Service Marketing and the Critical Distribution Issue: Old Challenges and New Solutions

Service Marketingand the Critical Distribution Issue:Old Challenges and New Solutions

A. Ben OumlilC. P. Rao

ABSTRACT. Service marketing is distinguished from product market-ing. In service industries the “product” is intangible and its productionand consumption are largely inseparable. Agreement that service mar-keting is different still leaves a “Pandora’s box” of problems, since theoptimum service marketing strategies have not yet evolved. One area ofparticular concern is the distribution of service–how to get the service tothe customer efficiently and effectively. This paper identifies the diffi-culties found in this area and its related issues–people and environmentalcontrol, lack of agreement among the service marketing academicians,etc. The paper concludes with observations on the present state of affairsand with recommendations for service marketing managers with regardto service distribution issues. [Article copies available for a fee from TheHaworth Document Delivery Service: 1-800-HAWORTH. E-mail address:<[email protected]> Website: <http://www.HaworthPress.com>© 2003 by The Haworth Press, Inc. All rights reserved.]

KEYWORDS. Services, channels of distribution, challenges, solutions

A. Ben Oumlil is affiliated with the University of Dayton.C. P. Rao is affiliated with Kuwait University.Address correspondence to: Dr. A. Ben Oumlil, W.B. Box 640, Dayton, OH 45409

(E-mail: [email protected]).

Services Marketing Quarterly, Vol. 25(1) 2003http://www.haworthpress.com/store/product.asp?sku=J090

2003 by The Haworth Press, Inc. All rights reserved.10.1300/J090v25n01_02 11

INTRODUCTION

In the past two decades, the field of service marketing has been at-tracting considerable academic attention. This is consistent with notonly the growing service orientation of the U.S. and other developed na-tions’ economies, but with the marketing challenges created by thechanging environmental conditions in service industries, such as dereg-ulation and increased global competition.

In service marketing, the “product” is intangible with largely insepa-rable aspects of production and consumption. It cannot be stored and isalmost never standardized. In this sense, service marketing is signifi-cantly different from product marketing. Since optimal service market-ing strategies do not yet exist, the agreement that service marketing isunique still leaves a plethora of problems for this industry. Distributionof services is of particular concern, as it deals with how to efficientlyand effectively get the service to the customer.

Today, competitive strategy has begun to focus on speed as an impor-tant factor of service delivery. Customers are demanding more conve-nience and want their desired goods or services to be delivered rapidly;when and where they want them. The Internet offers many new optionsto services already provided by conventional means through physicalsites, postal mail, and telephone delivery. Researchers have argued thatthe automation of businesses processes, via technology, have pro-foundly influenced how marketing channel processes are conceptual-ized, modeled, and investigated (Bello, Osmonbekov, Xie, andGilliland 2002). Modern distribution is being shifted from the pa-per-based, people-intensive marketing systems toward electronic-based procedures that rely on Internet communications and web-en-hanced software tools (Bello, Osmonbekov, Xie, and Gilliland 2002).The rapid growth of the Internet creates new decisions in customer de-livery involving where, when, and how. Service marketing strategymust now address place, cyberspace, and time. Attention should begiven to speed, scheduling, and electronic access, just as attentionwould be provided to the traditional physical location. The relation-ship between a service product and its means of distribution and deliv-ery is important. The nature of the delivery system has a strong impacton the customers’ experience especially in the case of people-process-ing services. The availability of an electronic channel delivery system,as well as the presence of physical channels, establishes a key distinc-tion between services and physical goods marketing, where the coreproduct is the focus (Lovelock 2001). Overall, this shift to the use of

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Web-based e-commerce systems is being used to strengthen existingsupply chains and business models, rather than creating new ones(Leon 2000).

This paper identifies some of the critical problems that arise in thedistribution of services, reviews the diverse academic points of view onthe subject, and suggests some plausible approaches.

THE NATURE OF SERVICE DISTRIBUTION CHANNELS

Distribution channels can involve three different kinds of participants–service firms, intermediaries, and customers. The participants are in-volved in a buying and selling relationship with the “up and down”channel participants. While one channel participant may have more in-fluence than the other participants, all will have some input in designingthe delivery system.

