Special Topics
Marketing Channels for Services &
Franchising
Major Topics for Service Channels
17
• Characteristics of Services and
Implications**
• Focus of Service Marketing Channel**
• Key Service Channel Intermediaries*
• Source of Service Distribution
Problem*
• Service Delivery Strategy
• Additional Issues
Five 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
17
Implications of Service Characteristics
for Channel Management*
17
• Intangibility & Channel Management
• Inseparability & Channel Management
• Variability of Services & Channel Management
• Perishability of Services & Channel Management
• Higher Customer Involvement & Channel
Management
Intangibility &
Channel Management
Marketing channels provide
the most direct & potent basis
for making a service more tangible.
Why?
The customer is directly exposed to and
experiences the service provided by the channel.
17
Inseparability &
Channel Management
Service provider does not have
the “safety net” available to the product
manufacturer
Why?
All aspects of the marketing channel with
which the consumer comes into contact
are thus a reflection of the quality of the service.
17
Variability
& Channel Management
In the case of franchises, it is difficult for the channel
manager to get the franchisees to deliver a
consistent level of service.
Why?
Human behavior is
often involved in providing services.
16
Perishability of Services
& Channel Management
17
The channel must be designed so as to connect
as 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
Customer Involvement &
Channel Management*
17
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 the
customer 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,
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*
Consumer
Word-of-mouth
communications
Past experience
Expected service
Gap 5
Gap 1
Marketer
Personal needs
Perceived service
Service delivery (including
pre- and post-contacts)
Gap 3*
External
communiGap 4 cations to
consumers
Translation of perceptions
to service-quality specifications
Gap 2
Management perceptions
of consumer expectations
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 Perspectives
Important considerations for developing &
operating marketing channels for services
1. Channel Flows
2. Channel Structure
3. Franchised Channels
Channel Flows for Services
• Flows that “carry” the service through the
channel are those of information,
negotiation, & promotion.
• Many can be handled electronically,
with the role of technology becoming
even greater in the future.
17
Channel Structure for Services
• Channel level for services: Zero?
• Distribution intensity: scalable
• Ownership and function
(type of intermediaries): Pre-sale
and Post-sale  multichannel
17
Major Topics for Franchising
0.
Basics
I.
Why?
II.
Before you sign up
III. Franchise Contract*
IV. The Plural Form*
V. Concerns and Challenges
Franchising
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
12 - 19
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 customer
4. Quality control:
5. Focus on operational issues
6. 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 systemwide
6. Service tangibility is increased.
III. Types of Franchising
• Product/trade name
• Business format
©McGraw-Hill Companies, Inc. 2002
12 - 22
Franchising is Unique
Combination of Three Relationships:
Business
Legal
©McGraw-Hill Companies, Inc. 2002
Nonbusiness
12 - 23
IV. Why Become a Franchisee?
I.
Help through the Start-Up Package
I.
II.
III.
IV.
V.
VI.
II.
Site Selection
Facility Design
Lease Negotiation
Operational Manuals
Management Training
Employee Training
Help through Ongoing Supports
I.
II.
III.
IV.
V.
Field Supervision
Management Reports
Merchandising and Promotional Materials
National Advertising
Auditing and Record Keeping
©McGraw-Hill Companies, Inc. 2002
12 - 24
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
©McGraw-Hill Companies, Inc. 2002
12 - 25
VI. Four Steps To Follow to Improves the
Odds of Franchising Success
• Nail the Numbers. Franchisors should give franchisees a detailed
statement of financial conditions and expectations no later than two
weeks 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 history
of 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
12 - 26
VII. The Franchise Contract
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
©McGraw-Hill Companies, Inc. 2002
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VIII. Benefits of the Plural Form
1. Modeling
2. Socialization
3.
Interfirm Ratcheting
4.
Mutual Learning
©McGraw-Hill Companies, Inc. 2002
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IX. Franchising Concerns
• Franchisees:
–
–
–
–
–
Belief in guaranteed profit
Loss of franchise
Encroachment
Loss of independence
Conditions in franchise
agreement
– Spending promotional dollars
– Pricing structures
©McGraw-Hill Companies, Inc. 2002
• Franchisors:
– Profits
– Franchisees that “sit on a
market”
– Accurate reports of gross
sales
– Franchisees that reveal
trade secrets, strategies, etc.
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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
Adapted from Carmen and Klein (1986)
Profits
Franchisor
Franchisee
B*
S*
Sales