16 Service Distribution Strategies
Dr. Jasveen Kaur
Service Distribution Strategies
Making a better service, pricing it according to the customer value concept and promoting it using a variety of communication tools are essential ingredients of a marketer‟s mix. But this is not all. The service must be available to customers for consumption in the right quantity, in right time and in the right locations. If failure occurs in making services available to customer, marketing would remain on paper. Availability and consumption go together. Thus, distribution of services is an important element of the marketingmix.(Harsh V Verma) Distribution means availability and accessibility of a service to consumers. From the customer‟s viewpoint, availability means the services are available to the consumer when he wants it. Accessibility means It is relatively easy for the consumer to conduct a transaction with a service vendor. Each service operation needs to analyze their target markets and establish operating hours that are compatible with customer availability. Operating hours are a critical distribution decision and directly impact accessibility and availability. Advances in telecommunications have made services more accessible to customers.(David L.Kurtz). Thus, distribution system may be defined as the channel, or the means used by which service provider gains access to potential buyer of service product. The aspects of service distribution are-:
· There is no actual tangible product which is being distributed.
· It involves consumer‟s movement to the service location. As the consumer is part of the service operation, the method of selling and environment within which service product is made becomes the part of the service experience.
· The intermediaries/ agents play a key role in recommending services to consumers.
· The service organization has to devise distribution strategies suiting customer coming directly, through agents or other modes.(M.K. Rampal & S.L.Gupta)
The distribution of service is more challenging than the distribution of goods due to inherent characteristics such as intangibility, inseparability, variability and perishes ability. Further service distribution becomes critical in shaping service perception because of customer participation in service production. The basic objective of distribution of service is to make services available at the right time and place accessible to consumer with ease and convenience. (K. Rama Mohana Rao)
Service Transactions
Distribution system depends upon the transactions in the service. These transactions can be broadly categorized into three groups which are as follow-:
1.Customers calling service outlets: In this transaction, customers have to go to the service outlet to avail a service. For example, theatres, health clubs etc.
2. Service firms calling customers: In such transactions, consumers need not to move from their premises whether it is home or office to avail of the service. The employees of such organization call on the customers and perform the service at the desired location. For example, postal service, security service, etc.
3. Service firms transacting with customers at an arm’s length: In such transaction, there is no need to for service providers to have personal contact and face- to- face encounters with the customers. For example, telecom services, cellular services, credit card services.(K. Rama Mohana Rao)
Distribution Strategies
Channel selection is a difficult decision. While choosing a distribution channel, the firms need to consider the intensity of market coverage. Market coverage can be achieved by following one of three strategies given below:
· Intensive distribution-: It is a strategy in which producer sells products and services at a retail and wholesale levels in a particular territory.(M.K. Rampal). This distribution makes the service available to as many as possible through a wider distribution network. It is suitable for mass consumption services such as transportation, electricity, and telecommunications.(K. Rama Mohana Rao)
· Selective distribution-: It is a strategy in which services are offered to an identified target segment through a limited number of distribution outlet selected for the purpose. This type of distribution is suitable for services such as higher and technical education, tourism and courier services
· Exclusive distribution-: It offers services to focused segments through distribution outlets established exclusively for this purpose. This distribution may be suitable for healthcare services, hospitality services, retail networks and so on.
Strategic issues in service distribution
The basic strategy issues in service distribution are two-dimensional. One is the service location and other is a service provider.
A) Service Locations
Location involves considering where to deliver the service to the customer, and whether the service organization should be single location or multiple locations. (M.K. Rampal). Where to locate a service outlet is a critical decision, which is influenced by many factors such as the target consumers, the degree of interaction required with them and accessibility. Location decisions have strategic importance because they can be used to develop a competitive advantage because it is a prime consideration in a customer‟s choice of service outlet. Following are the factors to be considered:-
1.Proximity: The location of the service should be as close to the target market as possible. The proximity of the service outlet saves time and energy costs and also develops affinity among the consumers.
