Chapter 4:
Distributing Services
Through Physical and
Electronic Channels
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 1
A Framework For Developing Effective
Service Marketing Strategies: Overview
Understanding Customer Needs, Decision Making,
and Behavior in Service Encounters
Chapter 2
Building the Service Model
Part II: Chapters 3-7
Managing the Customer Interface
Part III: Chapters 8-11
Implementing Profitable Service Strategies
Part IV: Chapters 12-15
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 1 - 44
Building The Service Model
Part II: Chapters 3-7
The Value Proposition
Develop service concept: core &
supplementary elements
Select physical & electronic
channels for service delivery
Value Exchange
Set prices with reference to
costs, competition & value
The Business Model
Educate customers & promote
the value proposition
Position the value proposition
against competing alternatives
Overview of Chapter 4
Distribution in a Services Context
Determining Type of Contact: Options for Service
Delivery
Place and Time Decisions
Delivering Services in Cyberspace
The Role of Intermediaries
The Challenge of Distribution in Large Domestic
Markets
Distributing Services Internationally
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 2
Distribution in a Services Context
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 3
Applying the Flow Model of
Distribution to Services
Distribution embraces three interrelated elements:
Information and promotion flow
o
To get customer interested in buying the service
Negotiation flow
o
To sell the right to use a service. Ex Selling club membership
Product flow
o
To develop a network of local sites. Ex Setting up e-learning center for
distribution of educational services
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 4
Information and Physical Processes of
Augmented Service Product (Fig 4.1)
Information
processes
Payment
Information
Consultation
Core
Billing
Exceptions
Ordertaking
Hospitality
Safekeeping
Physical
processes
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 6
Using Websites for Service Delivery
Information
Read brochure/FAQ; get schedules/
directions; check prices
Consultation
Payment
Conduct e-mail dialog
Use expert systems
Pay by bank card
Direct debit
Billing
Receive bill
Make auction bid
Check account status
Order-taking
Core
Exceptions
Make special requests
Resolve problems
Make/confirm reservations
Submit applications
Order goods, check status
Hospitality
Record preferences
Safekeeping
Track package movements
Check repair status
Core: Use Web to deliver information-based core services
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 7
Determining Type of Contact:
Options for Service Delivery
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 8
Six Options for Service Delivery
When, where and how to deliver the service
Availability of Service Outlets
Type of Interaction between Customer
and Service Organization
Customer goes to service organization
Service organization comes to customer
Customer and service organization
transact remotely (mail or electronic
communications)
Single Site
Multiple Sites
Theater
Barbershop
Bus service
Fast-food chain
House painting
Mobile car wash
Mail delivery
local tv station
Broadcast network
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 10
Channel Preferences Vary
among Customers
For complex and high-perceived risk services, people
tend to rely on personal channels Ex. Corporate Loan
Individuals with greater confidence and knowledge
about a service/channel tend to use impersonal and
self-service channels
Customers with social motives tend to use personal
channels
Convenience is a key driver of channel choice
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 11
Place and Time Decisions
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 12
Places of Service Delivery
Cost, productivity, and access to labor are key
determinants to locating a service facility
Locational constraints
o
Operational requirements
Airports(noise, environmental factors)
o
Geographic factors
Ocean Beach resorts
o
Need for economies of scale
Hospitals -Multiple Facilities
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 13
Places of Service Delivery
Ministores
o
Creating many small service factories to maximize geographic
coverage
ATM's
o
Operating within premises of service provider of complimentary field
Subway fast food in premises of a theater
Locating in multipurpose facilities
o
Proximity to where customers live or work
Malls located near heart of cities. Currently airports are
also preferred locaitons
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 14
Time of Service Delivery
Traditionally, schedules were restricted
o
o
o
Service availability limited to daytime, 40 to 50 hours a week
Sunday historically considered as a rest day in Christian tradition,
