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Module 1: Service Distribution and Pricing Strategies

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Distributing Services through Physical and Electronic Channels - Part 2

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MODULE OVERVIEW

Understanding the role, benefits, and costs of using intermediaries in distributing services.
Know why franchising is a common way of delivering services to end-users.
Understand the challenges of distributing services in large domestic markets.
Be familiar with the forces that drive service firms to go abroad.
Appreciate the special challenges of distributing services internationally.
Understand the key barriers to international trade in services.
Explain the determinants of international market entry strategies.

THE ROLE OF INTERMEDIARIES
Having discussed what and how, of distribution let us see

Who should be involved in delivering which parts of the service (i.e., information, negotiation, and the core and remaining supplementary services) to the customer?
Should a service organization deliver all aspects of its service itself?
Should it involve intermediaries to take on certain parts of service delivery?
Many service organizations find it cost-effective to outsource certain aspects of distribution. (i.e.supplementary service elements)

Benefits and Costs of Alternative Distribution Channels

How should a service provider work in partnership with one or more intermediaries to deliver a complete service package to customers?
Using Flower of Service framework we show how the core product and certain supplementary elements such as information, consultation, are delivered by the original supplier.
Delivery of other supplementary services is a delegated to an intermediary to complete the offering as experienced by the customer.
The role and value-add (i.e., benefits) and costs of every intermediary has to be carefully considered when designing a firm’s distribution strategy.
Many service firms have achieved brand equity by migrating their customers and sales to lower-cost channels to remove intermediaries, a process also called disintermediation.

FRANCHISING

According to the International Franchise Association franchise as an agreement or license between two legally independent parties which gives:

a person or group of people (franchisee) the right to market a product or service using the trademark or trade name of another business.
the franchisee the right to market a product or service using the operating methods of the franchisor;



MASTER FRANCHISING

Because growth is very important to achieve an efficient scale, some franchisors adopt a strategy known as “master franchising”
It involves delegating the responsibility for recruiting, training, and supporting franchisees within a given geographic area.
Master franchisees are often individuals who have already succeeded as operators of one or several individual franchise outlets.

THE CHALLENGE OF DISTRIBUTION IN LARGE DOMESTIC MARKETS

Physical logistics: Becomes more challenging for many types of services, because of the distances involved and the existence of multiple time zones.
Multiculturalism: Due to growing proportion of immigrants and the presence of indigenous peoples.

FACTORS FAVORING ADOPTION OF TRANSNATIONAL STRATEGIES

Several forces or industry drivers influence the trend toward globalization and the creation of transnationally integrated strategy.

Market Drivers
Competition Drivers
Technology Drivers
Cost Drivers
Government Drivers


Market Drivers: Market factors stimulating the move toward transnational strategies include

Common consumer needs across many countries,
Global customers who demand consistent services from suppliers,
Availability of international channels.


Competition Drivers: The key competition drivers that exercise a powerful force in many service industries include,

Presence of competitors from different countries,
Interdependence of countries, and
The transnational policies of competitors themselves


Technology Drivers: To center around advances in IT such as

enhanced performance and capabilities in telecommunications, computerization, and software;
miniaturization of equipment; and
the digitization of voice, video, and text


Cost Drivers: The common drivers include

economies of scale,
sourcing efficiencies as a result of favorable logistics,
lower operating costs for telecommunications and transportation


Government Drivers: Serve to encourage or discourage the development of a transnationally integrated strategy. It includes

favorable trade policies,
compatible technical standards, and
common marketing regulations



HOW DOES THE NATURE OF SERVICE AFFECT INTERNATIONAL DISTRIBUTION?

People-Processing Services

People-processing services require direct contact with the customer.
The service provider needs to have a local geographic presence, stationing the necessary personnel, buildings, equipment, vehicles,and supplies within reasonably easy reach of target customers.


Possession-processing Services

Possession-processing services may also be geographically constrained in many instances.
Involves services to the customer’s physical possessions and includes repair and maintenance, freight transport, cleaning and warehousing.
Most services require an ongoing local presence, regardless of whether customers drop off items at a service facility or having a personnel visit the customer’s site.


Information-based Services

Export the service to a local service factory. The service can be made available in a local facility that customers visit.
Import customers. Customers may travel abroad to visit a specialist facility, in which case the service takes on the characteristics of a people-processing service.
Export the information via telecommunications and transform it locally.



HOW TO ENTER INTERNATIONAL MARKETS?
A firm’s ability to go international depends on

Howa firm can protect its intellectual property (IP) and control its key sources of value creation, and
Whether the level of desired interaction with the customer is high or low
Branding, having a global customer base, and global resources, Capabilities and networks
Tight control on local partners especially in cases of knowledge-based and professional services

CONCLUSION
In this module we focused on

How intermediaries can play an important role in service delivery.
Different aspects of franchising strategy in relation to service providers.
Finally, we learnt about the internationalization of services.