Certain functional elements (such as price, features, and availability)are inclusive in the performance of the channel participants and addvalue to the total service (Light 1986). The insurance industry providesa good example of how all elements come together to provide a service.The channel participants in an insurance distribution channel includethe insurance company itself (the firm), the agent (the intermediary),and the policyholder (the customer). Some typical functions of the in-surance company would include: accepting or declining risks, adjustingclaims, providing advice on coverage alternatives, and giving notice oflosses. The process of performing these functions requires the utiliza-tion of various material and technological supports. When requiring theuse of an agent, often more friction is present in the relationship be-tween the agent and the company than in the relationship between theagent and the customer. Another option for insurance companies is torely on direct mail and telemarketing, instead of an agent, to reach thedesired target market.

The distribution channels for services are usually shorter than thoseused in product oriented firms. This short channel length is attributed tothe minimal need for physical distribution, as well as the equally mini-mal need for inventory maintenance at the various points along thechannel (Stern and El-Ansary 1977).

Three dominant channel configurations exist in the service sector(Rathmell 1974). The first configuration is the “creator-performer tocustomer” (e.g., lawyers, accountants). The second configuration is the

A. Ben Oumlil and C. P. Rao 13

“creator-performer to agent-broker to consumer.” For example, insur-ance agents and brokers represent insurer(s) in dealing with consumers.The third configuration is the “creator-performer to agent-broker (sell-ing) to agent-broker (buying) to consumer.” This approach involves theuse of two intermediaries. Instead of using a single agent-broker to rep-resent both the seller and the buyer, one agent-broker represents theseller and another represents the buyer. For example, an agent in themarket-place represents a symphony orchestra. This agent negotiateswith another agent (e.g., a local civic music association) representingthe consumer for the purchase of the orchestra’s services (Rathmell1974).

There are several variables that must be considered in the design ofa service distribution channel. These variables include: the number ofintermediaries, the types of intermediaries, the allocation of value-adding functions among the channel participants, the kinds of materialand technological supports that the participants use, and the service it-self. These variables must be considered in the determination of thechannel strategy. Typically, no one channel participant alone designsthe channel(s) used. All members contribute in designing the deliverysystem.

Three ways to design a channel are presented (Light 1986). The firstmethod is to base the channel design on the company’s set goals. Thesecond channel design method is centered on the service provider’smarketing strategies. This approach looks for sustainable competitiveadvantages and designs channels in a way that will provide the firmwith these advantages. The final channel design approach focuses onmarket compatibility. The goal of this method is to develop the best fitbetween the service, the intermediary, and the customer. The assump-tion behind this design approach is that no channel will succeed unlessthe firm and the intermediaries add the right value so that it will appealto the customer. The aims of this strategy are to keep the customer andto capture repeat sales. Some researchers have indicated that as servicefirms face more deregulation and global competition, the areas of qual-ity and customer service will become the new battleground (Bertrand1989; Humble 1989; Onkvisit and Shaw 1989). For example, in theU.S. the success of American Express and First National Bank of Chi-cago is mainly due to their commitment to provide superior quality ser-vice to their customers (Bertrand 1989).

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CHALLENGES IN SERVICES DISTRIBUTION

Lack of Established Channels

The lack of established channels can be traced to at least two factors:the introduction of services marketing applications and long held mana-gerial attitudes in services industries. The services marketing revolutionin the U.S., for example, is relatively new compared to the long historyof agricultural and manufactured goods marketing. Many service indus-tries are just now realizing the scope and potential for a systematic ap-plication of marketing to improve their performances. Consequently,the type of marketing systems, which include a distribution system inwhich one can find in relation to agricultural and manufacturing sectors,is often missing in many service sectors.

In many service industries, managerial attitudes have played a signif-icant part in this lack of development of well-established channels ofdistributions (Baranoff and Donnelly 1970). In the past, many serviceindustry managers have enjoyed luxuries afforded by monopolies dueto strict government regulation, especially in service industries such asbanking and transportation. Competition was not a problem in these in-dustries, so service managers did not have to use marketing methods,such as the development and management of channels of distribution, inorder to compete. The fact that most services will not become obsoletehas also contributed to management complacency.