Saturday in Jewish tradition, and Friday in Muslim tradition
Today
o
For flexible, responsive service operations:
24/7 service24 hours a day, 7 days a week, around the
world
8-8 Banking -ICICI Bank
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 15
Delivering Services in Cyberspace
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 16
Delivering Services in Cyberspace
Developments in telecommunications and computer
technology
o
Swisstel Hotels & Resorts
Its revamped website more than doubled online revenues
within 7 months of launch
Best Rate Guarantee was a key driver of its success
o
o
o
Banking and service transactions by voice telephone
Funds transfer over mobile
mChek
Courtesy of Swissotel Hotels & Resorts
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 17
Service Delivery Innovations
Facilitated by Technology
Technological Innovations
Development of smart mobile telephones and PDAs as well as Wi-Fi
high-speed Internet technology that links users to Internet from almost
anywhere
o Voice-recognition technology
o Websites
o Smart cards
o
Store detailed information about customer
Act as electronic purse containing digital money
Increase accessibility of services
Deliver right information or interaction at right time
Create and maintain up-to-date real-time information
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 18
e-Commerce: Move to Cyberspace
Internet facilitates 5 categories of flow
o
o
o
o
o
Information
Negotiation
Service
Transactions
Promotion
Electronic channels offer complement/alternative to
traditional physical channels
Convenience (24-hour availability, save time, effort)
Ease of obtaining information online and searching for
desired items
Better prices than in many bricks-and-mortar stores
Broad selection
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 19
Role of Intermediaries
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 21
Splitting Responsibilities For
Supplementary Service Elements (Fig 4.3)
As created by
originating firm
As enhanced
by distributor
Core
Core product
As experienced
by customer
Supplementary
services(outsourcing)
Core
Total experience
and benefits
Challenges for original supplier
Act as guardian of overall process
Ensure that each element offered by intermediaries fits overall service concept
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 22
Franchising (1)
Popular way to expand delivery of effective service
concept
Franchising is a fast growth strategy, when
o
o
o
o
Resources are limited
Long-term commitment of store managers is crucial
Local knowledge is important
Fast growth is necessary to preempt competition
Study shows significant attrition rate among franchisors
in the early years of a new franchise system
o
o
One-third of all systems fail within first 4 years
Three-fourths of all franchisors cease to exist after 12 years
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 23
Franchising (2)
Disadvantages of franchising
Some loss of control over delivery system and, thereby, over how
customers experience actual service
o Effective quality control is important yet difficult
o Conflict between franchisees may arise especially as they gain
experience
o
Alternative: license another supplier to act on the
original suppliers behalf to deliver core product, for
example:
o
o
Trucking companies
Banks selling insurance products
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 24
The Challenge of Distribution in
Large Domestic Markets
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 26
The Challenge of Distribution In Large
Domestic Markets
Marketing services (i.e., physical logistics) face
challenges due to:
o
o
Distances involved (geographic areas)
Multiculturalism (especially, immigrants and indigenous people)
Large U.S. companies counter this by:
o
o
Targeting specific market segments
Seeking out narrow market niches
Serving multiple segments across a huge geographic
area is biggest marketing challenge
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 27
Distributing Services
Internationally
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 29
How Service Processes Affect
International Market Entry (1)
People processing services require direct contact with
customers
o
Export service concept
Acting alone or in partnership with local suppliers
For example, e.g., chain restaurants, hotels
o
Import customers
Inviting customers from overseas to firms home country
For example, hospitals catering to medical tourism
o
Transport customers to new locations
Passenger transportation ( expanding air, sea, rail, road
routes)
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 30
How Service Processes Affect
International Market Entry (2)
Possession processing involves services to customers
physical possessions
For example, repair and maintenance, freight transport. The spare
part can be transported to another location for repair.
