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Chapter 8

Location of Services and Channels of Distribution

Services cannot be stored. They are produces and consumed at a same point. Thus,
there is an inseparability of production and consumption in service. Both the service
providers and the consumers come into direct contact during service provision.
Service providers must either be present when consumers receives services or find
ways to involve others in distribution. So, when a service provider decides to engage
others, two service marketers are involved in delivering service through
intermediaries , the service principal(originator) and the service deliverer
(intermediary). The service deliverer is the entity that interacts with the customer
during the actual execution of the service.
The location of service delivery and the channels used to supply services to
target customers are two key decision areas. Location and channel decisions involve
decisions as to how and where the services delivery takes place.

The selection of the site from where the delivery of service takes place is a tough task
for a service provider. The service firm decides about locating its operations and staff.
While deciding on the location, the service firm should consider the following
important factors:
Factors to be considered in Choosing a Service location
(l) Nature of service
(2) Nature of interaction
(3) Nature of customer demand
(4) Competitive positioning
(5) Geographic location
(6) Technical advancement
(7) Dependence on other services (8) Infrastructural facilities, and
(9) Target marker decisions.
(l) Nature of service
Services are performances or actions rather than objects. They cannot be
visualized, felt, tasted or touched. For example, health care services include actions
such as diagnosis, examination, treatment and surgery. Such an element of
intangibility poses several marketing challenges. Services cannot be inventoried.
No two services are alike because the demand of each customer may be unique in
nature. The heterogeneity of services calls for interaction of customers. A service is
inseparable from the service provider. Moreover, services are perishables as they
cannot be saved, stored, resold or returned. A seat on an airplane or a room in a hotel,
a seat in a bus, an appointment with a physician, not used cannot be reclaimed or
resold at a later time. Therefore, the place from where services are delivered should
be accessible to customers. That is, services should be made available to customers
when they actually need it.
(2) Nature of Interaction
The importance of location of a service depends upon the type and degree of
interaction involved. There are three types of interaction between the service provider
and the customer. (i) The customer goes to the service provider. (ii) The service

provider goes to the customer. (iii) The service provider and customer
transact at arm's length. When the customer goes to the service provider, the location
of the service provider assumes much significance. Operations can be decentralized so
that the service can be delivered directly to the consumer in convenient locations.
Businesses such as car rental, restaurants, banks, beauty parlour, etc., select
appropriate sites based on the convenience of customers so that effective service can
be tendered. In some cases, services must be provided at the customer's premises. For
example, maintenance services such as lift repair, pest control, etc.
(3) Nature of Customer demand
A customer's needs and wants greatly influence decisions on service
distribution. However, they differ amongst customers. Some customers visit a super
market to purchase while others choose an outlet which offers home delivery. Elderly
persons would appreciate home visits by doctors. Customers would not mind visiting
the bank for their day-to-day transactions but may prefer a bank representative to call
on them to discuss investment options in mutual funds.
(4) Competitive positioning
The service providers should make their services accessible and available to all
target market segments. The service provider should provide services in different
locations which will help them gain a competitive edge. Moreover, it will help the
firm create an effective market awareness. Establishing service firms at prime
locations before the market has developed can prevent competitors from entering the
(5) Geographical location
Many service providers choose a location which offers cheap labour and
natural resources. But in case of tourist spots, holiday resorts, and hill stations, there is
no scope for choice of location. Performance of these services depends solely on
geographical location. Historic attractions such as Taj Mahal or Mysore <w> place
restrict choice of location. In these cases, the concept of location or place <w> predetermined one. So, the task of service manager is to properly combine <w> mixes in
order to attract maximum visitors or tourists to the places. Customers will even travel
long distances to avail themselves of services.
(6) Technological advancements
Nowadays, performance of services involves increased level of automation.
For instance, in some services like banking, it is possible to separate the service
provider from the customer. Telebanking, Internet banking and ATM are the best
examples for this. Technology has made ATMs very popular now. Apart from cash
payments, and furnishing balance in accounts, ATMs rencier additional services Like
the cheque transactions. Customers have to merely insert just the cheque leaf into a
slot and the machines imaging system will transmit the image either to the presenting
bank or directly to the drawee bank and the transaction will be concluded instantly.
The advantage of transacting with ATM is that the incidence of loss of instrument or
tampering of the instrument will be eliminated totally. The customer can avail the
facility at a nearby ATM instead of visiting a bank.
(7) Dependence on other services
In case of certain services, there is a restriction on location. An extreme case
of inflexibility exists because the services have to be located a one location. For

example, tourism related services cannot be moved. A large inflow of tourists have to
be taken care of by the location of hotels, lodges, car rentals etc., at the tourist centre
itself. Provision of fast and integrated services necessitate establishment of service
firms at one location. For example, X- ray units, scanning and diagnostic laboratories,
etc., are situated in the vicinity of several polyclinics.
(8) Infrastructural facilities
Existence of adequate infrastructural facilities is necessary for performance of
certain services. This is the reason why banking and insurance companies are located
at centres with highly developed transport and communication facilities.
(9) Target Market decision
important decisions that affect the location of service are those concerning
target markets. In order to gain competitive advantage, the service should be more
specific to the requirements of the target market segment. That is, the service marketer
should make the service accessible to all segments in the market. The location of
premises should be closer to the target customer. Selection of proper location will
maximise the market opportunities. Figure 8.1 shows the factors influencing the target
market decisions.

Figure 8.1 - Factors influencing target market decisions

Classification of Services By Location

Service location may be classified on the following lines

Figure 8.2 - Classification by location

(l) Location may be irrelevant
Location is irrelevant for certain services like repairs, utilities etc. These
services are performed at the customer's place. Besides, service is performed on
customer's possessions and these possessions are immovable. Repair of building,
plumbing, house cleaning etc., are required to be performed where the customer
<w>.These possessions are immovable in nature necessitating the service <w> to
reach the customer. Also, customers such as physically handicapped persons or
disabled users are not quite mobile. They find it difficult to reach the service providers

for availing health care services (example physiotherapy) and accounting services,
etc. Similarly, newspapers, journals, letters and parcels <w> delivered at the door of
the readers.
(2) Services may be concentrated
Many services are concentrated at a single location. This is the extreme case of
inflexibility in production. Tourism related services, software parks etc., are some
examples for services which are concentrated within a particular region. The status
associated with certain sites, customer's willingness to be mobile, historical
development of the place, availability of services in a close proximity, insignificant
role of demand orientation etc., are some important factors that lead to the
concentration of services at a particular in location. Services tend to be concentrated
where expensive equipment are used and where there are centralized production
(3) Services may be dispersed
There are certain service firms whose services are dispersed in terms of market
potential. For example, business consultants, civil contractors etc., have centralised
offices but their operations are dispersed. There are low value services for the
purchase of which-consumers do not plan for. Restaurants, pharmacy, petrol filling
stations, guest houses etc., are located at places which are approached by customers
purely on the basis of convenience. The locations of such service business are chosen
on the basis of customers encountering the services without any per-planning on their

Channels of distribution are used for transferring the services from producers
to consumers. A channel is defined as follows:

1. A team of merchants and agents business institution that combine physical

movement and title movement of products in order to create useful
assortments for specified markets. - C Glenn
2. The structure of intra-company organisation units and extra company agents
and dealers, wholesale and retail, through which commodity, product or
service is marketed. -American Marketing Association
3. The channel of distribution for a product refers to the course of ownership
taken in the transfer of title to it as it moves from manufacturer of producer to
final consumer. -Nystrom
4. Marketing channels are sets of interdependent organisations involved in the
process of making a product or service available for use or consumption.
- Louis W. Stern and Adel, E. Ansary

The above definitions of a channel of distribution stress the following points1. A channel is a team of individuals or institutions involved in the movement of
small goods.
2. The channels have participants in service delivery. The participants include the

service provider, intermediaries and customers.

3. Physical distribution in the channel reflects title flow.
4. The objectives of the channel is to reach target markets.
5. Channels create assortments and distribute them. Assortment, here means the
numbers of types of product required to satisfy the target market. Assortment
consists of both goods and services.
The concept of marketing channels is not limited to the distribution of physical
goods alone. The concept is used by the producers of services too. For example,
schools develop educational-dissemination systems and hospitals develop healthdelivery systems. With the development of Internet technology, service industries
such as banks, insurance, travel, etc., use channels for distributing their services to
target markets.
Methods of distributing services
A distribution channel consists of a sequence of firms distributing a service
form a producer to consumer. There are two methods of distribution of services,
namely, (1) direct sale and (2) delivery of service through intermediaries.
1. Direct Sale
Many services are distributed directly from provider to customer. Direct sale is
chosen due to inseparability of service and provider. Services of doctors, dry cleaners
beauticians, personal care services. consultancy services, entertainment etc. are
examples of direct selling. The direct sale of service takes place in two ways: the
consumer goes to the service firm e g, restaurants, hospitals, etc. Alternatively, the
service provider goes to the customer in the case of domestic services, interior design.
building repairs, etc.
Factors governing the choice of direct
A host of factors influences the service firms to sell directly to the customers.
These factors include resources of the firm, type of service, geographic location,
customer preference and the level of technical skill.
(i) Resources of the firm : The resources that a service firm has at its disposal
will influence the choice of distribution strategy. Generally, firms which have
adequate resources prefer direct marketing without involving intermediaries in
the channel of distribution. To know the customers better, the firms employing
direct channels maintain a data bank. When the service provider has enormous
resources, he can make use of multiple outlets. These are national chains
which are completely run and managed by the company itself. These are also
regarded as direct channel. Example : Bata showrooms.
(ii) Type of service : Provision of services involves interaction between the
services provider and customers. The interaction depends upon the channel
decisions. There are two types of services, namely, equipment-based services
and people- based services. Equipment-based services involve use of
equipment in provision of services. For example, car rental, vending machines
and dry cleaning are equipment based services which do not involve a high
degree of personal involvement. People-based services involve close contact
with customers and are best suited for direct distribution.
(iii) Geographic location : Services of doctors, dry cleaners, beauticians etc., are
local services whose area of distribution is limited. Services of this type may

be rendered directly to customers. where the market area is wide. the service
firm has two options. It may create national chains with multiple outlets which
are considered direct channels. Such multiple outlets are completely run and
managed by the company itself. Alternatively, the company may build a
network of intermediaries.
(iv) Customer preference : The tastes, requirements and buying habits of the
customers vary. So, the needs and wants of customers must be carefully
considered while selecting the channel of distribution. Customers who are
loyal to the service company will prefer to have all their dealings with that
company only. If customers lack confidence in the service company. they may
switch over to other competing service firms. Moreover, some customers like
to deal directly with the service provider whereas some others may want to
deal with intermediaries such as agents and brokers. In case of financial
services, customers prefer to deal through agents who are able to guide them
(v) Levels of technical skills : Delivery of some services require skill and
expertise. People involved in the delivery of services such as financial services
require a relatively high degree of technical skills. Direct distribution where
services are delivered directory to customers, only involves people with
adequate skill. Keeping this factor in mind, some service organisations like
banks and insurance companies provide training to their agents and employees,
by offering refresher courses, etc., in order to update their knowledge.
Advantages of direct distribution
The service marketer derives the following advantages by employing direct
(i) Direct channels are owned by the company itself. The major benefit of
distributing through company-owned channels is that the company has
complete control over the outlets. This direct control enables the company to
maintain consistency in service provision. Control over hiring, training and
motivating employees is also owned channels.
(ii) In direct channels, the skilled workers or professionals develop individual
relationships with customers. Therefore, the customers develop loyalty for the
individual service employee or for the company. For example, most men are
loyal to certain hairstylists.
Direct channels are suited for local service providers such as doctors,
dry cleaners, consultants, interior decorators, etc., whose area of distribution is
(iv)Companies are able to obtain direct feedback from customers on their existing
needs. Thus, they can also understand how the perceptions of the customers
towards offerings are changing.
(v) Greater confidentiality can be maintained with information relating to the
customer. For example, maintenance of secrecy of customer accounts is very
important in banking services. Direct channels enable the bankers to enjoy the
trust and confidence of their customers.
(vi)Direct channels eliminate the role of middlemen and hence the consequent
cost of commission, brokerage etc. This leads to lower distribution costs
thereby enhancing the profitability of the organisation.
(vii)As the service provider is in regular and direct contact with customers, two
way communication becomes effective.

