Chapter 14: Delivering Service Through Intermediaries and Electronic Channels

1. Chapter 14: Delivering Service Through Intermediaries and Electronic Channels “When a McDonald’s franchisee cooks the McNuggets too short a time, the customer’s perception of the company – and of other McDonald’s franchisees – is tarnished” “People claim that the BBQ at Corky’s in Memphis is far better than the one in Little Rock.” Challenge: Intermediaries are necessary, but may contribute to Provider .

2. Why Service Intermediaries? Company goal: profit Customers seek: value Service Intermediaries: provide ______ and _______ convenience for the customer (value) Specialization, expertise

3. Service Distribution Services are delivered directly from service producer to the consumer: ___________________ Service intermediaries: • Co-produce the service, fulfilling promises to customers: • Make services locally available: _________ • “Glue” between brand or company name and customers

4. Delivering Service Through Intermediaries and Electronic Channels Service Provider Participants • service principal (originator) • creates the service concept • _______________________ • service deliverer (intermediary) • key function: provide ____ and _____ convenience for the customer • ______________________________________

5. Key Issues Involving Intermediaries • conflict over objectives and performance: quality vs. profit • conflict over costs and _______: Delta changes the commission paid to its travel agencies from 10%commission on total airfare to $50 or less fee per ticket • control of service ________: shoddy performance, unsanitary conditions by one outlet can negatively affect reputation ofservice principal • empowerment versus _______: franchisee’s desire to customize McDonald’s burgers; principal demands rigid controlvs. intermediary desires independence • channel ambiguity: role of company vs. intermediary: Who determines standards for service delivery?

6. Direct or Company-owned Channels Advantages: Complete control over outlets Company owns the customer relationship Disadvantages: Company bears all the financial risk Large companies are rarely experts in local markets

7. Services Intermediaries ____________ – service outlets licensed by a principal to deliver a unique service concept it has created or popularized • e.g., Jiffy Lube, H&R Block, McDonald’s Benefits and Challenges in Franchising (Table 14.1) – EX: For franchiser: leveraged business format for greater expansion and revenues vs. difficulty in maintaining and motivating franchisees

8. Franchising (Table 14.1) Benefits for Franchisers ▪ Leveraged business format for greater expansion and revenues ▪ Consistency in outlets ▪ Knowledge of local markets ▪ Shared financial risk and more working capital Benefits for Franchisees ▪ An established business format ▪ National or regional brand marketing ▪ Minimized risk of starting a business Challenges to Franchisers ▪ Difficulty in maintaining and motivating franchisees ▪ Highly publicized disputes and conflict ▪ Inconsistent quality ▪ Control of customer relationship by intermediary Benefits for Franchisees ▪ Encroachment ▪ Disappointing profits and revenues ▪ Lack of perceived control over operations ▪ High Fees

9. Services Intermediaries Agents and brokers – _______________________________ ______________________________________________ Agents: work for their principals continuously, rather than just a single deal Brokers: paid by the party that hired them Table 14.2Benefits: reduced selling and distribution costs, possession of special knowledge and skills, wide geographical representation, customer choice Challenges: loss of control over pricing; representation of multiple service principals

10. Services Intermediaries Electronic channels – all forms of service provision through television, telephone, interactive multimedia, and computers e.g., ATMs, university video courses, TaxCut software

11. Benefits and Challenges in Electronic Distribution of Services Benefits: • Consistent delivery for standardized services • Low cost: efficient delivery and interaction-_____ ________________________________________ • Customer convenience-_____________________ • etc

12. Benefits and Challenges in Electronic Distribution of Services Challenges • Customers are active, not passive, and must be enticed: _____________________________________________ • Inability to customize with highly standardized electronic services: _________________________________ • Requires changes in consumer behavior: _____________ ___________________________________________ • Security concerns: _____________________________ • etc.

13. Strategies for Effective Service Delivery through Intermediaries • Control strategies: service principal creates standards for revenue and performance standards, measure results, and compensates accordingly Ex: Monitoring sales and performance of car dealerships: __________________________________ Service principal must be the most powerful channel member; _____________________________________

14. Strategies for Effective Service Delivery through Intermediaries • Empowerment strategies: service principal provides information, research, or processes to help intermediaries perform well in service Ex: Principal conducts research on service quality and shares this information with intermediaries Service principal is new or lacks power to govern the channel using control strategies.

15. Strategies for Effective Service Delivery through Intermediaries • Partnering strategies: has highest potential for effectiveness; involves partnering with intermediaries to learn together about end customers, set specifications, improve delivery, and communicate honestly • Consulting intermediaries and asking for their opinions and views before implementing policy