Service personnel can visit customers site. Ex R & D Engineers
Information-based services include mental processing
services and information processing services
o
Export the service to a local service factory
Hollywood film shown around the world in theaters
o
o
Import customers : Student Exchange programs
Export the information via telecommunications and transform it locally
Data can be downloaded via CDs or DVDs
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 31
Barriers to International Trade
in Services
Passage of free-trade legislation is important facilitator
of transnational operations
o
Notable developments: NAFTA, Latin American economic blocs, EU
Despite efforts of WTO and GATT, operating in
international markets still difficult
o
o
o
o
o
o
o
Restrictions on international airline operating rights
Administrative delays
Limited availability of work permits
Heavy taxation
Legal restrictions
Lack of broadly agreed accounting standards
Cultural issues
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 32
Factors Favoring Adoption of
Transnational Strategies
Transnational strategy involves integration of strategy
formulation and its implementation across all countries
in which company elects to do business
Market drivers
Common customer needs
across countries
o Corporate customers seek to
standardize and simplify
suppliers used in different
countriesad agencies,
logistics suppliers
o
Fig 4.6 Courtesy of DHL International Ltd.
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 33
Factors Favoring Adoption of
Transnational Strategies
Competition drivers
o Competitors from overseas; interdependence of countries
o Firms may be obliged to follow competitors into new markets to
protect own positions elsewhere
Technology drivers
o Advances in information technologyminiaturization/mobility of
equipment, digitization of voice
Cost drivers
o Economies of scale
Lower operating costs- Ex Low cost labor in India
Government drivers
o Favorable trade policies, compatible technical standards,
common marketing regulations
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 34
Modes of Internationalization
Export information-based services
o
o
Transmit via electronic channels
Store in physical media, ship as merchandise
Use third parties to market/deliver service concept
o
o
o
o
o
Licensing agents
Brokers
Franchising
Alliance partners
Minority joint ventures
Control service enterprise abroad
o
o
Direct investment in new business
Buyout of existing business
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 35
Impact of Globalization Drivers on
Various Service Categories (1) (Table 4.2)
Globalization People processing
drivers
Competition
Market
Possession
processing
Simultaneity of
Technology drives
production and
globalization of
consumption limits
competitors with
leverage of foreign
technical edge
competitive advantage
in front stage of service
factory, but
management systems
can be globalized
Information
based
Highly vulnerable to
global dominance
by competitors with
monopoly or
competitive
advantage in
information. Eg
BBC
People differ
Level of economic Demand for many
economically and
development
services is derived
culturally, so needs impacts demand forto a significant
for service and abilityservices to
degree from
to pay may vary
individually owned economic and
goods
educational levels
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 36
Impact of Globalization Drivers on
Various Service Categories (2) (Table 4.2)
Globalization People processing
Possession
Information based
Drivers
processing
Technology Use of IT for delivery of Need for technology- Ability to deliver core
supplementary services based service delivery services through
may be a function of
systems depends on remote terminals may
ownership and familiaritypossessions requiring be a function of
with technology
service and the cost investment in
trade-offs in labor
computerization, etc.
substitution
Cost
Variable labor rates may Variable labor rates
impact on pricing in
may favor low-cost
labor-sensitive services locations
Major cost elements
can be centralized
and minor cost
elements localized
Government Social policies (e.g.,
Policies may
Policies may impact
health) vary widely and decrease/increase costdemand and supply
may affect labor cost, etc.and encourage/
and distort pricing
discourage certain
activities
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 37
Summary of Chapter 4:
Distributing Services (1)
Distribution relates to both core and supplementary services and
embraces three interrelated elements
o
Information and promotion flow, negotiation flow, product flow
Channel preferences vary among customers, options include:
o
o
o
Customers visit the service site
Service providers go to their customers
Service transaction is conducted remotely
Place and time decisions include where services should be delivered
in bricks-and-mortar context, when it should be delivered
Delivery in cyberspace is facilitated by technology and e-commerce
allows 24-hour delivery, saving time and effort
Intermediaries play roles in distributing services
o
Franchising brings both advantages and disadvantages to the firm
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 38
Summary of Chapter 4:
Distributing Services (2)
Service processes affect international market entry differently
There are different drivers of globalization of services and their
distribution
o
o
o
o
o
Market drivers
Competition drivers
Technology drivers
Cost drivers
Government drivers
People processing services, possession processing services, and
information-based services impact five groups of drivers differently
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 4 - 39