(viii)Direct sale is accomplished by,the customer going to the service provider

(hairstylists, tourist information centre) or by the provider going to the
customer (plumbing, house cleaning, building repair etc). Thus, many personal
as well as business services benefit from direct sale. Personal and business
services like beauty parlours, photographic studios, shoe repair shops, funeral
service firms, consultancy, services, car rentals etc., are very much benefited
from direct channel of marketing.
Disadvantages of direct distribution
spite of the advantages discussed above, several disadvantages arise out of
company-owned channels.
(i) Probably, the largest impediment to most cervices chains is that the company
must bear all the financial risks. While expanding, the company must mobilise
all the capital required for store proliferation, advertising,service quality or
new service developments.
(ii) Companies rarely enjoy expertise in local markets. When companies expand
into other unfamiliar regions or other countries, they are not able to adapt their
business formats to suit local needs. In such situations, joint venturing is
(iii) When two or more companies want to offer a service and neither has the full
financial capability and expertise, they undertake service partnership.
Partnership are commonin areas such as telecommunication, high-technology
areas, Internet-based services and entrepreneurial services.
(2) Delivery of service through intermediaries or indirect distribution
Nowadays, many services are delivered by intermediaries. Two service
marketers are involved in indirect distribution, the service principal (originator) and
the service deliverer (intermediary). The service principal is the entity which creates
the service concept. The service deliverer is the entity which deals with the customers
during the execution of the service. Thus, in the indirect channel, both the services
supplier and the intermediaries play an important role.

Role of service intermediaries

Service intermediaries discharge many important functions for the services
1. Service intermediaries co-produce the service and make the service available
to customers at a place and time of their choice, thus fulfilling the promises
made by the service firms to customers.
2. The franchises uses the process developed by the service principal and renders
satisfying service firms to customers.
3. Service intermediaries also make service locally available.
4. Intermediaries act as multiple service principals. Intermediaries such as travel
and insurance agents provide a retailing function to customers.
5. In many financial or professional services, intermediaries build a relationship
based on trust which is essential in a complex service offering.
6. Services are intangibles and perishables and inventories do not exists.
Therefore , service distribution focuses on identifying ways to bring the
customer and principal together. Services intermediaries such as franchisees

agents, brokers, etc., act as a connecting link between the service firm and
7. Service intermediaries deliver services according to the specification of the
8. Service intermediaries are in direct contact with the customers. So, they are in
a position to determine the way customers perceive the quality of the service.
9. Service intermediaries advise the customers on the choice of the service which
satisfies their needs.
10. Intermediaries provide after sales support to the customers. For example, an
insurance agent guides the policy holder in making a claim and goes through
the procedural formalities in connection with the claim.
11. An intermediaries, as a co-producer of a service shares the risks of providing
services by contributing their own capital to acquire the equipment needed for
the delivery of service.
12. A service provider sells only his own services. But consumers prefer to buy
services from an intermediary who offers a wide variety of services including
these offered by competing service principals. The advantage of intermediaries
is that they offer different services at one location.
13. Intermediaries relieve the service principal from the botheration of making
huge investment on his own. As intermediaries operate at different places, a
service principal can invest his funds in core services.
Intermediaries for service delivery
In indirect distribution, services are distributed to the end customer through
franchisees, agents, brokers wholesalers and electronic channels. Electronic channels
include all forms of service provision through television, telephone,interactive
multimedia and computers. Many financial and information services such as banking
and education are distributed through electronic media.

Figure 8.3 - Channel intermediaries for services

In franchising, the franchiser, (service provider) licenses his brand name,
business process or format, product, service or reputation in return for fees and
royalties. "Franchising is a relationship in which the service provider (franchiser)
develops and optimise's a service format that it licenses for delivery by other parties
(the franchisees).
According to International Franchise Association of America, "a franchise
operation is a contractual relationship between the franchiser and the franchisee in
which the franchiser offers or is obligated to maintain a continuing interest in the
business of the franchisee in such areas as know-how and training, wherein the
franchisee operates under a common trade name, formal and or procedure owned and
controlled by the franchiser, and in which the franchisee has or will make a substantial
investment in his business from his own resources. A franchise exists where one
person grants rights to another to exploit an intellectual property right involving

perhaps trade names, products, trade marks, equipment distribution.

Examples of services which are suitable for franchise operations include:
accounting and tax services, beauty salons, car rental services, dry cleaning services,
employment services, hotels, industrial services, garments, nursing homes,
restaurants. travel agencies, etc.
Franchising is suitable in situations where services can be standardised and
duplicated through the delivery process service policies, warranties, guarantees,
promotion and branding. In United States of America, many companies have found
favour with franchising. NIIT has about 80 centres in the country operating as
Location of franchise
The success of a service business depends much upon the location of the
service operations. This is particularly true when the customers have to come to
service organisation. The service firm should concentrate on the choice of location in
order to make it convenient and accessible to customers. According to Raab and
Matuski, the following points should be borne in runaround while selecting a quality
(figure 8.4).

Figure 8.4 Factors influencing location of franchise

Since the franchise is an extension of the service organisation, services must
be delivered at a convenient location which is accessible to customers. The factors
that govern the choice of location include- firm's physical needs, space requirements,
potential of the area, internal competition, external competition, traffic pattern and the
quality of traffic.
Determining the number of franchises
A franchiser typically begins by developing a business concept which is
unique in some ways. It may be a fast food concept with a unique cooking or delivery
process. A franchiser should expand his business be carefully determining the number
of franchises. The number of franchises depends upon the coverage of area and its
potentiality. According to Montanes , the potential of an area can be determined
through the following stages(figure 8.5).

Figure 8.5 Stages in determining the number of franchises

1. Geographical demarcation: Area is the central point influencing the office of the
franchise. The area to be chosen for the location of franchise should be a business
centre. it not only influences geographical determination but also the neighbouring
business centre as well, In geographical demarcation for franchise, it is appropriate to
follow the state,district, region or municipality boundaries. The area of the business
for franchise is thus defined in concrete terms.
2. Selection of Independent variable: Having determined the geographical demarcation
of the area, the franchiser moves to next stage. He should find out all those factors,
which determine the potential and flexibility of the area. These factors include age,
sex, distribution of population, education level of people, income level of consumers
and benefits of location. These factors are classified into dependent and independent
3. Determining the influence of a specific variable : Each variable has a definite impact
on the potentiality if the area. By using appropriate statistical techniques, the
influence of each variable on the final result can be understood. The result will also
show the relationship that exists among the variables. The relationship between
dependent and independent variables helps the marketer decide on franchising.
4. Valuation of the chosen variable : After the variables are identified and classified
into dependent and independent variables, the marketer studies the impact of these
variables- Statistical technique such as correlation, multiple regression, index number,
time series, etc., may be employed in order to assess the impact of the variables.
Benefit of franchising
under franchising, the service provider develops the business format and licenses it to
other. A franchiser expands his business through franchising as it offers certain
advantages. These advantages are available both to the franchiser and franchisee.
Advantage of franchiser
1. Leveraged business format for greater expansion and revenue : Most service
companies want to franchise their business concepts in order to achieve wider
distribution of services. Wider distribution of services leads to increased revenue,
market share, brand recognition and economies of scale. The service provider
can minimise investment and financial risks by sharing them with franchisees.
2. Maintaining consistent quality: Franchiser give clear instructions to the
franchisee with regard to the distribution of services. Franchisees are required
according to the specifications of the service provider. The franchiser closely
monitors all the activities of the franchise with respect to hiring and training of
employee, layout and design of the premises, etc. As the franchiser exerciser a
strict control over the operations of the franchisees, maintaining a consistent
quality of service is possible.
3. Knowledge of local market : When the franchiser operates at a national level. he
may not have a thorough knowledge of the local market. Franchising enables the
service provider to understand the prevailing trends in the local market. But
national chains are unlikely to understand local markets as well as franchisee
who hails from the same area. With franchising, the company obtains a
connection to the local market.
4. Shared financial risk and increased working capital : Franchisee contribute
their own capital needed for the purchase of capital equipment and for he
maintenance of personnel. So, the service principals are relieved from the

botheration of investing a huge capital while operating nationally. Rather than

investing in distribution, they can fruitfully invest in
core service
productivenesses certainly bear part of the risks involved in business.
Advantages of the franchisee
1. The franchisee can participate in an established business that has strong roots
across the market.
2. The franchisee has no risk of initiating a new business. The established
business that he is undertaking also minimises the advertising the marketing
3. The franchisee can utilise the expertise of the franchiser in promoting the
local business. As the brand name is already established, the farnchisee need
not take any special efforts.
4. The franchisee can base his business on an established business format.
Disadvantage of franchising
I. To the Franchiser
Franchising is not without challenges. Most franchisers encounter the
following disadvantages.
1. Difficulty in motivating franchisees: Generally, a franchise is an
agreement for a specific period ranging between five and ten years.
During this period, the business may witness several ups and downs.
When the business is down, the franchisee may lose his initiative in
business. The franchiser in such situations, finds it difficult to motivate
the employees. Moreover, he experiences problems in motivating
independent operators to price, deliver, promote and hire according to
the standards of the business.
2. Highly publicised disputes between franchises and franchisers :
Many disputes are likely to arise between the franchiser and the
franchisees. The well organised franchisees constantly seek legal
advice to gain economic clout. They hire lobbyists to protect
themselves against any possible adversities in the market.
3. Problem in inconsistent quality: Franchisees are service outlets
licensed by a principal to deliver a unique service concept. The
franchisees should distribute the services according to the
specifications of the franchiser. If the fianchisee does not deliver the
service properly, the brand name of the franchiser will suffer. Low
performing franchisees will always undermine the name and reputation
of the franchiser.
4. Lack of direct contact with customers : The franchiser is not in direct
contact with customers which means that he cannot understand the
needs of the customer. As franchisees directly deal with customers.
they maintain a good customer relationship. The relationship formed
between the customers and franchisees is strong. Franchisees are able
to collect all customer-related information relating to demography,
purchase-pattern and preferences. Customer relationships are
effectively maintained by the franchisees rather than by the franchiser.
II. To the franchises
1. Encroachment of franchise : A large number of franchisees operate





within a small radius. Encroachment of franchisees may occur by opening

new units near existing ones. This reduces the profitability of franchisees.
When encroachment occurs, potential revenues diminish and competition
Absence of adequate prediction : In India, franchisees do not get adequate
statutory protection. There is no specific law for franchising. So,
franchisers do not disclose adequate information about their franchise.
Consequently, there is no transparency in the operation of the franchiser.
But in some countries like USA, specific laws have been enacted giving
protection to the franchisees.
Franchise saturation : In case of established services, franchisees
compete with one another to grab a franchise from the service provider.
The terms dictated by the principal service provider are not often
favourable to the franchisees. Franchisees are sometimes sour that most
markets are crowded and expenses are rising. over promising by the
franchiser and unrealistic assumptions about high return may cause
dissatisfaction among franchisees.
Competition from franchiser-owned distribution points : Of late, service
firms avoid the role of middlemen by establishing self-contained kiosks.
Customers can place orders directly with the service firms when kiosks are
operated at important centres. The recent shift towards franchiser-owned
distribution points has increased the resentment of franchisees as the kiosks
encroach the market of the franchisees.
Lack of perceived control : A franchiser charges a high fee from the
franchisees. At every stage, the franchiser interferes in the functioning of
franchisees. This gives room for friction between the franchiser and the

An agents is an intermediary who acts on behalf of a service principal. He is
authorised to make agreements between customers and the principal. An agent does
not take title to services but instead delivers the right customers. An agent has legal
authority to market services as well as other related functions on behalf of his
Types of agents
Agents may be of three types namely,(1) selling agent (2) purchasing agent
and (3) facilitating agents.

Figure 8.6 Classification of agents

1. Selling agents :

Selling agents have contractual authority to sell a service of

their principal. The service

may be anything from insurance to financial services. Selling agents are appointed when
the principal is not keen to run the show himself because of a lack of
qualification or a lack of resources to do so. Selling agents are a powerful sales
force, since they know the market better than the service principal. They can
influence price, terms and conditions of sale. The selling agents have no
territorial limits and represent the service principals in all areas.
2. Purchasing agents : Purchasing agents evaluate the sources of supply and make
purchases on behalf of buyers. Normally, they have a long-term relationship with
the buyers. Purchasing agents have a thorough knowledge about the market. They
serve their clients by providing useful market information. A purchasing agent
buys best services at a reasonable price for his clients (buyers). Companies and
individual engage purchasing agents in order to find art, antiques, rare jewellery's
3. Facilitating agents: Facilitating agents provide the much needed support for
performing the marketing process. They are experts in the fields such as banking,
insurance, transport, risk-taking, etc.