Delivery Methods and Their Challenges

At the very basic level, service industries require three methods of de-livering services, all involving the physical presence of the customer.These methods include those in which: (a) the customer must come to theservice organization facility, or (b) the service provider must go to thecustomer, or (c) those not involving the physical presence of the cus-tomer, but instead use intermediaries or high-tech innovations (e.g., theInternet). All these delivery methods have their unique challenges. Al-though some overlaps exist among these delivery methods, enough dis-tinction remains to allow a separate discussion of each of these methods.

Customer to the Service

If all customers came to the point of service delivery, this would in-deed solve many problems for the service deliverer or provider. Some

A. Ben Oumlil and C. P. Rao 15

customers are not willing to come to the service provider, particularly ifthe service provider is not conveniently located. Willingness of the cus-tomer to travel depends upon the customer’s personal involvement withthe service being sought. For example, patients will travel a consider-able distance for the services of a medical specialist–say for the treat-ment of cancer. Conversely, customers will not travel long distances fora haircut. This facet of customer behavior presents unique marketingchallenges for those service providers who are able to draw customersfrom considerable distances. Since the majority of these service provid-ers are likely to be professionals, they may have to depend almost en-tirely upon interpersonal communication networks or “word-of-mouth”advertising. Even though professional ethics and legal restrictions arechanging to allow professionals to advertise their services, considerableevidence indicates that the public sentiment is still unfavorable towardsprofessional advertising. Under these circumstances, expanding thescope of the professional service provider’s market to a broader geo-graphic area would invariably involve taking the service to customers.This becomes necessary as a consequence of the geographic area limita-tions of the “word-of-mouth” spread method.

Service to the Customer

In this mode of providing service, two basic models exist: (a) directservice from one location or (b) service from many locations (branchoffices or franchising). In reality, neither method approaches the idealsituation of the service provider: actually contacting each individualcustomer as the need for service arises. With few exceptions where theservice has to be provided on the premises of a customer (e.g., plumb-ing and other household services), direct delivery of service by the ser-vice provider is becoming rare. A clear example of this phenomenon isdoctors making house calls. Other services in this category includedoor-to-door delivery of milk, groceries, etc. However, this door-to-door delivery of certain services may be revived in the future as socie-ties in developed countries become convenience oriented, and timebecomes a more scarce resource in the daily routine. For example, en-terprises that are engaged in delivering household services are spring-ing up in all the industrialized countries. Such a revival of door-to-door services has many implications in terms of service distributioncosts, organization, and efficiency on the part of the service provider.Some service providers are using the direct delivery mode as a differen-tiating feature in their marketing strategies. Here one may cite the ex-

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ample of Domino’s Pizza in the U.S. to demonstrate the changes that aretaking place in the distribution systems of various companies in a highlycompetitive food/restaurant industry.

Control of People and Environment

Since many service industries require the presence of the customerfor service delivery (referred to as “inseparability” by many authors),two factors become important. These factors are the employee-cus-tomer relationship and the environment of the service location. Thesetwin challenges arise whether the customer comes to the service or theservice comes to the customer.

When such a one-to-one relationship exists between the employeeand the customer, the employee’s behavior becomes crucial. Servicedelivered in a courteous, friendly and consistent manner becomes es-sential for successful operation of the service organization. However,given the inadequacies of human behavior, even the most highly quali-fied and well-trained employees cannot produce standard, consistent,and “appropriate” behavior day after day.

How can the buying environment create challenges? One would as-sume that any conflicts would be resolved by designing an environmentthat is conducive to the service business. However, two challenges arisewhen customers come to such a carefully designed environment. Thesedifficulties are related to the interaction of customers with each otherand with the environment. Often many customers are at the service lo-cation at the same time, and frequently they must wait for the service tobe provided (for example, in a doctor’s office). Here lies the potentialtrouble–unfavorable word-of-mouth can be readily spread by dissatis-fied customers. While unfavorable word-of-mouth advertising canspread at other locations, the service location simply provides a betterenvironment for dissemination.

Customers who interact with the environment (or service location)do not always show respect for the environment and often destroy ordamage the “atmospherics” intended by the service provider. For exam-ple, consider a medical specialist’s office. Perhaps the specialist desiredto have his/her office waiting area to be quiet, dignified and clean. If pa-tients are loud, unkempt, and messy in the waiting room, the entire im-age is ruined and patients, who otherwise may be satisfied with theservices of the medical specialist, may discontinue their patronage be-cause of the environmental threats.