2. Image: The image of the location should match the corporate image of the service company.
3. Parking facility: A service outlet without adequate parking facility is less likely to attract customers
4. Convenience: The location of service outlet should be convenient for customers, which is often measured in terms of public transport, other shopping facilities, safety and security and security.
5. Accessibility to other services: A service outlet requires a host of other services and infrastructural facilities such as electricity, telecommunications, water and sanitation. The location that provides an adequate qualitative supply of these services is more suitable for service organization.
6. Competitive advantage: The effect of the competition cannot be ignored while taking any decision in services. (K. Rama Mohana Rao)
7. Technological innovation: Number of service sectors have realized that they can gain a considerable competitive edge through changes of distribution. Use of technology in distribution provides a competitive edge(M.K. Rampal).
B) Service Providers
Service firms need to select those service providers who are capable of managing the service outlets efficiently and provide quality services to the customers. Service Firms may opt for direct distribution or private channels, or they may use both to reach target market. In case of service distribution through a middleman, there are two marketers-:
Service Principal and Service deliverer. The Service Principal is the service originator and the service deliverer is distributor. The service deliverer becomes the co-producer of the service and fulfills the promises of service principal to customers
Distribution of the Flow of Service/ Forms of Channel
There are different ways in for distribution flow of service. There are four choices available to any service providers which are as follow:
(i) Direct marketing: In it services are provided directly through the employees of service organization.
(ii) Use of one intermediary: In this option agents/ brokers are used as a distributor of the service. In these two flows are possible: direct channel and through agents.
(iii) Use of two intermediaries: In this option two types of intermediaries can be used by the company such as agents/ brokers and franchisers. In this option there are four flow of service among different parties.
(iv) Use of three intermediaries: It involves three types of intermediaries: agents/brokers, service franchisers and electronic channels. Seven distribution flows are possible with this option.
Forms of channels for distribution
A) Company- Owned Channels:- Some service company prefers to provide services directly to customers through their own channels. The service company develops national chains with multiple service outlets at various locations. Company-owned channels such as the branch network of banks, insurance companies, postal services and retail chains are common in service distribution. This type of channel offers many benefits to company in the form of control, consistency and maintenance of image.(K. Rama Mohana Rao)
Advantages of Company- Owned Channels are:
· Service delivery, quality standards are easy to maintain
· Employees own the service
· Zero gap between promise and delivery
· Flexibility in operations
· Greater control over operational processes
· Direct feedback from contact employees
· Speedy recovery for the service deficiencies
· Opportunity to establish a direct relationship with the customer
Disadvantages of Company –Owned Channels are:
· Huge investment is required
· Financial risk is more
· Market expansion is difficult
· A failure at some location can affect the whole company‟s image
· Difficult to make adjustments needed in business format for different markets
(B) Franchising: It is a type of contractual vertical marketing system that involves a continuing relationship in which a franchisor (Parent company) provides the right to use a trade mark plus various forms of management assistance in return for the payment form franchisee (the owner of the individual business unit).It is a method of expanding business rapidly with, low capital investments. (M.K. Rampal). It is multi- site distribution growth strategy in which third party agrees to establish and operate a service facility according to franchiser‟s specifications. Most franchisee contracts allow the franchiser to maintain tight controls over the franchisee‟s operation (David L. Kurtz)
Franchising is mostly used in services businesses such as educational institutions, film-processing companies, hotels and restaurants. Agreements and contracts are essential documents in franchising. Generally, agreements and contracts include a clear description of the following:
· Nature of service
· Geographic territory
· Percentage share to be paid to the franchiser on the revenue of the franchisee
· Time period of agreement
· Instructions, interactions and conditions
· Support to be provided by the franchiser
· Roles and responsibilities of the franchisee
· Rules and regulations of termination of agreement(K. Rama Mohana Rao)
Types of Franchising
There are two types of franchising which are as follow:-
(a) Product or trade name franchising -: It is a distribution contract under which a franchisor (supplier) authorizes the franchisee to sell a product line using the franchisor firm‟s trade name for purposes of promotion. It focuses on „What is sold‟. The franchisee agrees to buy from franchisor and also is bound by specific policies.