Brokers bring buyers and sellers together to negotiate a transaction. They do
not have long-term relationships with sellers or buyers. They may even work for a
single deal and do not finance or assume risks. Real estate brokers, insurance brokers,
and security brokers are some examples of brokers.
Advantages of agents and brokers
The advantages of using agents and brokers are explained below :
1. Reducing selling and distribution costs : If a service firm needs to contact
every potential buyer, the cost would be higher. For example, travel services
command a wide market and meet even the minute requirements of the
tourists. In the absence of travel agents and brokers, travelers would have to
struggle for suitable guidance for arranging their travel plans.
2. Special skills and knowledge : Intermediaries have special knowledge and
skill and are proficient in their areas. They collect erroneous details about the
services market with the help of reference materials and on line services. They
are knowledgeable and provide helpful information to clients.
3. Wider representation : Agents and brokers charge commission for the
services rendered by them. But then the consideration payable to agents and
brokers is invariably affordable. So, there is little risk in extending the service
offerings to a wide market. The representatives of the services firm who work
for commission travel long distances in marketing the services. If buildings
and equipment are to be located in distant places, the costs would be
exorbitant. By hiring agents and brokers, service firms need not pay for the
infrastructure facilities to reach the customer. The benefits of a wider market
coverage are available to the service firm at a lower cost.
4. Knowledge of local markets : Agents and brokers are experts in the markets
they serve. They have a thorough knowledge about the local as well as

international market and can understand the varying needs of different

markets. They know how to adapt the services to match the needs of clients.
Customers who are dispersed internationally become familiar with the service
offerings only by contacting their agents and brokers.
5. Customer choice. : Certain agents like travel agents, agents for financial
services etc., represent the services of multiple suppliers so that the customers
need not approach different agents for different services. If a traveler needed
to visit five different travel agencies, each of which carried the services of a
single supplier, the efforts of the customer would leave him drained. A single
agent representing multiple suppliers can provide varied services
simultaneously. This saves time for the customer in searching for different
sources. Similarly, independent agents who have the right to sell a variety of
services allow customers a wide choice. For example, if an agent sells UTI
schemes and also ICICI Bank schemes at one place, customers stand to

Disadvantages of delivering services through agents and broker

The service principal provider encounters the following challenges while involving
agents and brokers in distribution process:
1. Loss of control over price: The representatives of service principals are
experts on customer markets. Agent and brokers are typically empowered to
negotiate price and configure services. Taking undue advantages of their
position, the middlemen may even alter the marketing of services of the
principal. This issue could be detrimental when a service provider relies on
high price to indicate a level of service quality. If the price can be reduced, it
may undermine the brand image. The agents may misuse their power by
charging different prices from different customers. If buyers compare prices
and realise that they are being charged different prices, they may perceive the
service principal as unethical.
2. Representation of multiple service principals : No doubt, independent agents
representing several principals offer the customer a wide range of choices.
But in many cases, such agents recommend goods or services to the customers
which fetch them higher margin.
3. Loss of control over services encounters : There are greater chances for
service principals in losing control over the service encounters between the
customer and the intermediary.
4. Service wholesalers : Service wholesalers buy the rights of a large volume of
service transactions. Then the whole lot is divided into smaller units for
handling by other intermediaries such as retailers. For example, agencies book
a large block of hotel accommodation at lower prices. Then the block is
divided into smaller units for sale to retailers. The service wholesaler can even
'return' the unsold blocks to the hotels concerned.
5. Electronic channels : Electronic channels do not require any direct human
interaction. Pr-designed services such as information, education or
entertainment are suitable for distribution electronically. The electronic
channels include telephone and television channels, Internet and web. A wide

array of services are distributed through electronic channels. For example,

movies, interactive news and financial services, multimedia libraries and
database, distance learning, desktop, video conferencing, remote health
services and interactive network-based games.
Use of electronic channels eliminates face to face contact with services providers.
Using electronic channels overcomes the problems associated with services
inseparability. It also allows a form of standardisation of service provision.
Benefits of electronic channels
The benefits of electronic channels are discussed under the following heads:
1. Consistent delivery for standardised services 2. Low cost 3. Customer convenience
4. Wide distribution
5. Customer choice 6. Quick customer feedback.





Consistent delivery for standardised services: Generally, channels with

human interaction are likely to alter the service. But electronic channels ensure
consistent delivery of services without any alteration. Moreover, electronic
delivery does not interpret the service. Its delivery is the same in all
transmissions. For example, television programmers and radio stations ensure
standardised electronic distribution. TV stations deliver what is fed to them
through the networks.
Low cost : Electronic media may prove to be more efficient in terms of
delivery. For example, the cost of reaching buyers using direct sales force is
exorbitant. But the use of electronic media such as television or radio costs
less. However, it must be remembered that personal interaction is powerful
and effective. Interactive media can be used to answer individual questions or
tailor the service for individuals.
Customer convenience : Electronic channels enable customers to access a
firms service at any place at any time. E-commerce is changing the way
people shop. Electronic channels allow access to a large customer-base which
would otherwise be inaccessible to the service principals.
Wide distribution : Through electronic channels, the service provider is able to
interact with a large number of end users and intermediaries.
Customer choice: Electronic channels offer a wide variety of services to
customers. If a customer wants to renovate his kitchen, he may go to
INTERNET sites, specify his requirements and place an order. Electronic
channels enjoy the ability to customise the services by offering a wide variety
of choices to the customer.
Quick customer feedback : The major strength of e-commerce is rapid
customer feedback. companies can find out immediately what customers think
of their services. Quick customer feedback enables the service principal to
change their service offerings immediately and address their problems quickly.

Challenges in distributing services through electronic channels

The service principals face the following problems in distributing services
through electronic channels:
(1) customers are active and they must be enticed
(2) Lack of control of the electronic environment


Price competition
Inability to customise with highly standardised electronic services
Lack of consistency because of customer involvement
Changes needed in consumer behaviour
Security concerns
Competition from widening geographies.

(1) Customers are active not passive and must be enticed: Traditional
advertising media such as magazines consider the customer a passive receiver
of their messages. A customer reading an article is most likely to see the
advertisement. But the user of the web is different . Hamel and Sampler opine
that "it is not that web users are not interested in learning about new products
and seniles or getting a great buy on an old standby, but they want to learn on
their own terms. They want the choice to click or not, to view or not, and
anything more than the gentlest form of persuasion from an advertiser is likely
to be construed as an intrusion. The aim of advertising should be to educate,
entertain and entice the customer. By reading the marketer's information,
customer must know the benefits of services clearly. So, "permission-based
marketing" is a new method used to attract customers to websites. The services
firm designs games! offers prizes, creates contests and sends customers to
websites. This helps the advertisers build relationship with customers.
(2) Lack of control of the electric equipment : Electronic equipment are used in
an unregulated medium. Care should be taken to separate the irrelevant,
unwanted material from the useful content. For example, advertising for
banking services should be separated from the numerous advertisements for
'balding concealment devices' and 'quick weight loss programmed'. In print
media, the advertiser can request for right positioning. Such requests are not
possible on the Internet.
(3) Price competition : It is difficult to compare features and price of services.
But the Internet makes it simple for customers to compare prices for a wide
variety of services. For example, www.Priceline. com allows customers to
name their prices for a service such an airline ticket. So, customers at present,
have the ability to bid on prices for services. Online services enable customers
to download hundreds of service offerings along with particulars. So, the
service providers encounter challenges in the form of price competition.
(4) Inabitity to customise with highly standardised electronic devices : it is very
difficult to customise the services by using highly standardised electronic
services. When electronic media is present, customers cannot directly deal
with the service provider and raise points for clarification. The reaction of the
audience to the message presented by an electronic vehicle may not always be
effective. People may talk among themselves, Laugh and criticise. Only twoway video can control the behaviour of receivers.
(5) Lack ofconsistency due to customer involvement : Electronic channels
minimise the inconsistency from employees or providers of services. The
customer produces the service himself using the technology. While doing so, if
the technology is not user friendly, it may lead to errors or frustration. Using a
website for example is not easy as it calls for familiarity with that technology.
Moreover, the difficulty encountered by online services is that most customers
do no have computers
(6) change are required in consumer behaviour: when a consumer enters a

retail store, he can be motivated easily to buy the service. It is because the
behaviour of customer can be studied and the customer interaction can be
modified to instill confidence in him. But for a customer purchasing a service
through electronic channels, the method of interaction is different. While using
electronic channel, considerable changes are required in some aspects- the
willingness to search for information, the willingness to perform some aspect
of the services themselves, the acceptance of different levels of service, etc.
But effecting a behaviourar change is not easy. So, service marketers should
motivate customers by bringing about changes in the long established pattern
of behaviour.
(7) Security concerns : ' Security of information is a key issue while using
electronic channels. This is the major issue confronting the marketers who use
electronic channels. Many customers are reluctant to give credit card numbers
on the web and Internet. Recently, Adam Cohen has outlined reasons for
customer reluctance to use the internet. They are : (i) someone might steal
your identity (ii) you may reveal information about yourself in cyber-space
(iii) personal information that we give to a website might be exploited (iv) you
may enter your credit card number on a fake website (v) A stranger may use
your computer to spy on you (vi) you may have cyber stalker
(8) Global Competition : With the advent of electronic channels, services can be
purchased from service firmslrocated anywhere in the world. The fact that
services could not be transported is no longer valid because of electronic
channels. virtually, all financial services can be bought from institutions in any
area. Since customers have unlimited choice among the providers, services are
not protected from competition.
Strategies for effective service delivery through intermediaries
Service principals manage their service middlemen in order to improve service
performance and increase profits. The strategists used for this purpose may range
from strict contractual and measurement control to partening with intermediaries.
Figure 8.7 shows three categories of intermediary strategy -Control strategies,
empowerment strategies and partening strategies.

Figure 8.7 Classification of intermediary management strategies

1. Control strategies
control strategies are believed to step up the performance of intermediaries in the
following circumstances Creation of standards both for revenue and service
performance, measurement of results, linking rewards to performance level. The
principal using this strategy should be the most powerful participant in the channel,
possessing unique services with strong consumer demand and in the following
circumstances loyalty or other forms of economic power. Control strategies consist of
measurement and review.

(a) Measurement : Franchisers need to maintain control of the services by measuring

the quality of delivered by their franchisees. The manufacturer creates the
measurement programmer, administers it , and maintain control of the information.
The sales and service performance if intermediaries are monitored regularly by the
service principal. The service firm surveys customers at key points in the service
counter sequence. The service principal with the assistance of dealer, designs the
survey instruments and obtains the customer feedback directly. Dealers who perform
well are suitably rewarded. Dealers with poor performance are sometimes pulled up.
(b) Review : The performance of the intermediaries is periodically reviewed. After the
review is over, appropriate control measures are taken. Generally, a variety of
measures is available to the franchisers which include termination of the agreement,
non-renewals, quotas and restrictive supplier source. Moreover, franchisers use
measures of control such as quotas and sales goals after a certain volume of sales is
1. Empowerment strategies
Empowerment strategies assumes that the talents of the intermediaries are best
revealed only in participation. This is particularly true when service principal in new
or lacks sufficient power to govern the channels. In empowerment strategies, the
service principal allows greater flexibility to intermediaries. The service principal also
provides information, research or processes to help intermediaries perform well in
service. The provision of support to the intermediaries is discussed as follows:
(a) Provide needed support systems : For the effective functioning,
intermediaries need support from service principals. The general support
system may be national advertising featuring dealers, research process
supports etc. The support system needed by the dealers may vary
depending upon their specific requirements. For example, in airlines and
other travel ticketing services, the service principals reservation is an
important support system. The famous Holidays Inn is to supported by the
franchise service delivery system which will differentiate it from
(b)Develop intermediaries to deliver quality service : In this strategy, the
service originator develops the skills and knowledge of intermediaries and
their employees by providing training to them. The service provider first
conducts focus group interviews with end customers. Having understood
the expectation of customers, the company conducts a training program to
teach sales associates about what buyers expert from them. The company
also reviews the financial aspects of the brokers, assesses their levels of
effectiveness and communicates individually with each broker about
specific issues.
(c) Change to a cooperative management structure : Service companies use
techniques of empowerment to manage and motivate franchisees. They
develop work teams in their outlets to hire, discipline and handle financial
2. Partnering strategies
The service principal partners with the intermediaries for effective services
distribution. Partnering with intermediaries helps the services principal learn about
end customers, set specifications and improve delivery. The strategy improves the
relationship between the services principal and intermediaries. It also creates a sense
of trust in trade relations. The skills and strength of both principal and a sense of trust

in trade relations. The skills and strength of both principal and intermediary can be
used for the betterment of services business. Partnering strategies involve alignment
of goals and consultation and cooperation.
(a) Alignment of goals : Both the service principal and the intermediary have
individual goals. So, the individual goals should be aligned in order to
achieve the overall effectiveness in service in service distribution. If the
channel members work for the ultimate benefit of customer and optimise
their own revenues and profit alignment of goals takes place. Similarly, the
service provider should adapt to the changing needs of the customers and
franchise suggestions.
(b)Consultation and cooperation : In this strategy, intermediaries participate
in decisions. The principal consults intermediaries and asks for their
opinions before taking a decision. Suppose franchisees say that outlets
need support in promotion, the franchiser takes step to tone up the
promotional measures. This encourages the franchisees to offer
constructive suggestions for the improvement of distribution system.