A. Ben Oumlil and C. P. Rao 17

INTERMEDIARIES AND HIGH TECHNOLOGY,IS DISINTERMEDIATION THE ANSWER?

For those services that do not require the physical presence of cus-tomers, distribution of services is more flexible and the distributionchannel can be extended through the use of intermediaries. Lewis(1985) classifies these intermediaries into two categories: (a) franchis-ers (those requiring the physical presence of the customer, which wasdiscussed earlier), and (b) locations that provide ideas (libraries forcomputer services, shopping malls for telephone services, etc.). Lewisalso indicates that development of tangible representations of a servicewill allow further use of intermediaries.

Traditionally, services were distributed directly from the producer tothe consumer, but the use of intermediaries in the distribution of ser-vices is now commonly used. As noted by Donnelly (1976), any ex-tra-corporation entity between the producer of a service and prospectiveusers that is utilized to make the service available and/or more conve-nient is a marketing intermediary for that service. The shift toward theuse of intermediaries is due to the desire of service industries to distrib-ute their services as widely as possible at minimal cost while providingmaximum accessibility to consumers. Therefore, one-stop shopping isbecoming the trend. This type of shopping can take two forms: a busi-ness can attempt to provide a greater diversity of services in one place,or a business can lengthen their service distribution channel in an effortto make their service more extensively available to consumers. In somecases, two or more businesses will cooperate in an effort to providegreater distribution with more customer convenience. When a businesslengthens its distribution channel, an intermediary is frequently used.Various scholars have addressed the marketing functions provided byconventional channel members (e.g., Pelton, Strutton, and Lumpkin1997; Stern, El-Ansary, and Coughlan 1996). On the other hand, researchindicates that electronic intermediaries differ in the way they carry outthese marketing functions of flows relative to conventional channel par-ticipants, (e.g., the emergence of the Internet and the disintermediationprocess) (see for example, Tamilia, Senecal, and Corriveau 2002).

High Technology Distribution Channel Options

In recent years the new technologies of information and communica-tions have become driving forces in shaping the distribution channels ofall industries including services industries. These newer technology

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driven solutions to the traditional problems of channels of distributionin services industries are expected to accelerate in the future. In a recentsurvey of the purposes for which multinational corporations invest inthe Internet technology, 63.64 percent of the respondents reported “dis-tribution” as the purpose ranking the highest among all the purposesmentioned. The top ranked purpose of “customer support services,”with a 67.70 percent in the same survey, helps, in addition to the use ofInternet technology, in solving distribution challenges (UNCTAD,2002). Worldwide, total e-commerce business is expected to grow fromUS $2,293.5 billion to US $12,837.3 billion by 2006 at a compound an-nual growth rate of 53.8 percent (UNCTAD 2002).

Alternative forms of distribution are often implemented in servicebusinesses and include the adoption of high technology (e.g., PCs, theInternet, automatic teller machines [ATMs], and telephone-to-com-puter devices, etc.). Automatic teller machines have become increas-ingly popular over the past few years. Consumers appreciate theconvenience offered by ATMs. This automation enables consumers todo most or all of their banking transactions at any time of the day ornight. While most banks offer a regional ATM network, more and morefinancial service businesses are becoming part of a national network.

Telephone-to-computer high technology is also becoming popular.An example of this type of distribution channel was implemented in thereservation system of the People’s Express’ airline. While customerswere still able to obtain tickets through the airline or a travel agent, res-ervations could also be made via the telephone lines. Customers usedthe People’s computer system in order to make the necessary travel ar-rangements. High technology of this nature will continue to increase asthe necessity of lower costs and greater efficiency are emphasized.

Distribution Challenges

The current high-tech “revolution” has caused quite a bit of excite-ment and has caught the attention of many services marketers as ameans of reaching more customers directly. However, some problemspersist even with the use of these high-tech innovations.

