Special Topics

Marketing Channels for Services &

Franchising

1717Major Topics for Service Channels

• Characteristics of Services and Implications**

• Focus of Service Marketing Channel**

• Key Service Channel Intermediaries*

• Source of Service Distribution Problem*

• Service Delivery Strategy

• Additional Issues

1717Five Characteristics of ServicesFive Characteristics of Services

• The intangibility of services

• The inseparability of services from service providers

• The difficulty of standardizing services variability

• The perishability of services

• The higher degree of customer involvement in services

1717Implications of Service CharacteristicsImplications of Service Characteristics

for Channel Management*for Channel Management*

• Intangibility & Channel Management

• Inseparability & Channel Management

• Variability of Services & Channel Management

• Perishability of Services & Channel Management

• Higher Customer Involvement & Channel Management

1717Intangibility & Intangibility & Channel ManagementChannel Management

Marketing channels provide the most direct & potent basis

for making a service more tangible.

The customer is directly exposed to and experiences the service provided by the channel.

Why?

1717Inseparability & Inseparability & Channel ManagementChannel Management

Service provider does not havethe “safety net” available to the product manufacturer

All aspects of the marketing channel with which the consumer comes into contact

are thus a reflection of the quality of the service.

Why?

1616VariabilityVariability& Channel Management& Channel Management

In the case of franchises, it is difficult for the channelmanager to get the franchisees to deliver a

consistent level of service.

Why?

Human behavior isoften involved in providing services.

Perishability of ServicesPerishability of Services& Channel Management& Channel Management

1177

The channel must be designed so as to connectas efficiently as possible those providing the

service with those desiring to obtain it.

Why?

Design should maximize the sale of service during its limited exposure to the target market.

Ex) Temporary Jobs

1717Customer Involvement & Customer Involvement & Channel Management* Channel Management*

In a channel containing services such as barbers, fitness clubs, and tax preparation, the channel design should facilitate customer involvement.

Why?

Such services generally require input from thecustomer in order to be performed successfully.

Ex) Co-creation; market segmentation(High vs. Low involvement): Medical Care

2. Focus of Service Distribution Channel*: Identifying ways to bring the customer and service provider together.Ex) E-bay

3. Key Service Channel Intermediaries*:1) Franchising: License by a franchisor to deliver a unique service concept it has created or popularized.

2) Agents and Brokers: Representative who distribute or sell services of one or more service suppliers.

3) Electronic Channels: All forms of service provision by electronic media (TV, phone, computer, etc,.)

4. A Key Source of Service Distribution Problem*:

Gap 3: (Actual) Service delivery does not meet the specifications of the principal (service provider).

Service-Quality Model*Service-Quality Model*

Personal needs

Expected service

Perceived service

Service delivery (includingpre- and post-contacts)

Management perceptionsof consumer expectations

Past experienceWord-of-mouth

communications

Externalcommuni-cations to

consumersTranslation of perceptions

to service-quality specifications

Mar

kete

r

Gap 2

Gap 3*Gap 4

Gap 5

Co

nsu

mer

Gap 1

Three Major Reasons for Gap 3 1) Channel Conflict over (a) Objectives and Performance, and (b) Costs and Rewards.

2) Difficulty Controlling Quality and Consistency across Different Channels/Stores

3) Tension between Empowerment and Control of Channel.*

5. Effective Service Delivery Strategy through Intermediaries

1) Control Strategies: Measurement and Review Reward/Punishment (Carrot versus Stick)

2) Empowerment Strategies: Problem Solving and Support.

My Prediction: The more service-intensive your business is, the better it is to delegate and empower front-line employees

6. Additional Perspectives6. Additional Perspectives

1. Channel Flows2. Channel Structure3. Franchised Channels

Important considerations for developing &operating marketing channels for services

1717Channel Flows for Channel Flows for ServicesServices

• Flows that “carry” the service through thechannel are those of information,negotiation, & promotion.

• Many can be handled electronically,with the role of technology becomingeven greater in the future.

Channel Structure for ServicesChannel Structure for Services 1177

• Channel level for services: Zero? • Distribution intensity: scalable • Ownership and function (type of intermediaries): Pre-sale and Post-sale multichannel

Major Topics for Franchising0. Basics

I.Why?