Designing the distribution system is a major issue in any service organization. While
designing the distribution system, the needs of the customers should be carefully
considered. Designing the channel calls for customer segmentation, evaluation of
service characteristics and identifying and evaluating major channel alternatives.
I. Customer Segmentation
The market for any product or service is made up of several segments. The market is
an aggregate of consumers of a given product or service. Consumers who make a
market are not homogeneous. They vary in their characteristics and buying
behaviour thus, many differing segments occur within the markets is known as
market segmentation. Apart from individual customers service businesses are
approaching small business customers as well. With a view to positioning
themselves as powerful, service firms launches business advertising campaigns
depicting the various features of their services. Such advertisements reinforce the
firm's commitment to small business. within a given target industry and customer
size, service firms can segment their target customer base by purchase criteria.
For example, in buying scientific equipment, government laboratories need low
prices and service contracts, university laboratories require little services. But
industrial laboratories need equipment that are highly reliable and accurate.
Service marketers generally identify segments through a sequential segmentation
process. The segmentation can be made on the following grounds.

Figure 8.8 - Segmentation

1. Geographic segmentation : In geographic segmentation, the market is divided into

different geographical units such as nations, states, regions, countries ,cities,
neighborhood. A service principal may choose to operate in one or in multiple
geographic areas. Alternatively, he may operate in all but pay attention to local
variations. For example, hotels customise rooms and food according to geographic
segments. The geographic variables play a major role in segmenting a market.
2. Demographic segmentation: Demographic segmentation consists of dividing the
market into groups on the basis of variables such as age, family size, family lifecycle, gender, income, occupation, education, religion, race,generation, nationality,
social class etc. Generally, consumer wants, preferences and usage rates are often
associated with demographic variables. Moreover, demographic variables are easier
to measure. The choice of variables for segmentation depends upon the nature of
the product or service. For example, income segmentation is a long-standing
practice in service categories such as automobile, clothing, cosmetics, and travel.
But it may not always be useful. Blue- collared workers may purchase colour
television sets because if is cheaper for them to buy TV sets than to go to movies.
Many researchers now concentrate on 'generation' segmentation. Each generation is
profoundly influenced by the changing times. The change in public outlook in fields
related to music, movies, politics and events have considerably changed the tactics
of service marketers. The social standing has a strong influence or preference in in
cars clothing, home furnishings, leisure activities, reading habits, etc.
3. Psychographic segmentation: In psychographic segmentation, buyers are divided
into different groups on the basis of lifestyle, personality and values. People within
the same demographic group can exhibit different psychographic variables.
Marketers have used personality variables to segment markets. They endow their
services with brand personalities that correspond to consumer personalities. For
example. some customers may be independent. impulsive, alert to change and selfconfident while some other customers may be conservative, thrifty, prestige
conscious and seeking to avoid extremes.
4. Behavioural segmentation : in Behavioural segmentation, buyers are divided into
groups on the basis of knowledge and attitude. Behavioural variables therefore
include occasions, benefits. user status, usage rate, loyalty status and buyer attitude
while they purchase a service. For example, air travel becomes necessary on some
occasions related to business, vacation, or family because of the time factor. Buyers
can be classified according to the benefits they seek. For example. travelers may be
divided into two segments: (i) those who travel with their family and (ii) those who
travel for adventure or educational purposes. Therefore, in air travel, two segments
are identified- economy and business class. In tooth-paste market, there are three
segments economy, medical and taste. Blood banks rely on regular donors, first
time donors and ex-donors.
II. Influence of service characteristics of channel designing
The characteristics of service influence the choice channel.
1. Some services are highly specialized and compels. For example in the health care
industry doctors directly examine the patients and treat them. They cannot
entrust the distribution of health care service to middleman as they are incapable
of performing these highly specialized services.
2. The margin available on some services may be insufficient to support many
middlemen by paying them remuneration commission etc. When the market for
such services is confined to a small area. the appointment of middlemen is

unnecessary. The service provider may prefer to render the service directly. For
example, dry cleaning, home cleaning service etc
3. Franchising works well with services that can be standardised and duplicated
throughout the delivery process. Delivery of unique service concepts such as fast
food chains, video stores, automobile repair services. hotels etc., may be
marketed through service outlets.
4. Services such as financial services, travel services, etc.. can be distributed
through agents and brokers.
5. Electronic channels are suitable for distributing financial services and
information services.
Thus services can be distributed through various channels. The choice of the channel
of distribution ultimately depends upon the characteristics of services.
III. Identifying and evaluating major channel alternatives
Having identified the market segments, the service principal should know the
major channel alternatives. Broadly speaking, services can be distributed to the
end customers through franchisees, agents, brokers, wholesalers and electronic
channels. Alternatively, the service marketer may deliver the service directly to
customers. The distribution of service may occur in three ways Intensive
distribution, exclusive distribution and selective distribution. When a wide
network is employed covering a larger market, intensive distribution of services
occurs. when one agency operates on behalf of the service firm in a given area, it
is exclusive distribution. selective distribution is one where select agencies
operate in a given areas for the service firm. After identifying various channel
alternatives, the service firm should select the best one. Some channel strategies
may require capital investment. If the service principal decides to implement
multi-marketing strategies, specific management skills are needed on his part .
The multi-marketing strategies will be flexible in operation. The degree of
control the service firms wants to have on the channel is another important
consideration in the choice. The cost of distribution varies according to the
channel employed. Direct distribution is expensive, whereas indirect distribution
costs less. Likewise, the service firm has complete control over direct channel
while some amount of control is lost in indirect channels.
Common issues in involving intermediaries
The service principal encounters several problems while involving
intermediaries in distribution of services. They include:
1. Channel conflict over objectives and performance
2. Channel conflict over costs and reward
3. Difficulty in controlling quality and consistency across outlets
4. Tension between empowerment and control, and
5. Channel ambiguity
1. Channel conflict over objectives and performance : There is always a
disagreement between the principal and the intermediary on the manner if
operating the channel. When a service principal has his own outlets as
well as franchised outlets, channel conflict occurs between the service
and the franchisee. Conflicts may also arise among





intermediaries in a given area. These conflicts are far more serious when
the goals of the parties are contradictory. Competing roles and rights and
conflicting views of channel performance further aggravates the intensity
of the problem.
Channel conflict over costs and rewards : The monetary arrangement
between those who create the service and those who deliver it gives rise
to issues. For example, the travel agencies may be dissatisfied with the
commission paid to them by the airline companies. Any unilateral
alternation in the compensation plan triggers problems between the
service principal an intermediaries. In some cases, the travel agencies
went against the airlines interests by teaching consumers how to buy
cheap tickets without an over-night halt, purchasing wholesale tickets and
even recommending other airlines.
Difficulty in controlling quality and consistency across outlets :
Delivery of service through multiple outlets leads to inconsistency and
lack of uniform quality. Even a mistakes at a single outlets puts the
reputation of the service principal in jeopardy. Simultaneously, the
prospects of other intermediaries are likely to suffer. The problem is
particularly serious in highly specialized services.
Tension between empowerment and control : Performance consistency
is always essential for any successful firm. The service principal earns a
profit by carefully controlling every aspect of the intermediaries business.
The performance may not be desirable to customers when an intermediary
does not deliver the service according to the specifications of the
principal. So, the service principal places emphasis on grid standards,
carefully specified supplies and continuous monitoring. However, control
can have a negative impact on intermediaries. Many service franchisees
are entrepreneurial by nature and capable of operating on their own. If
their independent ideas are integrated into the policies of the service
personnel, they can deliver services according to consistent standards.
Channel ambiguity : The service principal allows greater flexibility to
intermediaries. When the service principal in new and lacks sufficient
power to govern the channels, he follows empowerment strategies. In
these strategies, the service principal provides information, research or
processes to help the intermediaries function independently. While using
empowerment strategies, doubts arise about the roles of the service firm
and the intermediary. Market research will be undertaken to identify
customer requirements and the result used effectively. Moreover,
standards should be determined and the representatives should be
properly trained. In these areas, the roles of the service principal and the
intermediaries should be clear defined. They must assumes responsibility
for the tasks assigned to them. If the roles of the principal and service
intermediaries are unclear, it will lead to confusion and conflict.

Distribution activity in service is tragic in nature. Two service marketers are involved
in delivering a service through intermediaries the service principal and service
deliverer. They key decision-areas include location and channel used to supply
services to target customers. Location deals with problems concerning the selection of
the site from where the service is delivered. Channels of distribution are used to
transfer the services from producers to consumers. There are two methods of
distribution of services namely, direct sale and delivery of service through
intermediaries. Franchisees- agents, brokers, wholesalers and electronic channels are
important intermediaries involved in indirect distribution. The service principal
encounters several problems while involving intermediaries in the distribution of
services. However, the service principal employees intermediary management
strategies for effective service delivery through intermediaries. These strategies
include control strategies, empowerment strategies and partnering strategies.

Objective Type Questions

I. Fill in the blanks with the right answer
1. _________ and ________ are the two key decision areas in
supplying services to target customers.
2. Two service marketers involved in delivering services through
intermediaries are________ and ________.
3. in ________, service are distributed directly from provider to
4. _________ is one where one person grants rights to another to
exploit an intellectual property right involving trade name,
names, products, trademarks, equipment distribution.
II. State whether the following statements are True or False
1. Agents generally work for principals continuously, rather than for a single
2. Electronic channels are the only service distributors that do not require
direct human interaction.
3. Franchising works well with services that can be standardised and
duplicated throughout the delivery process.
4. The franchise is an extension of the service organisation and provides the
same service.
5. Purchasing agents have only short-term relationships with buyers,
evaluating and making purchase for them.
6. When multiple outlets deliver services, the biggest problems are
inconsistency and lack of uniform quality.
7. Online travel companies have no inventory costs and therefore goods are
sold a low cost.

III. Choose the best answer from the following

1. Organisations that buy from producers and sell to retailers and
organisational customers are:
(a) Franchisees
(b) wholesalers
(c) service outlets
(d) franchisers
2. A software park is an example of
(a) concentrated service
(b) dispersed service
(c) neither dispersed nor
(d) none of the above
concentrated service
3. In the case of the franchise, trade name, format and procedures are owned
(a) franchiser
(b) franchisee
(c)both the franchiser and franchisee jointly
(d)neither the franchiser nor the franchisee
4. The benefit of choosing the agent or dealer in the service delivery process
(a) contact with customers
(b) saving in distribution cost
(c) reduce advertisement
(d) the agent represent only one
service principal
III.Match the following
1. Intensive distribution
2. Exclusive distribution
3. Franchising
4. Direct channels
5. Service principal
6. Service deliverer
7. Demographic variable
8. psychographic variable
9. Segment
10. Service wholesalers

(a) No intermediary
(b) Originator
(c) gender
(d) personality and values
(f) Facilitating agents
(g) Licensed service outlets
(h) Limiting the number of
intermediaries to one per given area.
(i) Intermediary
(j) Locating the offering in
numerous outlets
(k) Booking large blocks of hotel

Answer for Objective Type Question

Answer for Fill in blanks
1. Location channels
3. Direct channel
Answer True or False
1. True
2. True
3. True
4. True

2. Service principal or originator

service deliverer or intermediary
4. Franchise
5. False
6. True
7. True

Answer for choose the best answer

1. (b)
2. (a)
3. (a)
4. (a)
5. (b)
6. (I)

7. (c)
8. (d)
9. (e)
10. (k)
11. (f)

1. Define distribution.
2. What do you understand by financing
3. Suggest three services for which the location of a service organisation is
4. Who are service wholesalers ?
5. State the advantages of direct distribution.
6. Give example of services which are wholly dependent upon geographical
7. Who are the middlemen operating in the channel of distribution for services?