According to Sasser and Arbeit (1976), three reasons explain whyhigh-tech solutions may face challenges. First, many service businessesare small and thus cannot afford truly innovative high-tech systems forreaching their clientele directly. Second, in some service sectors high-tech methods cannot be utilized effectively as a means of channel exten-sions, (e.g., medical care). Finally, the use of high-tech innovations can

A. Ben Oumlil and C. P. Rao 19

cause problems with employees and customers. Many employees feelthreatened by the introduction of high-technology for at least two rea-sons: one, it most likely requires a change in their accustomed way ofdoing business, which includes learning a new skill; and two, it may re-sult in the replacement of some employees. No employee wants to bereplaced by a machine.

Even more serious is the question of resistance to high-tech innova-tions by customers. One study arrived at some significant conclusionsregarding the use of high-tech innovations (Langeard, Bateson, Love-lock, and Eiglier 1981). The study noted that consumers could be di-vided into two groups: the participators and the non-participators. Theparticipators are those consumers who readily take to self-help devices.They are typically young, male, and are more educated than the averageperson. The non-participators are usually older. These findings are con-sistent with another study by Fouss (1985). This latter study, which fo-cuses on consumer usage of automatic teller machines, concluded thatthe majority of users are younger. These two findings point out a poten-tial problem: the older segment of the population resists such innovativebehavior. Since the older segment of the population is expected to bethe largest population segment in the future (Phillips and Sternthal1977), and the older consumers are likely to be the “non-participators,”will this have a limiting effect on the use of high-tech innovations? Theintroduction of high-tech innovations in the distribution of Europeantourism services was also a subject to consumers’ skepticism. In thisfield of tourism services, consumer attitudes also display resistance tothe automation of the distribution of existing service channels, demon-strating opposition to new service behaviors (Gilbert 1990).

The New Network Economy and the Transformationand Integration of Delivery Systems

In recent years, retail and distribution companies began moving ag-gressively in their use of the Internet. While some traditional store-based retailers have discovered the significance of the Internet, it is im-portant to note others, e.g., Wal-Mart, Kmart, and most grocery stores,have difficulty in finding a strategic fit between a traditionalbrick-and-mortar configuration and the Internet infrastructure (Curtis1999). Many traditional brick-and-mortar retailers have stepped uptheir efforts to sell on the Web (Wilder 1999). This action implies that,despite the troubles other businesses may face, many marketers willsearch for an efficient and effective way to integrate the Internet into

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their strategic mix and gradually incorporate the Internet medium intotheir infrastructure (Karpinski 1999; Kaydo 1999; Kozinets 1999;Rowell, Kessler, and Berke 1999). Retailers are linking E-commercesites to legacy inventory applications and databases to offer servicesthat Web-only competitors cannot, such as the option to return aWeb-purchased item in a physical store. Like other retailers, Sears islearning that consumers are willing to buy a lot more on the Web thanbooks, compact discs, and toys. Tandy Corp. recently launched its sitefor Web sales, and online customers will be able to return items atRadioShack retail locations (Wilder 1999). Companies such as MaryKay Inc. and Tupperware Corp. recently launched sites to allow onlinedistribution of their products. Home Depot will offer customers the op-tion of picking up online purchases at its physical stores. For distribu-tion companies, the key trend is the use of IT for much tighter links withretailers and vendors throughout the supply chain. Jack Scott, CEO offood wholesaler Certified Grocers of California Ltd., stated that hiscompany’s 2,700 grocery retailers don’t have the infrastructure capabil-ities of big chains like Kroger of Safeway, so his company strives towork with such larger corporations in a virtual chain (Wilder 1999).

The Internet is changing the future design and distribution of insur-ance. In addition to bringing the consumer directly into the relationshipbetween brokers/sellers of insurance and the underwriter, the rapidgrowth of web-based distribution has considerably reduced the cost ofdoing business. Internet use in customer relations is also playing an in-creasing role in financial services. However, too much technology in-vestment has been focused on the processing side of the business ratherthan customer relations. Technology development around the custom-ers’ needs to continue to steer the direction of the market, as 24-hour ac-cess and the quality of service will become increasingly important toremain a player (Van Zyl 1999).

In the U.S. and U.K. insurance markets, companies and brokers arealready combining web use with call center technology. The objectivebehind this distribution approach is not just an opportunity to increasesales through a new distribution channel (i.e., the Internet), but to inte-grate the various elements of the channels of distribution to enhancecustomer service. Future integration of Internet technologies in servicesdistribution will mean that customers will have several options to ac-cess the web in the not-too-distant future. From a cost-saving perspec-tive, this Internet application also offers financial service providers theability to reduce operating overheads by passing on many of the admin-istrative functions to the consumer (Van Zyl 1999).

