers and the Internet, cruise lines
and resort hotels still rely on travel agents to handle a significant portion of their
customer interactions, such as giving out information, taking reservations, accepting
payment, and ticketing.

The core product is delivered by the originating supplier, together with certain
supplementary elements in the informational, consultation, and exceptions
categories, but delivery of other supplementary services is delegated to an
intermediary to complete the offering as experienced by the customer.

The challenge for the original supplier is to act as guardian of the overall process,
ensuring that each element offered by intermediaries fits the overall service concept
to create a consistent and seamless branded service experience.
 Splitting Responsibilities for Delivering
Supplementary Services

As created by As enhanced As experienced

originating firm by distributor by customer

Core + = Core
Franchising

Even delivery of the core product can be outsourced to an intermediary.

Franchising has become a popular way to expand delivery of an effective service
concept, embracing all of the 8 Ps to multiple sites, without the level of investment
capital that would be needed for rapid expansion.

A franchisor recruits entrepreneurs who are willing to invest their own time and
equity in managing a previously developed service concept. In return, the
franchisor provides training in how to operate and market the business, sells
necessary supplies, and provides promotional support at a national or regional
level to augment local marketing activities (which are paid for by the franchisee,
but must adhere to copy and media guidelines prescribed by the franchisor).
A disadvantage of delegating activities to franchisees is that it entails some loss of
control over the delivery system and, thereby, over how customers experience the
actual service. Ensuring that an intermediary adopts exactly the same priorities and
procedures as prescribed by the franchisor is difficult, yet it's vital to effective quality
control. 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. Franchisors control not
only output specifications, but also the appearance of the servicescape, employee
performance, and such elements as service timetables.

An alternative to franchising is licensing another supplier to act on the original

suppliers behalf to deliver the core product.
 CONCLUSION

"Where? When? How?" Responses to these three questions form the foundation
of service delivery strategy.
"Where?" relates, to the places where customers can obtain delivery of the core
product, one or more supplementary services, or a complete package. In this
chapter, we presented a categorization scheme for thinking about alternative place-
related strategies, ranging from customers coming to the service site, to service
personnel visiting the customer, and finally a variety of options for remote
transactions, including delivery through both physical and electronic channels, both
nationally and globally.

"When?" involves decisions on scheduling of service delivery. Customer demands for

greater convenience are leading many firms to extend their hours and days of
service, with the ultimate flexibility being offered by 24/7 service every day of the
year.
"How?" concerns channels and procedures for delivering the core and
supplementary service elements to customers.

Although service firms are much more likely than manufacturers to control their own
delivery systems, there is also a role for intermediaries to deliver either the core
services, as is the case for franchisees, or supplementary services, such as travel
agents.

Advances in technology are having a major impact on the alternatives available and
on the economics of those alternatives. Responding to customer needs for flexibility,
many firms now offer several alternative choices of delivery channels.
THANK YOU