Explain the advantage of franchising.

What are the challenges faced while franchising ?
Explain the functions of intermediaries in service firms.
Explain the methods of customer segmentation for designing a service
distribution system.
5. Why is the direct distribution a logical choice for service marketing ?

1. Describe the factors that influence the choice of location of services sites.
2. What is franchising ? Discuss its advantage and challenges from the point of
both the franchisee and franchiser.
3. Explain the strategies, which are employed for the effective service delivery
through intermediaries ?
4. What are the common issues in involving intermediaries ?
5. Explain the benefits of electronic channels for the distribution of services.
6. Explain the benefits and challenges in distributing services through agents and

People in Services Marketing Mix
People are one of the important elements in the service marketing mix. The success of
marketing a service is tied closely to the selection, training, motivation and
management of people. Services failures occur when the management of people
becomes ineffective. People in service marketing mix applies not only to personnel,
but also to the roles they play. The term 'people' is defined as, all human actors who
play a part in service delivery and thus influence the buyer's perceptions, namely the
firm's personnel, the customer and the other customer's in the service environment.
Thus, the term people includes both service personnel and customers.
Service Personnel
Service Personnel are those people who provide an organisation's services
to customers. The examples of the service personnel are operators, bus drivers, lift
attendants, librarians, clerks in bank, chef, receptionists and counter clerks in hotels or
hire car companies, security guards, telephonist, repair and servicing personnel, and
waiters. The personnel in a service organisation may be classifies into contact
personnel ('customer-contact' employee) and support personnel (non-customer contact
1. Contact personnel
Contact personnel play an important role in the service system. They are
considered as a part of the product the service organisation delivers. For many
services, there is no tangible evidence available. So, the customer before making
purchases is unable to assess the quality of the service. In this context, customers
very often use the appearance and manner of contact employees as reference
points. 'Customer contact' employees are those who come into contact with
customers in the process of service delivery. Customers contact employees are
also known as frontline staff or boundary spanners. In many cases, the contact
employee is the service provider. In most personnel and professional services
like haircutting, physical trainers, child care, cleaning, maintenance, counseling
and legal service the role of contact employees is very important. The contact
employee provides the entire service single handedly. The contact employee
performs the service entirely as he represents the firm. He can directly provide
customer satisfaction. Customer contact is the vital part of service experience.
Service firms employees can be divided in four categories as shown in figure

Figure 9.1 Classification of customer-contact employee

(a) High contact personnel : When the physical presence and interaction of the
customer with the employee for a longer time, it is regarded as having high
contact with the customer. Such employees perform marketing functions too.

Most personnel services like hair cutting, child care, cleaning, counseling etc.,
provide the entire service singlehandedly. The offering is done by the employee.
Even if the contact employee does not perform the service entirely, he personifies
the firms in the customer's eyes. A receptionist may not provide the entire service,
still he/she represents the firm.
(b) Low contact personnel : when the period of interaction of the customer with the
contact employee is relatively low, then the employee is called the low contact
personnel. A clerk in bank or post office, is a low contact personnel; since
interaction of the customer with them is for a limited time. The low contact
employees also perform the role of marketers. Thy physically embody the
services offering. Sometimes, services do not involve any physical contact
between customers and service providers. Examples of this type of service
include home shopping, telebanking etc..
(c) skilled and professional : Those who are professionally qualifies possess skill
and expertise to deliver services. Doctors, lawyers, employees of health care etc.,
are professionals who represents the firm in its totality. Everything those
professionals do or say can influence the perceptions of the organisation. These
professional should be well equipped to tone up their psychological traits which
support the brand image of the service.
(d) Non-professionals : contact employees not possessing any special skills are
called non-professionals. Flight attendants, waiters, telephone operators, retail
clerks, courier boys, etc., are non-professional employees. Even when they are
off-duty, their behaviour reflects the organisation they represent. If they are rude
with their customers, it will only affect the image of the organisation. So, highly
reputed service organisations emphasis that its employees maintain on stage
attitude and behaviour whenever they are off duty too. Though non-professional
employees possess low skills, they should be capable of handling interpersonal
conflicts and deliver the device to the satisfaction of the customers.
Boundary spanners
these employees performs "boundary spanning roles": The frontline service
employees are referred to as boundary spanners because they operate at the
organisation's boundary. Boundary spanners provide a link between the external
customer, environment and internal operations of the organisation. In industries such
as fast food. hotels and telecommunications, the boundary spanners are the least
skilled and lowest paid employees. They are order takers, front desk employees,
telephone operators. store clerks, truck drivers, and delivery people. (However. in
some-other industries, boundary spanners are well paid and highly educated
professionals like doctors, lawyers, accountants, consultants, architects and teachers).
2. Support personnel or non-contact employees
Support personnel perform behind the scene operations such as computer and data
management services, accounting and logistics. Though they do not come into
direct contact with the customers, they contribute to the service delivery. Chefs in
hotels, cockpit crew in airlines. administrative staff are some other examples of
support personnel. Generally, support personnel possess high skills and
competence in their work. There are two types of support personnel namely,
management support personnel and technical support personnel.

(a) Management support personnel : The management support personnel ensure

that contact personnel get adequate resources to perform. They are responsible
for directions and motivating the front-line personnel. They are also
responsible for maintaining service culture in the organisation Gronroos
defines service culture as a culture where an appreciation fer good service
exists, and where giving good service to internal as well as ultimate, external
customers is considered a natural way of life and one of the most important
norms by everyone". So, we can deduce that there are three components of
service culture 1. Appreciation for good service
2. good service is provided to internal as well as external customers
3. providing good service is a way of life and it comes naturally because
it s an important norm of the organisation.
(b) Technical support personnel : Technical support personnel operate at the
backstage and are not visible to the customers. These personnel serve the
front-line personnel in providing satisfied service to customers. They
guarantee that their services are timely and accurate. If the back stage service
personnel fail to perform their support tasks properly, it has a negative impact
on customer's perception. They indirectly influence the perception of quality of
service. Figure 9.2 presents the positions of support personnel in a service

Figure 9.2- The visible and invisible staff in service operation

Adapted form P. Eighlier and E. Langeard - Conceptual Approach of the service
According to Helen Woodruffe, service personnel perform three important functions :
Primary functions, facilitating functions and ancillary functions.
Primary functions consists of actually carrying out the intended service(doctor,lawyer,
etc.). Facilitating functions facilitates customers to participate in the service. For
example, bank counter staff, waiter in a restaurant, front office personnel etc.,
performs facilitating functions. Ancillary services are those where an employee helps
to create a service exchange but is not a part of it. For example, travel agent, insurance
agent and a supervisory staff of the service organisation perform ancillary services.
Role of frontline employees
The frontline staff provides a link between the external customer and internal
operations of the organisations. Their function is understanding, filtering and
interpreting information and resources between the organisation and its external
constituencies. The frontline staff requires an extraordinary level of emotion, ability to
handle interpersonal and inter organisation conflict. They must be in a position to
trade off between quality and productivity on the job. The role of frontline employees
may be explained under the following headings : 1. Emotional labour and 2. Source of

1. Emotional labour : The term emotional labour was coined by Arlie
Hochschild. It refers to the labour that goes beyond the physical or mental
skills needed to deliver quality service. Emotional labour includes a smile,
making eye contact, showing sincere interest and engaging in friendly
conversation with customers visiting the service organisation. Further,
emotional labour directs friendliness, courtesy, empathy and responsiveness
towards customers. The service firm should select only those people who can
handle stress and train them in the needed skills. After their appointment, the
frontline employees may acquire coping ability through job rotation,
scheduled breaks, team work, etc. The frontline employees may put up with
customer's bad temper even it they are compelled to work for prolonged hours
and their patience is stretched. There are certain techniques to reduce the stress
of excessive emotional labour. Providing good physical working conditions,
allowing employees to take scheduled breaks, rotating the positions are some
of the technique which help in reducing the stress of frontline employees.
2. Source of Conflict : Generally, frontline employees face interpersonal and
inter organisational conflicts on their job. Their frustration and confusion may
lead to stress, job dissatisfaction and a diminished ability to serve customers.
Frontline employees are faces with conflicts of various levels. it may be
person or role conflicts, organisation or client conflict and interclienct conflict
and quality vs productivity.
Sources of conflict for frontline employees

Figure 9.3 - Sources of conflict for frontline employees

(a) Person or role conflicts : Conflicts may arise due to what the frontline
employees have been asked to do which may clash with their self-image, or
values. When equality and individualism are highly valued, frontline
employees may experience role conflicts. Role conflicts can be understood
from the illustration of an Israeli service expert. In Israel, for instance, most
buses are operated by one man, the driver, who is also responsible for selling
tickets. No trays are installed in buses for passing the coins(bus fare) from
passengers to driver and the money is transferred directly. But drivers often
complain about the humiliating experience of having to stretch out their hands
like beggars in order to collect to fare. Another typical problem they encounter
is when money changes hands and coin falls down accidentally on the floor of
the bus. The question, who will bend down to pick the coin, the driver or
passenger, clearly reflects the driver's role conflicts. Whoever stoops to pick
the coin up is reflective of subservient status.
(b) Organisation or client conflict : The frontline service employee faces another
conflict that arises between their two bosses or between the organisation and
the individual customer. Service employees are expected to follow certain
standards, rules and procedures. Fundamentally, these rules and standards are
customer-based. When
he demands of the customers are beyond the rules, the employee has to choose

whether to follow the rules or satisfy the demands. The conflict will be severe if the
employee believes that the policies of the organisation are wrong. In this context, the
employee must decide over whether to accommodate the client and risk losing his /
her job or follow the policies as a measure of safeguarding the job. Again the conflict
is severe when the service employee directly depends on the customer for income. For
example, employees getting tips and commission from customers are likely to face
greater levels of client conflicts.
(c) Inter-client conflict : Inter-client conflict occurs on two occasions: (i) While
serving the customers in turns, and (ii) while serving many customers
simultaneously. For example, a teller, a ticketing agent, a doctor etc., serves
clients in turn. In the case of serving customers in turn, the provider may
satisfy, one customer by spending additional time customizing the service.
While doing so, the other waiting customers become restless as their needs are
not met immediately. Service providers such as teachers, entertainers, tourist
guide etc., serve many customers at the same time. They experience
difficulties in serving the numerous needs of a group of heterogeneous
customers simultaneously. This type of conflict is apparent in any college class
room where a professor must meet a multitude of expectations.
(d) Quality vs Productivity : Frontline service employees are expected to trade off
between productivity and quality. They have to be effective as well as
efficient. They are expected to satisfy the customers and at the same time, be
productive. For example, a physician in a corporate hospital is expected to
deliver individualized service to all his patients but at the same time expected
to attend on all patients within a specified time frame. These essential 'trade
offs' between quality and quantity exert some pressure on service employees.
Peter Drucker opines that "productive performance in all service jobs will
combine both quality and quantity objectives". The trade offs are more
difficult for service businesses than for manufactured goods.
Strategies for creating Customer-oriented service delivery
The service organisation should follow certain strategies to motivate employees to
deliver customer-oriented promises successfully. Zeithaml and Bitner suggest the
following strategies to build a customer-oriented service-minded workforce.