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Banks are growing weary of their increasingly complex responsibili-ties as operators of multiple delivery channels. First there were bricksand mortar. Then came ATM networks, 24-hour telephone services andsupermarket branches. Now there is PC and Internet banking, as well asbanking by satellite, cell phone and Palm Pilot. However, with goalssuch as increasing revenues, containing costs, and improving customerrelations, banking strategy has evolved to place a high priority on coor-dinating delivery channels, which have been developing independently.Virtually all banks of any size have taken up the challenge of integratingtheir various delivery channels, with the Internet foremost among these.Many banks find this channel proliferation encourages customers to useall available channels, not just one or two (Hallenborg 1999). Integratedchannels give banks a fresh opportunity to differentiate themselves.Customers have become accustomed to near-magical access to all sortsof services through snail mail, walk-up kiosks, ATMs, teller windows,remote laptop PC, home PC, and the like. Customers expect all transac-tion records to be accessible across all channels, which keeps data ware-house facilities humming. Thus, no choice exists for the competitivebank; fluid data supply chains will typify the banks that keep business inthe future (Hallenborg 1999).

The individual changes brought about by the Internet are dramaticand far-reaching, but overwhelming when taken together. No businesscan escape the disruptions caused by e-commerce. Graham (1999) hasidentified eleven ways in which the Internet is playing havoc with everybusiness. Whether it’s real estate sales or travel agencies, these func-tions will soon be Net-based. The deep discounts on books would nothave existed were it not for the Internet. Referring to Wal-Mart’s re-make of its Web site, one analyst said it will give retailing a “jolt” andanother said it will “change Internet retailing” (Graham 1999). EvieBlack Dykem of Forrester Research, Inc., said it “will be the shot heardround the retail world” (Graham 1999). Whether it’s the ability to han-dle more business with fewer people or being able to do it faster, thecosts associated with services distribution are coming down. For exam-ple, graphic design firms have long relied on what are called “stockphotos” for brochures and ads. The Internet has changed the picture.Not only can stock photos now be downloaded, they can be purchasedfor a fraction of the former rental fee. Graphic designers now have abroader selection available for a lower cost. Even the use of basic e-maileliminates the need to send materials by mail or use a delivery service.Perhaps the single most influential Internet site, ebay.com, has changedthe way consumers and businesspeople look at the issue of location. A

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successful antique dealer closed his/her doors and transferred his busi-ness to ebay.com. No longer is he/she limited by the price and taste pe-culiarities of a particular locale (Graham 1999).

As it was discussed, due to the integration of new technologies in theservice delivery system, services distribution channels are changingrapidly. While this is known today as disintermediation, let’s call itwhat it is–cutting out the middleman. Although a primary goal is tolower costs, an equally important objective is getting closer to the cus-tomer. In effect, the Internet bank may understand the customer betterthan the one with bricks and mortar. Due to the Internet, customers havecome to expect a broad range of choices. In fact, customers demand se-lection and feel shortchanged to shop in a store where choice range isnarrow. The fallout from this is earthshaking and face-to-face selling isin jeopardy. Not in every industry and not everywhere, of course, butcustomers have discovered they can easily and successfully negotiatefor everything–from hotel rooms to homes–on the Internet. As a result,watch for a backlash. Instead of wanting to deal with “a live human be-ing,” the trend will be to choose technology-rich venues where a persondoes not intrude in the process (Graham 1999). To prevent the completedisappearance of this person, it is important to realize the bottom line is:the middleman in a supply chain still has value to add–it is just going tobe a different set of values in the Internet economy (Leon 2000).

Many services organizations’ concept of service has changed. Nolonger will customers wait somewhat patiently in a line at the bank orMcDonald’s. If customers buy something on the Internet, they expectinstant confirmation of the transaction. Anything less is viewed as sec-ond-rate or unacceptable. Next-day delivery has become the standard(Graham 1999).