II.Before you sign up

III.Franchise Contract*

IV.The Plural Form*

V.Concerns and Challenges

Franchising

12 - 19

A system of marketing and distribution where an independent businessperson (the franchisee) is granted the right to market the goods and services of another (the franchisor)

©McGraw-Hill Companies, Inc. 2002

I. Major Challenges in Service Businesses

1. Intangibility of Services: Differentiation through customer contact, decor, atmosphere, and other tangible cues.

2. Discretionary nature of service purchases: Convenience by location and hours of operation

3. Labor Intensity: Interaction with customer4. Quality control: 5. Focus on operational issues6. Small Size of many service firms

II. How Franchising Addresses These Challenges

1. Capital generation and higher motivation

2. Expand to Multiple locations

3. Standard systems and procedures

4. Training improves labor and management skills

5. Marketing is centralized and promotion is system-wide

6. Service tangibility is increased.

III. Types of Franchising

• Product/trade name

• Business format

12 - 22©McGraw-Hill Companies, Inc. 2002

Franchising is Unique

12 - 23

Combination of Three Relationships:

Legal Nonbusiness

Business

©McGraw-Hill Companies, Inc. 2002

IV. Why Become a Franchisee?

12 - 24©McGraw-Hill Companies, Inc. 2002

I. Help through the Start-Up Package

I. Site SelectionII. Facility DesignIII. Lease NegotiationIV. Operational ManualsV. Management TrainingVI. Employee Training

II. Help through Ongoing Supports

I. Field SupervisionII. Management ReportsIII. Merchandising and Promotional MaterialsIV. National AdvertisingV. Auditing and Record Keeping

V. A Check List Before Signing Up

• Local market conditions• Self-evaluation• Investigating the franchise• Studying the disclosure document• Checking out the disclosures• Questioning earnings claims• Obtaining professional advice• Knowing your legal rights

12 - 25©McGraw-Hill Companies, Inc. 2002

VI. Four Steps To Follow to Improves the Odds of Franchising Success

12 - 26

• Nail the Numbers. Franchisors should give franchisees a detailedstatement of financial conditions and expectations no later than twoweeks before any money is scheduled to change hands.

• Measure Management. Franchisees should seek and scrutinize disclosure forms that describe at least the last 10 years of work historyof each of the franchisor’s officers and key managers.

• Cross-Examine Current Franchisees. Prospective franchisees should obtain a list of all franchisees, including those who have recently left. Randomly calling and visiting several will keep prospects from being steered toward franchisor favorites. Serving several days as an apprentice in one or two stores will yield tremendous insights.• Comb the Contract. Franchise agreements establish control

over most aspects of the business. Attorneys with franchising experience should look for inequities in the agreements and help franchisees secure a better deal.

©McGraw-Hill Companies, Inc. 2002

VII. The Franchise Contract

12 - 27©McGraw-Hill Companies, Inc. 2002

I. Specifying Rights and Responsibilities Giving and Taking Hostages

II. The Payment System: Two-part system (Initial Investment + Royalty)

III. Who will be the Landlord?

IV. Termination

VIII. Benefits of the Plural Form

12 - 28©McGraw-Hill Companies, Inc. 2002

1. Modeling

2. Socialization

3. Interfirm Ratcheting

4. Mutual Learning

IX. Franchising Concerns

• Franchisees:– Belief in guaranteed profit

– Loss of franchise

– Encroachment

– Loss of independence

– Conditions in franchise agreement

– Spending promotional dollars

– Pricing structures

• Franchisors:– Profits

– Franchisees that “sit on a market”

– Accurate reports of gross sales

– Franchisees that reveal trade secrets, strategies, etc.

12 - 29©McGraw-Hill Companies, Inc. 2002

X. Ongoing Franchising Challenges

1.Survival

2.Gaining and Keeping Cooperative Atmosphere

3.Inherent Goal Conflict: Sales Focus versus Profit Focus*

TYPICAL SALES-TO-PROFIT RELATIONSHIPS FOR FRANCHISORS AND FRANCHISEES

Profits

Sales

Franchisor

Franchisee

S*B*

Adapted from Carmen and Klein (1986)