(b) Business format franchising -: This format covers the entire method for the business operations. A successful retail business sells right to operator the same business in different geographical locations. For example, McDonald, KFC are the examples of business format franchising. The focus in this format is „ How the business is run‟.(M.K Rampal)
Advantages of Franchising to Franchisor
(i) Business expansion and revenue gains: Service companies can reach more markets without much effort through franchisees. The wider distribution results in increased revenues, larger market share, brand name, recognition as well as economies of scale.
(ii) Consistency in outlets: Service companies can ensure consistency in performance of the franchisees with the help of agreement and contracts which provide standard specifications.
(iii) Knowledge of local markets: Greater reach of the market provides adequate information back through the franchisee, relating to specific issues of the local market and various dimensions of service quality.
(iv) Shared financial risk and investment burden: Franchiser‟s investment burden get reduced significantly because franchisee invest money and other resources to arrange for required equipment and personal for performing services.
Advantages of Franchising to Franchisee
(i) Minimized risk of business
(ii) Fast growth of business and learning curve
(iii) Fast build up of reputation due to joint promotion
(iv) Low stock and financial aids (M.K. Rampal)
Disadvantages of Franchising
(i) Problems in Maintaining and Motivating Franchisees: In case of outside independent operators, it is a more difficult task to motivate the employees to perform the service as per specification
(ii) Quality inconsistency may affect company image: Many a times, the quality of services offered by franchisee vary from service specifications. There is danger of losing future business due to negative market image.
(iii) Control of customer relationship by the franchisee: As the franchisees have direct contact with the customer, they build a relationship with them and have all information about them for which franchisor remain dependent upon franchisee. (K.Rama Mohana Rao)
(iv) Lower potential profits: As profits are being shared between the franchisee and franchisor, both earn less than if they operate independently owned outlets.
(v) Loss of control: It entails some loss of control over the delivery system and, thereby, over how customers experience the actual service
(vi) Fear of competition: With the passage of time franchisee gain experience, they may start their own business. They believe that they can operate the business better without constraints imposed by the agreement.(Christopher Lovelock)
(C) Agents and Brokers-: An agent is an intermediary who is authorized to negotiate on behalf of the service principal with the customers. Brokers are middlemen who bring buyers and sellers together and assist in negotiation. Although brokers and agents are two different kinds of intermediaries, both of them perform similar functions in service distribution.
Advantages of using agents and brokers
(i) Low selling and distribution cost: Agents and brokers work on commission basis. Service companies need not employ permanent sales force for the purpose.
(ii) Specialized skills and knowledge of the agents and brokers: Persons who choose to be agents and brokers generally possess specialized skills in persuading people. Service companies exploit those skills in their favor without any additional cost.
(iii) Wider representation in the market: Service companies can appoint many agents and brokers and can have a wider representation in the market. For example, LIC.
(iv) Knowledge of local markets: Agents and brokers operate within specified locations, have knowledge on various local issues and possess the talent to exploit their knowledge for making sales.
(v) Customer choice: Customer confidence will be high when they take service through a known broker or agent.(K. Rama Mohana Rao)
Disadvantages of using agents and brokers
(i) Loss of control-: There is loss of control, in pricing and other aspects of marketing when agents and brokers interfere and prevail over the producers.
(ii) Lack of focus-: Some brokers and agents , generally represent multiple service principals and special focus may not be provided to any of the service principal.
D) Electronic Channels-: Distribution of services through electronic channels without any direct human interaction because services are distributed through a service distribution system. These channels are becoming more and more popular in the distribution system. The examples of the electronic channels are television, telephone, internet and e- commerce and so on. This channel requires a pre- designed service and a system to deliver it. Delivery of services through alternate channels, like ATMs, call centers, the Internet is growing at an ever- increasing pace. The online shopping market is shared by pure players and multiple channel retailers. Pure players are companies that do not have an upfront store presence and sell products only via the internet. Multi- channel retailers, also called “bricks and clicks” retailers, supplement conventional stores with on- line services.