Figure 9.4 Human resource strategies for

creating customer-oriented service delivery
1. Hire the right people
Hiring the right people is the first step in developing customer_oriented sen,ice
delivery. considerable attention should be paid to hiring and recruiting service
personnel. The traditional practice of many service organisations is the perception that
service personnel are the lowest on the corporate ladder and will even work for
minimum wage. But modern organisations focus on more effective recruitment
practices. The software company namely, Infosys Technologies, Bangalore employs

only the best professionals. The company relates its technology services to the
changing preference of its customers by employing competent professionals. To hire
the right people, a service provider can follow three maxims: (i) Scout for the best
people (ii) Hire for service competencies and service inclination, and (iii) Be the
preferred employer.
(i) Identifying the best people : The service organisation should identify
the best people and compete with other organizations to recruit them.
The prominent ways of recruiting service personnel include -campus
recruitment from colleges, career fairs, placement agencies and
referrals. Under referrals, the existing employees refer someone who is
competent for the post. The cost of referral is comparatively low and it
yields good results too.
(ii) Hiring the best people : After identifying the potential employees, the
service firm should screen the candidates in order to identify the best
people. Candidates who have service competencies and service
inclination are considered to be the best ones.
Competency implies the skills and knowledge required to perform the job. Service
competencies are validated by educational qualifications and certificates of merit.
This is quite fine in recruiting doctors, airline pilots, professors, teachers, etc. Having
screened the candidates for service competencies, they must also be scrutinized for
service inclination. Service inclination means the interest and involvement of the
service employees in performing service related jobs. We can say that, service
competency is useless without service inclination. Generally, service inclinations are
best reflected in the employee's attitude towards service and towards serving the
customers. An ideal selection process for service employees is to assesses both service
competency and service inclination. Employees who are high on service competency
and service inclination should only be hired. Figure 9.5 shows how 'service
inclination' factor and other personal attributes in a candidate that an Airlines
considers in its innovative approach.
1. Employees in general
2. Flight attendants

Commision, sense of humour, can do
attitute, egalitarian sense ( we rather than
Group interaction.

3. Pilots

Team work skills, critical factor above

and beyond the essential technical skill.

4. Airhostess

Hospitality, grace and elegance, presence

of mind, endurance.

Figure 9.5 - Personal characteristics reflecting service inclination

(iii) Be the preferred employee : The service organisation which is known
as the 'preferred employer' attracts the best people for recruitment.

Multinational companies with branches across the countries are generally

preferred by the computer professionals. They are known for providing
extensive training, career and advancement opportunities, excellent
internal support, attractive incentives and perquisites, overseas
assignments, etc. SIS Institute, the world's largest privately held software
company is a preferred employer in its industry. SAS is ranked No. 3 in
Fortune's list of the 100 best companies to work for in America. The
company's website gives the philosophy about its people " if you treat
employees as if they make a difference [o the company, - they will make
a difference to the company". The best performers at SAS seldom leave
the firm to work elsewhere.
2. Develop people to deliver service quality
once an organisation has hired the right kind of employees, then it must train them to
deliver quality service. Development of customer-oriented workforce focuses on
training, empowerment and promoting teamwork.
Service employees need ongoing training in technical and interactive skills. Examples
of technical knowledge include accounting +)stems in hotels, cash-machine
operations in retail stores, underwriting procedures in an insurance company' etc.
McDonald has franchises worldwide. It sells quickly prepared and moderately priced
food. McDonald's own Hamburger University trains. Future rangers of that company
all over the world. Apart from formal education, technical skills are taught through on
the job training and orientation program. The International Holiday Inn, the oberois in
India Tokyo's Imperial Hotel etc., have their own training institutes. Besides the
technical skills, interactive skills enable the employees to provide courteous,
responsive and empathetic service. The interactive skills focus on specific social
aspects such as eye contact, a smile, friendly tone, neat dress, etc. Successful service
organisations invest heavily in training their employees. Such intense training fits
their business goals and strategies. For example, an Airlines takes pride in offering
,.the best ire in the air"' All employees thereof Airlines such as pilots, baggage
handlers, aircraft groomers etc., attend orientation programmes.
Empowerment is defined as "giving employees the desire. skills, tools and authority to
serve the customer". Front-line employees are empowered with skills, tools and
authority to comply with customer requests and set right thin-es when they go wrong.
According to Bowen and Lawyer, empowerment means sharing four organisational
ingredients with front-line employees :
(i) Information about the organisation's performance.
(ii) Rewards based on the organisation,s performance.
(iii) knowledge that enables employees to understand and contribute to
organisational performance and
(iv)Power to make decisions that influence organisational direction and

Benefits of Empowerment
Research has proved that there are several positive benefits in empowering
front-line employees. David Bowen and Edwaid Lawler have pointed out the
following benefits of empowerment :
I. Quicker response to customer needs during service delivery.
II. Quicker response to dissatisfied customers during service recovery.
III. Employee's satisfaction.
IV. interaction with customers with warmth.
V. Great source of service ideas
VI. Great word of mouth advertising from customers.
(i) Quicker response to customer needs during service delivery : Empowerment
entrusts adequate power to service personnel to make decisions on the spot.
quick decision-making enables the service employees to respond quickly to
customer needs. Needless to say. satisfied customers are the great source of
word of mouth communication.
(ii) Quicker response to dissatisfies customers during service recovery :
Sometimes, failure may take place in service delivery. when there are failures
in the delivery system, the customers hope for an immediate recovery effort on
the part of the service organisation. Since sales force is empowered with the
authority to set right the defect immediately, customers can hope for a
recovery on the spot. The timely service recovery turns a dissatisfied customer
into a satisfied, even loyal one.
(iii) Employee's satisfaction :As employees are entrusted with the authority for
decision-making, they feel more responsible. It also gives them customer
satisfaction. As they are trusted, employees enjoy their work. They may not
leave the organisation to work elsewhere This ultimately leads to lower
turnover and absenteeism.
(iv)Better interaction with customer's: Empowerment makes employees feel
better and important. This aspect is amply reflected in their interaction with
customers. Reduction in job related stress, improved job satisfaction, greater
adaptability, etc.. promote a good customer relationship.
(v) Great source of ideas : Front line employees are empowered to accommodate
customer requests and to recover very quickly when things go wrong.
Empowerment gives employees skill and authority to serve customers. An
empowered service firm is characterized by flexibility, ability to take quick
decisions and authority given to front-line employees. Service employees
working in such a set up feel they are chiefly responsible for the efficient
service outcome. This aspect will pave the way for excellent sources offerings.
of ideas for improving current offerings.
Promoting Teamwork
When employees work as a team, customer satisfaction increases. Teamwork
reduces stress among service employees. According to Berry and Parasuraman, an
interactive community of l0 workers who help one another, is a powerful antidote to
service burnout. The spirit of team work is promoted in several ways. The attitude that
"everyone has a customer" is one way of promoting teamwork. Service blueprints
illustrate the integral roles of employees in delivering quality service to customers. All

employees who interact with the customer will work together as a team to coordinate
their efforts.
3. Provide the much needed support system
To be customer-focused the service workers need internal support system.
For example, they should have easy access to update customer records so that
they can readily provide an accurate service to customers.
If a bank is well staffed and equipped with latest technology, it can ensure speedy
service to customers. Similarly, in a call centre, the internal support from
supervisors, teammates and technology used on the job are all strongly oriented
the ability to serve customers.
Strategies ensuring internal support
The following strategies ensure customer-oriented internal support.
(a) internal service quality (b) cautionary note (c) supportive technology and
equipment (d) service oriented internal processes.
(a)Internal Service Quality: An organisation can develop an internal quality
culture by measuring customer perceptions of internal service quality. Internal
service guarantees are essential for implementing a culture of internal service
quality. Internal customer service audits enable organisations to identify their
customers, determine their needs and make improvements. The information
collected from customers will be invaluable in enhancing internal service
(b) Cautionary note : A note of caution is always essential for service employees
while delivering service. People who are conscious of being measured in their
work very often forget that they are in business to serve the ultimate customers.
So, a link should always be drawn between what is being delivered internally
and how it supports the delivery of service externally to customers.
(c) Supportive technology and equipment : To provide quality service to
customers, employees need the right equipment and technology. If the equipment
fails them, they can become easily frustrated in accomplishing their objectives.
Having the right technology and equipment may even be extended to a good
office layout. For example, a good office environment may be designed with
open spaces ( to encourage meetings) and open slots ( to encourage frequent
interaction). In this way, the work space facilitates internal service orientation.
(d) Service-oriented internal processes : Every service organisation has internal
processes driven by rules, procedures, cost control and the needs of internal
employee. The internal process should be redesigned (process re-engineering) so
that it becomes customer service centre can have instant access to calling
customer's account profiles, customer location, type of loading dock, history of
previous shipments, destinations and delivery.
4. Retain the best people
Having hired the right people, the service organisation trains and develops them
and provides the needed support. Employees turnover, especially if the efficient
employees are leaving, will be detrimental to the customer satisfaction. It will
also adversely affect employee morale and overall service quality, so, the best
employees should be retained by the organisation. The following strategies may
be employed to retain the best performers.

(a) Including employees in the company's vision.

(b) Treating employees as customers.
(c) Rewarding strong performers.
(a) Including employees in the company's vision : the management should
share its vision with all service employees. Employees who deliver service
should know how their contribution fits into the goals of the organisation.
Employees will be motivated by salary and perks. If the best employees do not
stay committed, they may be lured elsewhere. A contended employee is likely
to remain with the organisation and he/she will strive to achieve the
organizational's goals
(b) Treating employees as customers : The primary job of the service
management should be to cultivate a corporate culture that benefits all
employees and customers. In the words of Fryer, if you build a company and
a product or service that delivers high levels of customer satisfaction, and if
you spend responsibly and manage your human capital assets well, the other
external manifestations of success, like market valuation and revenue growth,
will follow. Many companies treat their employees as customers of the
organisation. The product that the company offers to its employees is the job.
The Chief Executive Officer (CEO) of a company remarks, I realized that it
was my responsibility to make their (employees) lives more pleasant. In
simple terms that meant giving people the right working environment, the right
tools and right leadership. It meant eliminating fear, frustration, bureaucracy
and politics. Ofcourse, It meant decent compensation and bonuses when the
company did well but it also meant helping people develop as human beings.
(c) Rewarding the strong performers : The company must reward and
promote the strongest service performers. The reward system set up in an
organisation should reward service excellence by offering a variety of rewards.
Higher pay, promotion and one-time monetary awards or prizes are linked to
service performance. Peer award is given to employee who has excelled in
providing service to customers. Reward are linked to special organisational
and team celebrations for achieving improved customer satisfaction. (In Acor
Corporate Services, the reward system consisted of incentives vouchers.
Vouchers were rewarded to the employees. These vouchers can be exchanged
for clothes, jewelery, books, etc. ).
Service Culture
Behaviour of employees in an organisation is largely influenced by the culture
of the organisation. Service culture shaped the individual and group behaviour.
Definitions of culture
1. Corporate culture has been defined as the pattern of shared values and beliefs
that give the members of an organisation meaning and provide them with the
rules for behaviour in the organisation,, - S.M. Davis .
2. Culture has been defined more informally as what we do around here or
organisational glue or central themes. - Zeithmal and Bitner.
3. Culture as one of those things we sense in an underneath sort of way
4. A culture where an appreciation for good service exists, and where giving
good service to internal as well as ultimate customer is considered a natural
way of life and one of the most important norms by everyone - Gronroos

the above definitions bears many implications of culture

1. A service culture exists if there is an appreciation of good service.
2. Good service is given to internal as well as external customers. It is not enough
to promise excellent service to final customers. All people within the
organisation deserve the same kind of service.
3. In a service culture, good service is a way of life. It comes naturally because it
is an important norm of the organisation.
Good service culture may be developed over time with the support of human
resources and internal marketing practices. No single strategy will change the culture
if it is rooted in government regulation, product or operation-oriented traditions.
Hundred of aspects are required to build and sustain a service culture. Transporting a
service culture from one nation to the other is highly difficult. Since services are
dependent upon human interaction, there are many barriers to transporting a service
culture. Several legal, cultural and language barriers exist in the global market place.

