DELIVERING SERVICE THROUGH INTERMEDIARIES AND ELECTRONIC CHANNELS Chapter 13

1. DELIVERING SERVICE THROUGH INTERMEDIARIES AND ELECTRONIC CHANNELSChapter 13 Donna J. Hill, Ph.D. Fall 2000

2. Objectives for Chapter 13:Delivering Service through Intermediaries and Electronic Channels • Identify the primary channels through which services are delivered to end customers • Provide examples of each of the key service intermediaries • View delivery of service from two perspectives--the service provider and the service deliverer • Identify the benefits and challenges of each method of service delivery • Outline the strategies that are used to manage service delivery through intermediaries

3. Distribution---Time and Place Utility • Availability ---when • Access --- easy to conduct transaction • Operating Hours • Direct channels ---no intermediaries • Indirect channels ---

4. Service Provider Participants • service principal (originator) • creates the service concept • (like a manufacturer) • service deliverer (intermediary) • entity that interacts with the customer in the execution of the service • (like a distributor/wholesaler)

5. Functions Performed by Intermediaries • Co-producing the service • Making services locally available • Functioning as a link between the brand and the customer

6. Types of Intermediaries • Agents • selling --- contractual authority to sell • purchasing--- purchase for a buyer • facilitating --- help with marketing process • Brokers --- bring buyers and sellers together • Electronic Channels --- do not require human interaction • Franchises --- Service outlets licensed by a principal to deliver a unique service concept it had created or popularized.

7. Characteristics of Agents • A agent works for the pricipal continuously • An agent receives commissions (usually two to six percent of selling price) • An agent delivers the rights to services • An agent is entrusted with influence over prices, terms, and conditions of sale.

8. Travel Agent (selling agent)

9. Services Intermediaries • franchisees • e.g., Jiffy Lube, H&R Block, McDonald’s • agents and brokers • e.g., travel agents, independent insurance agents • electronic channels • e.g., ATMs, university video courses, TaxCut software

10. Key Issues Involving Intermediaries • conflict over objectives and performance • conflict over costs and rewards • control of service quality • empowerment versus control • channel ambiguity

11. Leverages the business format to gain expansion and revenues Maintains consistency in outlets Gains knowledge of local markets Shares financial risk and frees up capital Exhibit 13-4Summary of Benefits and Challenges for Franchisers of Service Benefits Challenges • Difficulty in maintaining and motivating franchisees • Highly publicized disputes and conflict • Possibility of inconsistent quality that can undermine the company name • Control of customer relationship by intermediary

12. Obtaining an established business format on which to base a business Receiving national or regional brand marketing Minimizing the risks of starting a business Summary of Benefits and Challenges for Franchisees of Service Benefits Challenges • Disappointing profits and revenues • Encroachment and franchise saturation • High failure rates and unfair terminations • Lack of perceived control • High fees and rigid contracts • Unrealistic expectations

13. Reduced selling and distribution costs Intermediary’s possession of special skills and knowledge Wide representation Knowledge of local markets Customer choice Exhibit 13-6Summary of Benefits and Challenges in Distributing Services through Agents and Brokers Benefits Challenges • Loss of control over pricing and other aspects of marketing • Representation of multiple service principals

14. Consistent delivery for standardized services Low cost Customer convenience Wide distribution Customer choice and ability to customize Quick customer feedback Exhibit 13-7Summary of Benefits and Challenges in Electronic Distribution of Services Challenges Benefits • Customers are active, not passive • Lack of control of electronic environment • Price competition • Inability to customize with standardized services • Lack of consistency with customer involvement • Security concerns • Competition from widening geographies

15. Measurement Review Strategies for Effective Service Delivery through Intermediaries Empowerment Strategies Control Strategies • Help the intermediary develop customer-based service processes • Provide needed support • Develop the intermediary to deliver service quality • Change to a cooperative management structure Partnering Strategies • Alignment of goals • Consultation and cooperation

16. Examples • www.garden.com • www.ticketmaster.com • www.mediconsult.com • www.priceline.com • www.schwab.com • www.starbucks.com

17. Answer these questions • Does this represent a direct or indirect channel? If indirect, which type? • Describe how each of the following reasons for channel conflict is problematic for these businesses? • conflict over objectives and performance • conflict over costs and rewards • control of service quality • empowerment versus control • channel ambiguity • What is the main benefit the business gets from using this channel? What is the main challenge?

18. Customer-Focused Distribution • Identify market segments. • Identify benefits sought by customers. • Match customer needs to channel and distribution strategies. • Manage quality control. • Manage corporate growth.