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Module 1: Service Distribution and Pricing Strategies

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Distributing Services through Physical and Electronic Channels - Part 1

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MODULE OVERVIEW

Know the four key questions that form the foundation of any service distribution strategy: What, How, Where and When.
Describe the three interrelated flows that show what is being distributed.
Be familiar with how services can be distributed and distinguish between distributing core and supplementary services.
Recognize the issues of delivering services through electronic channels and the factors that have fueled the growth of service
Understand the determinants of customers’ channel preferences.
Know the importance of channel integration.
Describe the where (place) decisions of physical channels and be familiar with the strategic and tactical location considerations.
Describe the when (time) decisions of physical channels and the factors that determine extended operating hours.

WHAT IS BEING DISTRIBUTED?

Information and promotion flow

Distribution of information and promotion materials relating to the service offer.
The objective is to get the customer interested in buying the service.


Negotiation flow

Reaching an agreement on the service features and configuration, and the terms of the offer so that the purchase tip contract can be closed.
The objective is often to sell the right to use service (e.g., sell a reservation or a ticket).


Product flow

Many services, especially those involving people processing or possession processing, require physical facilities for delivery.
Here, distribution strategy requires development of a network of local sites.
For information-processing services product flow can be via electronic channels, employing one or more centralized sites.
Example, Internet banking and distance learning.



HOW SHOULD A SERVICE BE DISTRIBUTED?

Does the service or the firm’s positioning strategy require customers to be in direct physical contact with its personnel, equipment, and facilities? If so,

Do customers have to visit the facilities of the service organization, or
Will the service organization send personnel and equipment to customers’ own sites?
Alternatively, can transactions between provider and customer be completed at arm’s length through the use of either telecommunications or physical channels or distribution?
Should the firm maintain just a single outlet or offer to serve customers through multiple outlets at different locations?


Options for service delivery

Customer goes to service organization
Service organization comes to customer
Customer and service organization transact remotely



FACTORS THAT ATTRACT CUSTOMERS TO USE ONLINE SERVICES

 
Ease of search (obtaining information and searching for desired items or services).
A broader selection.
Potential for better prices.
24/7 service with prompt delivery. (This is particularly appealing to customers whose busy lives leave them short of time).

CHANNEL PREFERENCES AMONG CUSTOMERS
Recent research has identified the following key drivers for channel preferences among customers:

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 especially information, reservations, and problem-solving.
For complex and perceived high-risk services, people tend to rely on personal channels.
Customers are happy to apply for credit cards using remote channels,but prefer a face-to-face transaction when obtaining a mortgage.
Individuals with higher confidence and knowledge about a service and/or the channel are more likely to use impersonal and self-
service channels.
Customers with social motives tend to use personal channels

CHANNEL INTEGRATION

New delivery channels have created an inconsistent and frequently disjointed experience for many customers.
Customers take advantage of price variation among channels and markets, a strategy known as channel arbitrage.
Service providers need to develop effective pricing strategies that will enable them to deliver value and capture it through the appropriate channel

WHERE SHOULD A SERVICE FACILITY BE LOCATED?

Frequently, a two-step approach is used;

Strategic location considerations: To help identify the general types of location a service firm should aim for.
Tactical considerations: To choose between specific sites of a similar type that fit the overall location strategy.



WHEN SHOULD A SERVICE BE DELIVERED?

For some highly responsive service operations, the standard has become 24/7 service — 24 hours a day, 7 days a week, around Key factors determining the opening hours of a service facility include
Customer needs and wants, and
The economics of opening hours (whereby the fixed costs of the facility and the variable costs of extending opening hours (including labor and energy costs) are weighted against the expected contribution generated from incremental sales and potential operational benefits.

CONCLUSION

In this module we have discussed about responses to the four questions- What ?,How ?,Where ?,When ? that form the foundation of any service distribution strategy.
The customer’s service experience is a function of how the different elements of the Flower of Service are distributed and delivered through selective physical and electronic channels.