In the past, services distribution was less complicated than it is today.Now everyone is wondering about the longevity of established distribu-tion channels, particularly as new electronic channels become moreprevalent. Today, it is not uncommon for insurers–or businesses in gen-eral–to maintain and manage multiple access points. Customers can dobusiness in person, by mail, by telephone with operators, voice responsetelephone systems, or by personal computer. Add the option to buyproducts directly; through agents or as a byproduct of buying otherproducts, and the number of potential distribution and service channelpermutations can be tremendous (Maciag 1998). While self-service-oriented banking customers appreciate having the ability to access ser-vices through multiple channels using a telephone or computer for billpayments, fund transfers, and account information–banks are finding

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that high-tech options do not displace other access points. Althoughmany customers do business by mail, telephone and computer, Fidelityand Schwab investment centers appear on highways in just about everymajor city throughout the U.S. In essence, the face-to-face experiencecontinues to be a valued channel for sales and for the beginning of abusiness relationship. Other less personal channels tend to be widely ac-cepted for ongoing customer service. It seems like the cashless andcheckless society has a way to go to displace more traditional channelsof banking, at least for now. According to the December 1997 U.S.Banker magazine, in a study conducted by Dove Associates, a Boston-based consulting firm for banking, older and lower-income consumersstill prefer branches (Maciag 1998).

It is unlikely for an individual to single-handedly sell and service prop-erty-casualty insurance, life insurance, mutual funds, stocks, options,commodities, mortgages, and other loans and investments. The lineshave blurred somewhat when you consider the merger and acquisitionappetite among the global financial services conglomerates. The conver-gence of these services in some way into one of the newer distributionchannels is not far-fetched. In fact, many criticisms from home computerbanking service customers involve the desire for more diversified prod-ucts and services. The challenge is to build and manage a multiple-chan-nel distribution network to sell and service a variety of products to meetthe needs of our customers today and tomorrow. Personal relationshipswill continue to be important while computers will improve service–thatis, quality and speed–and provide access anytime, anywhere (Maciag1998). The New Network Economy is defined by not only the role tech-nology currently plays, but the role it will have in future successful ser-vices distribution strategies. With new technologies such as the Internet,services companies have become more efficient in reaching broader au-diences and in creating value without sacrificing individual attention,customization, or interaction (Place 1998).

For services firms, technology can no longer be viewed simply as ameans to automate manual functions and reduce distribution costs.Technology must now be viewed as the key to enriching the customer’sexperience and creating a competitive advantage. As it was stated, withnew technologies such as the Internet, services companies have becomemore efficient in reaching broader audiences and in creating value with-out sacrificing individual attention, customization, or interaction. Forexample, Gateway 2000 has shown us how it has used technology tocreate a competitive edge. This PC manufacturer is using the WorldWide Web to sell PCs to anyone who has access to the Internet, while

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still providing one-on-one customization. In the New Network Econ-omy, business as usual will no longer apply, as new technology contin-ues to enable distribution of a vast amount of information withoutsacrificing direct interaction with the customer (Place 1998).

Customers and services providers are now connected by commonnetworks, and have access to the same information and services throughthe Internet and Web Browsers. This has eliminated the need for costly,proprietary, delivery channels. Even more importantly, physical assets,like a sales force, branches or retail locations, once a formidable barrierto entry, may become liabilities as innovative newcomers enter the mar-ket through low-cost or no-cost technological alternatives. For exam-ple, Amazon.com has created a tremendous cost and convenienceadvantage over book dealers who operate brick and mortar stores.Using the low-cost entry of the Internet, Amazon avoids the costly over-head of staffing and operating bookstores (Place 1998).

Power is shifting to the consumer as the Internet transforms retail de-livery strategies, according to Beth B. Mercier of the Integrion FinancialNetwork. The transformation can be seen in the consumers’ willingnessto embrace on-line banking, their response to electronic brokerage ser-vices, and their acceptance of technologies that allow them to stop whenand where they choose. A USA Today study reported Internet com-merce was around $68 billion in 1999, but was predicted to increase to$1.4 trillion by 2003 (Dernovsek 1999). The Internet promises to trans-form financial services by displacing future delivery costs, generatingadditional revenues, enhancing retention and acquisition rates, trackingconsumer behavior and preferences, and enabling one-to-one market-ing. Financial services companies that help link consumers to theInternet for services delivery will thrive. Traditional financial institu-tions can expect new rivals to emerge to challenge them in providingthese services (Dernovsek 1999).