People are one of the important elements in the services marketing mix. The term
'people' includes both service personnel and customers. The service personnel may
be classified into customer contact employees and support personnel. Customer
contact employees may be high contact personnel, low contact personnel, skilled and
professional and non-professional. The service organisation should follow certain
strategies to motivate employees to deliver employees to deliver customer-oriented
promises successfully. Zeithaml and Bitner suggest (I) hire the right people (ii)
Develop people to deliver service quality (iii) provide the needed support system and
(iv) Retain the best employees in an organisation is largely influenced by the culture
of the organisation. Culture is the pattern of shared values and beliefs that give the
members of an organisation meaning and provide them with the rules to follow in the
Objective Type Questions
I. Fill in the blanks with the right answer
1. The term people in the service marketing mix includes _________ and
2. when the period of the interaction of the customer and the employee is for
a long time, the employee is called __________.
3. The employee who contributes to the service delivery but does not come
into direct contact with the customer is called _________.
4. When an service provider is serving customers in turn ________ conflict
5. When an employee believes the organisation is wrong in its policies and
the customer is demanding more, service employees face ______________
6. ___________ means giving employees the desire skills, tools, and
authority to serve the customer.
7. ___________ is defined as the pattern of shared values and beliefs that
give the members of an organisation meaning and provide them with the
rules for behaviour in the organisation.
8. The strategies enabling service promises are often referred to as________

II. Choose the best answer from the following
1. When the physical presence and interaction of the customer with the
employee for longer time, he is called :
(a) High contact personnel
(c) low contact personnel
(b) no contact personnel
(d) support
2. Where the employee helps to create the service exchange but is not part of
it , it is called :
(a) Primary service
(c) ancillary service
(b) Facilitating service
(d) none
3. The conflict between the role requirements and the self image of the
employee is known as :
(a) Role conflicts
(c) Client conflict.
(b) organisation conflict.
(d) Inter-client conflict.
4. The skills and knowledge necessary to do the job are called
(a) service inclination
(d) service quality
(b) service orientation
(c) service competencies
III. State whether the following statements are True or False
1. Boundary- spanning positions are often high stress jobs.
2. Front-line employees are employees are expected to trade off between
quality and productivity.
3. Service competencies refer to the interests of the employee in doing the
service related work.
4. Service inclination indicated the interest of the employee in doing the
service related jobs
5. there are no barriers to transporting the service culture through international
business expansion.
6. Service culture is said to exists in the organisation where there is an
appreciation for a good service.
7. Front-line employees do not face interpersonal and inter organisational
conflicts on the job.
8. Emotion labour does not go beyond the physical or mental skills needed to
deliver quality service.
IV. Match the following
1. Retain the best people
2. Empowerment
3. team work
4. technical skills and knowledge
5. Emotion labour
6. Boundary spanners

(a) Giving employees authority

(b) Working with accounting
(c) going beyond physical and
mental skills
(d) enable promises
(e) making promises
(f) People who provide an organisation's
service for customer

7. Internal marketing
8. Interactive marketing
9. External marketing
10. Service personnel

(g) keeping promises

(h) providing a link between the external
customer and the internal operations of
the company.
(i) team goals and rewards.
(j) treating employees as customers

Answer for objective type Questions

Answer for fill up the blanks
1. Employee, customers
2. high contact personnel
3. support personnel or non-contact
4. inter-client


organisation or client
corporate culture

Answer for choose the best answer

1. (a)
2. (c)

3. (a)
4. (c)

Answer for True or False

1. True
2. true
3. False
4. True


Answer for match the following

1. (j)
2. (a)
3. (i)
4. (b)
5. (c)

6. (h)
7. (d)
8. (g)
9. (e)
10. (f)


Section A
1. Who are the 'peple' in service marketing?
2. Who are contact personnel?
3. Who are service personnel?
4. Who are support personnel?
5. Define empowerment.
6. What are the sources of conflict for service personnel?
7. Define service culture.
8. Mention two special capabilities of service personnel.
9. Who are boundary spanners?
10. What do you understand by emotional labour?
11. What are the advantages of being preferred employer?
12. How is team work promoted among service personnel?

13. Write a note on front-line staff.


Section B
why is the people element of the marketing mix so important in services
Explain the benefits of empowerment.
Explain the strategies for hiring the right people for the service firms.
Explain the various types of service personnel.
To retain its best people, the service organisation must apprreciate and reward
its employees - Elucidate this statement.

Section C
1. Briefly explain the human resource strategy as applied in the service firms.
2. Explain the support system needed for the effective functioning of the service
3. How a service organisation must develop its employees to deliver service

Chapter 10 Physical Evidence

As services are intangibles, customers rely on tangible cues or physical evidences to
evaluate the services before they are availed. with the help of physical evidences,
customers assess their satisfaction with the service during and after consumption.
Physical evidences include all aspects of the organisation's physical facility. The
elements of physical evidence are show in Figure 10.1.

Figure 10.1 Elements of Physical evidence

As the above figure shows, physical evidence is broadly divided into two parts,
namely, (l) Services cape and (2) Other tangibles. The service-scape is further divided
into facility exterior, and facility interior.
1. Physical facility or service-scape : The physical facility or services cape
consists of various elements that affect customers. These include exterior
attributes and interior attributes. Exterior attributes include signage, parking,
landscape, surrounding environment, etc. Interior attributes include interior
design, equipment, signage, layout, decor, etc.
2. Other tangibles : Apart from services cape, there are some evidences which
communicate about the service. These tangibles make services more tangible
for customers both before and after purchase. These include business cards,
stationary, billing statements, reports, employee dress, uniforms, brochures,
web pages etc. It should be noted that services cape remain fixed in the service
organisation while tangibles are movables communicating about the service
Other tangibles
1. Insurance


Policy document,
Billing statements.
Periodic updates
Company brochure
Letters/ cards

2. Hospital

Building exterior,
Waiting ares,
Admission office

Billing statements
Patien care room.

Medical equipment


4. Express mail

5. Sporting

Recovery room,
airline gate area
Airplane exterior
Airplane interior like decor
seats, air supply


Not applicable


Stadium exterior
Ticketing area
Rest rooms
Concession areas
Playing fields
Source: Services Marketing by Zeithaml and Bitner page


Role of servicescape
Provision of appropriate services cape is of strategic importance. Services cape
performs a verify of roles which cause a favourable impact on customers. The role of
services cape may be discussed under the following headings :
1.Package 2. Facilitator 3. Socialiser and 4. Differentiator.
1. Package : packaging is a market necessity. Consumers do not wants just the
product. They want explanation, assurance, encouragement, confidence and
praise. Packaging serves in most cases as a vehicle by which the brand of the
product is carried through to the consumers. Similar to the package of the
tangible product, the services cape and other tangible evidences wrap the
services. Packages communicate the external image of the service to
consumers. A service is created and provided in a physical environment. The
service provider and customers interact in service firm's physical environment.
The tangible elements such as visiting cards, billing statements, website etc.,
of the service firm complement the service offering. The outward appearance
of the service firm is the visual aspect of the intangible service. The
appearance of the personnel, their uniforms or dress and other elements
perform the function of a tangible product's package.
2. Facilitator : The services cape facilitates the performances of persons in the
environment. in the properly designed service setting, service activities will
flow efficiently. A well-designed functional facility makes the experience of
the customer a pleasant one. The service employee also finds his job pleasant,
When the physical facility is poor, both employees and customers get
frustrated. For example, an international air traveler is dissatisfied with poorly
designed airport. An airport with few signs. poor ventilation and poor catering

facilities will cause utmost inconvenience to him. His visit to the airport will
be disappointing. The employees working there will also be de-motivated.
Besides, the passenger seat comfort of the aircraft is a very significant factor
in determining passengers' comfort. In fact, international airline carriers
devote much time and resources on a better seat design. Airlines advertise
about the comfort of their seats turning into full flat bed for the convenience of
long-distance passengers on their websites So, the facilitator role of the service
scape has become increasingly important.
3. Socialiser : The design of the services cape has some tangible of the intangible
service. For example. building area, customer information. sign boards,
equipotent, waiting room, pay phone, brochures, reports, billing statements,
etc. These evidences are to be properly used by the service employees in
discharge of their duties. The services cape helps to convey expected roles.
behaviour and relationships among service personnel' Equipment, furniture
and fittings have functionality. Here, functionality means the ability of the
furnishings and fittings to facilitate the accomplishment or the employee and
customer goals. The space provided in the firm facilitates customer interaction
with service employees. For example, in a coffee house, many customers tend
to spend time socialising rather than coming in only for quick cup of coffee.
Comfortable lounge chairs and tables set in perfect ambiance encourage
socialising, interaction and longer stay.
4. Differentiator : The services cape acts as a differentiator. The design of the
physical facility varies with service firms. Physical environment differentiates
a service organisation from its competitors. It is directed at the market
segment to which the service is intended for. Such differentiation is done even
within the service firm itself. The seats on an air flight are designed to
differentiate business class from economy class. In shopping mall, the signage,
the colors used in decor and displays and type of channel music ail-are aimed
at intended market segment. A restaurant communicates through its
servicescape its differentiation for individual customer and family members.
Price differentiation is also achieved through variations in physical setting.
Generally, in lodges, bigger rooms with amenities cost more. Larger seats with
more leg room are more expensive on an airplane. Customer who are willing
to pay higher prices can experience the service in a different environment.
Customers form an opinion about the service organisations and the quality of
service on the basis of tangibles associated with the servicescape. The tangibles are
those physical evidences which may be fixed or movable. These evidences are
managed to reinforce the proposed image of the service organisation. These physical
facilities may be classified in to two, namely essential evidence and peripheral

Figure 10.2 Classification of physical facilities

All the elements of evidence communicate something about the service to the
consumer or facilitate performance of the service. The following Table shows some of
the elements of essential evidence and peripheral evidence.

Essential evidence
Customer information
Sign boards
Medical equipment
Waiting rooms
Consulting room
Pay phone

Peripheral evidence
Admission card
Billing statement
Cheque book
Pass book
Table 10.2 Physical Facilities

1. Essential evidence
According to Adrian Payne "essential evidence represents the key decisions made by
the service provider about the design and layout of building, the type of airplane
to be used by an airline, the ambience of reception room at a doctor's clinic. These
can be used to add significantly to the product surround.". The elements of
essential evidence constitute a dominant part of the service facility. These are
mainly technical facilities without which service cannot be delivered. For
example, hotel buildings, aircraft in an airlines, office and furniture in a
consultancy firm are some important tangible forms required for the delivery of
the service. Generally, these evidences cannot be possessed by the customer nor
can change hands. However, in services like car rentals, a car can be passed on to
the customer only on temporary basis. Essential evidence is an integral part of the
service offering.
2. Peripheral evidence
in the words of Adrian Payne, "peripheral physical evidence has little value on its
own. A railway ticket has no independent value in itself, but represents the right
to experience the service at a later point of time. Peripheral evidence adds
tangibility to the value of the service, provided the customer segment to which it
is directed values it". Peripheral evidence confirms the service but is
complementary to the service itself. For instance. ticket of the traveler. cheque
book of the bank customer, token issued in a restaurant. TV program list, mineral
water on a metal tray, newspapers and magazines for airline passengers, etc. The
elements of peripheral evidence make the service more tangible. For example, the
tangible representation of the service "Credit card" is examined a below:
(i) The service can be separated from the seller.
(ii) Intermediaries (electronic devices) such as ATMs are used in distribution
of service thereby the encouraging the geographic area operation for the
service provider.
(iii) The credit card performs the function of a differentiator. The service
product of one bank can be differentiated the service product of another
(iv) The credit card is a status symbol as well as a line of credit.

(v) Credit card ensures convenience in availing the service.

Web Pages
Web pages are virtual service tours allow customers to preview a service
experience. Web pages are the tangible evidence of the service. Travellers can preview
destinations, hotels, and their rooms and view entertainment venues before booking
their trips. It helps to decide their ultimate destination. Websites give an accurate
knowledge of servicescape to the customer before buying the service. At a moment's
notice, a wide range of choice is available. A traveller who want to fly considers the
aircraft, destination and hotel room all before experiencing the service. In the retail
context, customers can view merchandise and literally 'walk through a store' viewing
the merchandise. A housewife is able to link her husband who is employed far away
into the stores websites, tour the store with him via store's live video cameras. They
could decides on the new furniture through web pages. Internet offers tremendous
opportunities for the firms communicate about their services.
Types of servicescape
A servicescape takes place in a physical setting or service environment. The
servicescape is the place where the service is performed, delivered and consumed.
The elements of servicescape affects customer perception of the service. They are
also-important in achieving the organisation's goals. The types of servicescape that
organisations use may be discussed under two heads namely (1) servicescape use and
(2) Complexity of the servicescape. Figure 10.3 illustrates this point.