Advantages of Electronic Channel
(i) Quality control: Service firms can reach customers without any variation in the standard package through electronic channels.
(ii) Cost: The cost incurred for reaching each buyer is lowest through electronic media when compared to distribution through human resources.
(iii) Customer convenience: Whenever and wherever customers want the service, they can access it through the electronic media.
(iv) Distribution: Cost- effective extensive market coverage is possible through electronic channels.
(v) Customer choice: Through electronic media a wide variety of services can be offered as choices to customers.
Disadvantages of Electronic Channel
(i) Lack of customization: Adaptability to local needs is not possible through electronic channels.
(ii) Lack of security of data: Electronic channels do not ensure the security of personal data such as passwords, account number, etc.
(iii) Lack of customer involvement in service delivery: The need for customer participation is very high in case of electronic channels. Customers should know how to operate the electronic media.
Design of a Service Distribution System
A sound design of the system with poor execution will certainly yield poor or some negative result. For making the distribution system work properly following points are to be kept in mind:
(i) Align the system properly: An indirect distribution system involves service principals, intermediaries and customers. These parties have their own dimensions and goals. To make distribution effective, it is necessary to align the goals of distribution with corporate goals.
(ii) Remember each part of the sales cycle: The sales cycle of any service product has three phases: „before the sale‟, „during the sale‟ and „after the sale‟. Service companies should focus on accessibility and location to ensure that locating the service provider is convenient for the customer.
(iii) Balance retail and wholesale intermediaries: As both parties requires different skills and techniques to perform distinctive function, service companies should ensure that activities of wholesalers and retailers are balanced properly and there is no ambiguity.
- (iv) Keep the intermediaries loyal: As the image of the company depends upon the intermediaries, so select those who can deliver desired result. They should be encouraged to build loyal relation with principals through cooperation, extending support service and exercising control in service processes.
- (v) Make wholesale intermediaries effective product manager: There should be a proper delegation of work to intermediaries and they should be made responsible for the production and distribution of the service.
- (vi) Pay the price to do Multi- Marketing correctly: Multi marketing provides greater accessibility to the customer and for market expansion. It involves huge investment and cost. In order to make the distribution system effective company should use multi marketing technique and should prepare itself to incur additional cost on it.
- (vii) Control the pace of the change: The distribution system should be flexible to make it adaptable to changes in the business environment. It is necessary to restructure the intermediary relationship, time and again, and shift towards new channels.
Conclusion
The role of distribution is to make the service reach the target market. What? How? Where? When? Responses to these four questions form the foundation of any service distribution strategy. The distribution of service is a difficult proposition, due to the fact that services are intangible, inseparable and variable. In case of designing a distribution system for the service organizations, marketers face the challenge of selecting the channel of distribution and to provide the physical facilities for distribution of services. The channels of service distribution are short and simple because the services are created, sold and consumed simultaneously. In this case the direct channel is followed. When the service providers want to expand their market to other locations, they should either open the branches or use middlemen for the purpose. The major challenge faced is to provide the same quality specifications in all service outlets. The location of service outlets and the service deliverer are two critical issues in service distribution. Service distribution strategy should address the issues of place and time, and pay attention to speed, scheduling and electronic access.
Learn More:
- Rampal, M.K.,& Gupta, S.L. (2000). Service Marketing. India: Galgotia Publishing Company
- Clow, Kenneth E.,& Kurtz, David L. (2009).Services MarketingIndia: Biztantra.
- Lovelock, Christopher.&Wirtz, Jochen.&Chatterjee, Jayanta(2011). Services Marketing. India: Pearson Publications
- Rao,K. Rama Mohana (2013). Services Marketing.India:Prentice Hall.
- Verma, Harsh V.(2008). Services Marketing.India.Prentice Hall.