Figure 10.3 Types of servicescape

1. Services cape use
The services cape used by a service organisation can the classified on the basis
of the persons affected by the physical setting. Accordingly there are three
types of services cape: (a) self service (b) Interpersonal (c) remote service.
Self service environmental : Self service environment is one where the
customer performs most of the activities' As a result, only few employees
are involved in service. ATMs, movie theaters, self-service entertainment
such as theme parks and online Internet services are some examples of
self-service environment. Self service environment focuses on attracting
the right market segment and making the facility a pleasant experience
and easy to use.
Remote Services : In case of remote services, there is no customer
involvement with the services cape. Examples of a remote service
environment include telecommunication, financial consultants, and e-mail
order services. Customers of remote services never see the service
facility. Remote services are employee centered.
Interpersonal service : Inter personal services is a via media between the
two extremes of services, self service and remote service. In the
interpersonal service environment, both the customer and the employee

must be present. Examples of interpersonal servicescape include hotels,

restaurants, hospitals, educational institutions, banks, driving schools, etc.
so, interpersonal servicescape attracts, satisfies and facilitates the
activities of both customers and employees simultaneously. Such
servicescape also focuses on social interactions between customers and
employees. In other words, the servicescape must support customers and
the employees and facilitate interaction between the two groups.
2. Complexity of the servicecape
1. Lean : Service environments with few elements, few spaces and few piece
of equipment are very simple in nature. Such environments are also known as
lean environments. Kiosks, telephone booth etc., are known for lean
environments as they provide service from one simple structure.
2. Elaborate : Servicecape with many elements and many forms are known
as elaborate environments. Hospitals with many floors and rooms, and
sophisticated equipment have elaborate service environments. Complex
functions are performed within the physical facility. Only through careful
management of the servicecape. Marketing goals can be realised. For example,
an intensive care unit in a hospital should be designed to enhance safety and
comfort while simultaneously facilitating employee productivity. This is
essentially a trade off between quality and productivity. The servicescape
decision meant for elaborate service environments are quite complex.
Environment dimensions of the servicescape
Physical settings affects the human behaviour. The physical surroundings can
include all the objective physical factors that can be controlled by the firm to enhance
evidences such a lighting, colour, signage, textures, quality of materials, style of
furniture, layout, wall decor, temperature etc., that are carefully controlled of
facilitate elements which are divided into the following :
1. Ambience 2. Spatial layout and functionality 3. Signs, symbols and artifacts.
1. Ambience : The background characteristics of the service environment such as
temperature, lighting , music, fragrance and wall paintings from the ambience for
service delivery. A nice ambience stimulates people to respond to their
environment. For example, soft music is one of the important characteristics of
ambience that has an influence on the consumer's perception of service offerings.
Consumer's perception about service can be understood in terms of how long thy
spend their time in the premises of service provider. When music is played softly,
it is perceived that customers spend more time shopping. Aroma in bakeries,
coffee houses and incense shops attract customers.
Lighting is an important factor in any organisation. Light is needed to perform tasks
efficiently. Insufficient light will cause delay, defects, mental fatigue and irritation.
Natural light is a comfortable source of light. When natural light is not adequately
available, artificial light sources are used. Lighting needs should be carefully
considered, as they create desirable atmosphere. Besides the work area, passages
should be well lit to ensure safety to the customers. Fused light bulbs should be
replaced immediately.
An appropriate colour and illumination have a sooting effect on consumer's perception
of service. While red, orange and yellow are warm colours , green and blue are
regarded cool colours. The comfort of the customers and employees is large;y
influenced by temperature and humidity. Controlled room temperature enhances the
productivity of service employees. Unnecessary noise distracts interaction with

customers. Even in a high quality services is poorly perceived when noise occurs.
2. Spatial layout and functionality : Service environments are intended to serve
customer. So, spatial layout and functionality of the physical surroundings are
more important. special layouts refers to the way in which machinery,
equipment and furnishings are arranged, the size and shapes of those items and
the spatial relationships among them. Functionality refers to the ability of the
equipment, etc., to facilitate the accomplishment of customer and employee
Spatial layout should provide for ample space. Customers and employees need
space around them to feel comfortable. If customers are compelled to share their
space with others, they will feel uncomfortable. As a result there will be negative
perception of the service. Spatial layout and functionality of the physical
surroundings are important for customers in self-service environment. Selfservice servicescape consists only of customers, as they are expected to perform
on their own without relying on employees. The functionality of ATMs, selfservice restaurants, and e-shopping are examples to this. The facility and layout
can influence customer satisfaction greatly.
Signs symbols and artifacts : The element of the physical environment
communicates about the place to its users. Signs and symbols are used in the
physical setting are the explicit communicators. They guide, direct and influence
the behavior. Examples are 'Reception' 'CASH' 'Entrance' and 'Exit'. etc.
Artifacts give implicit cues to users about meaning of the place and norms of
behaviour. Artifacts include quality materials used in construction, artwork,
certificates, trophies and photographs. They convey symbolic meaning and
create an overall aesthetic impression. Signs, symbols and artifacts create
favourable first impressions in customers.
Since services are intangibles, management of physical evidence is highly difficult.
The following are some general guidelines for an effective physical evidence strategy:
1. Recognize the strategic impact of physical evidence 2. Map the physical evidence
of service 3. Clarify the roles of servicescape 4. Assess and identify physical evidence
opportunities 5. Be prepared to update and rnodernise the evidence: and 6. Work cross
1. Recognise the strategic impact of physical evidence : Physical evidence
affects service quality, expectations and perceptions. So. every service
organisation should first understand the importance of physical evidence. An
effective planning is needed for physical evidence. The planning strategy
should be linked to organisation's overall goals and vision. The planner must
carefully design the strategy that can support the accomplishment of
organisational goals. The service management should go about the planning
methodically. It should define the basic service concept, identify, the target
markets and know the firm's vision. Since physical setting is a permanent
component of the service environment servicescape, decisions should be
implemented carefully.
2. Map the physical of service : The second step in establishing servicescape
Everyone associated with the service delivery should be able to see the service
process. A service delivery should be able to see the service process. A service

blueprint (or map) accurately portrays the service system. Different people
involved in providing the service understand their roles. A service map
virtually displays the service by simultaneously depicting the process of
service delivery. the points of customer contact. the roles of customers and the
visible elements of the service (figure 10.4).

Figure 10.4 Service blueprint

People, process and physical evidence can be seen in the service map. The map
clearly shows the action involved in service delivery, the complexity of the process.
the points of human interaction, etc.
3. Clarify the roles of servicescape : Servicescape plays the roles of package,
facilitator. Socialiser and differentiator. The physical setting of a service plays
the role of package. It is a visual element which influences customers. The
physical surroundings enable the organisation to build a particular image. The
servicescape can also facilitate the performances of persons in the
environment. Service setting should enhance the efficient flow of activities"
The servicescape performs the role of Socialiser b1, helping both employees
and customers to convey clear messages. A good servicescape fosters a smooth
relationship between the employees and customers. The design of the physical
facility can differentiate a firm from its competitors. Colours. decor. layout.
music, Aroma, signage etc., can be used in consonance with the market
4. Assess and identify physical evidence opportunities : Having understood the
current forms of evidence and roles, then opportunities for improvement can
be identified. The elements of physical evidence should communicate about
the service offerings. Suppose the the price charged by a restaurant does not
match with the facilities made available to the customers, then either the
pricing or facility design needs to be changed. Each individual comes to a
particular service organisation with a purpose. The physical setting should aid
the fulfillment of customer needs. Easy parking, cleanliness, quick service etc.,
are some physical evidences that can satisfy the customers.
5. Be prepared to update and modernise the evidence : Physical evidences once
created cannot be expected to remain constant forever. With the passage of
time, they may require periodic updating and modernising, even if the goals
and objectives of the organisation do not change. Fashion, colour, design and
style reflect changing times. Unless the evidences are updated, physical
evidences will fail in their attempt to attract customers. During the service
experience of a customer, physical evidence should be a part of an effective
delivery strategy.
6. Work cross functionally : The service management has to make a number of
decisions with regard to servicescape. A multifunction 'team approach' is
required for the decision-making process. For example, the human resources
area is concerned with decisions regarding employee training and process
design decisions are made by operations manager. Further, marketing
department takes pricing decisions. Thus, decisions are made over time and by

the various functions within the organisations.

Service process
The service process is the last element in services marketing mix' It refers as
to how a service is provided or delivered to a customer. In the words of Adrian
Payne, the process by which services are created and delivered to the customers
is a major factor within the services marketing mix as service customers will often
perceive the service delivery system as part of the service itself.
Physical evidence includes all aspects of the organisation's physical facility (the
servicescape) as well as other forms of tangible communication Physical facility
consists of exterior facility (exterior design, signage, parking, landscape, surrounding
environment) and interior facility (interior design, equipment, signage, layout, air
quality or temperature). Other tangibles can be divided into two types essential and
peripheral. There are three types of service environments, self-service, inter-personal
and remote service Servicescape performs the roles of package, facilitator, socialiser,
and differentiator. The elements of servicescape are divided into (i) ambience (ii)
spatial layout and functionality and (iii) signs, symbols and artifacts. During the
service experience, physical evidence can be part of an effective delivery strategy.
There are some general guidelines for physical evidence strategy: 1. Recognise the
strategic impact of physical evidence 2. Map the physical evidence of services 3.
Clarify the roles of the servicescape 4. Assess and identify physical evidence
opportunities 5. Be prepared lo update and modernise the evidence and 6. work crossfunctionally.
Objective Type Questions
I. Fills in the blanks with the correct answer.
1. _________include all aspects of the organisation's physical facility as
well other forms of tangible communication.
2. _________is divided into facility exterior and facility interior.
3. _________includes background characteristics of the environment such
as temperature, lighting, noise, music, and colour.
4. _________ refers to the way in which machinery, equipment, and
furniture are arranged, the size and shape of those items and the spatial
relationships among them.
5. __________ refers to the ability of same items to facilitate the
accomplishment of customer and employee goals.
6. __________ evidence includes the technical facilities without which
the service delivery is impossible.
7. __________ evidences like business card, stationary, brochures etc.,
are passes on to the customer in the course of the transaction.
II. Choose the best answer from among the following
1. Social setting is
(a) Physical facility
(c) Physical setting
(b) appearance of the
(d) appearance of staff
2. The place where the service is performed, delivered and consumes is :
(a) Servicescape
(c) Essential evidence
(b) Peripheral evidence
(d) Ambience

3. Remote service consists of

(a)Customer only
(b)employee only

(c) both customer and

(d)neither customer nor

4. Which one of the following is the lean servicescape?

(a) Health clinic
(c) Airlines
(d)Hair salon
5. Which one of the following signs constitutes label in the servicescape?
(a)Name of the
(c) entrances
(d)No smoking
III. State whether the following statements are True or False
1. Physical evidence is the environment in which the services is delivered and
where the firm and customer interact.
2. A hospital with its many floors and rooms, sophisticated equipment and
complex variability in function is termed lean environment.
3. The effects of ambience are specially noticeable when they are extreme.
4. Many items in the physical environment serve as explicit or implicit
signals that communicate about the place to its users.
5. The design of physical facility cannot differentiate a firm from its
6. The packaging role extends to the appearance of the contact personnel
though their uniforms.
7. Web pages and virtual servicescape covered over the Internet are more
recent forms of physical evidence.
8. Essential evidence can be passed on the consumer.
9. The physical setting of an exchange may be described as atmospherics.
IV.Match the following
1. Self-service
2. Peripheral evidence
3. Facilitator
4. Ambience
5. Artifacts
6. Interpersonal services
7. Remote service
8. Lean servicescape
9. Spatial Layout
10. Facility interior

(a) Employee only

(b) Dry cleaner
(c) Temperature and humidity
(d) Arrangement of equipment and furniture
(e) Both customer and employee
(f) Presence of certificates
(g) Web pages
(h) Role of servicescape
(I) Customer only
(j) Background characteristics of the

Answer for Objectives Type Questions

Answer for fill in the blanks
1. Physical evidences
5. Functionality
2. Servicescape
6. Essential
3. Ambience
7. Peripheral
4. Spatial layout
Answer for choose the best answer
1. (d)
2. (a)
3. (b)

4. (d)
5. (a)

Answer for True or False

1. True
2. False
3. True
4. True
5. False


Answer for Match the following

1. (i)
2. (g)
3. (h)
4. (j)
5. (f)


6. (e)
7. (f)
8. (b)
9. (d)
10. (c)

1. Define atmospherics.
2. What is physical evidence in service?
3. What is essential evidence ?
4. What do you understand by peripheral evidence ?
5. Define ambience.
6. What is physical setting?
7. What is social setting ?
8. What do you understand by lean servicescape?
9. What are the implications of artifacts in the service environment ?
10. What is remote service?
11. What is servicescape?

Distinguish between peripheral and essential evidence.
Explain the importance of ambience in the service environment.
Explain the uses of servicescape.
How do signs, symbols and artifacts provide good orientation in the service
environment ?


Discuss the roles of servicescape.
Explain the types of servicescape with suitable examples.
physical evidence can be part of an effective delivery strategy - Discuss.
Explain the guidelines for physical evidence strategy.