The New Network Economy is adding a new dimension to the corpo-rate location process. Companies are facing such new models as e-com-merce for delivering customer service, managing suppliers and doingtrades. Real estate executives are now beginning to question whethertraditional site-selection strategies adequately address these models.One example of how the New Network Economy can change a businessmodel is that it increases the number of sales transactions that do not de-mand traditional voice reaction. This change may alter the space and la-bor needs for a call center (Levine 1999).

However, the integration of technology of services distribution hasnot been without challenges. From a company perspective, the greatest

A. Ben Oumlil and C. P. Rao 25

obstacle to adapting new technologies is cost. While gaining service in-dustry cooperation on a common use of technology is essential,cost-pressures, combined with the rapid speed of new application de-velopment, have made insurance companies hesitant to invest further.Brokers, however, are becoming impatient with the slow pace of tech-nology development on the company front. Within the industry, theview exists that the future consumer’s (consumers mainly over the ageof 60) use of the Internet for transacting will be limited to a small group(Van Zyl 1999). This theory is critical, given the fact that projections ofthe population compositions of developed countries (including the U.S.and the EU) are expected to contain a larger portion of elderly custom-ers. One projection by Fortune Magazine (July 19, 1999) indicates thatin the U.S., there will be nearly 37 million boomers aged 85 and over bythe year 2050. According to O’Reilly and Associates, in the mid-1990s,the elderly represented only one percent of all Internet users (Forbes,September 25, 1995).

One final note regarding the use of high-tech self-help devices con-cerns frustration due to mechanical failure. Frustrations caused by themechanical failure and/or unsatisfactory service of these devices canprove to be a potential problem. The services marketing managersshould address these issues when they design and implement these sub-stitutes to intermediaries in their distribution systems. What remains tobe seen is how helpful these innovations can be in solving the distribu-tion conflicts in services marketing. It would be very beneficial for ser-vices marketing practitioners if the academic experts agreed on apreferred mode of distribution.

DISTRIBUTION STRATEGIES FOR SERVICES MARKETING:RECOMMENDATIONS

After identifying some of the critical distribution problems facingservice-oriented firms, suggestions for effective distribution networkdevelopment by services marketing managers will be discussed below.These suggestions include the use of “Hard and Soft technologies” and“Multi-marketing” as services distribution strategies.

Hard and Soft Technologies

Practitioners could better grasp the problems of service distribution ifthe academicians and researchers agreed on the optimum method of

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solving the distribution problems in service sectors. Suggestions rangefrom using high-quality and well-trained employees to using “hard”and “soft” technologies. Sasser and Arbeit (1976), George and Kelly(1983), Cooke (1970), and Bessom (1973) are some of the experts whobelieve employing well-trained, customer-contact personnel is the an-swer to the distribution problems of service businesses. Lewis (1985),however, believes technological systems are the solution. Perhaps, theoptimum method is not one method, but a combination of methods de-pending on the type of service being offered, as suggested by Langeardet al. (Langeard, Bateson, Lovelock, and Eiglier 1981).

In the business-to-consumer field, the growth of online commercehas been extremely fast, despite consumer attachment to traditionalmethods of shopping. Traditional retailers, for all the strengths of theirbrand names and their existing relationships with suppliers and custom-ers, have found it extraordinarily hard to compete online. The biggesteffect of online business-to-consumer commerce is not its size, but theway it changes the rules of the retailing game–to the evident perplexityof those who have played it best (The Economist, February 26, 2000).

So far, Internet shopping has been rather like catalogue shopping,which is one reason that many catalogue retailers have done well withit. Some observers predict it will never become much more than this.Yet good arguments exist for expecting the Internet to make a greaterimpact in retailing than catalogues have done. The Internet is fasterand far more convenient, as the shop front can change from minute tominute and orders can be placed instantly. Technological change willcontinue to make it even easier as faster connections from the homevastly improve website access and the use of mobile telephones andother handheld devices to go online increases. The recent trend ofmixing online and offline retailing could also benefit consumers. Forexample, call centers could be used to help customers navigate aroundthe retailer’s website, and new warehouses and distribution centers arebeginning to remedy one of the Internet’s biggest weaknesses: orderfulfillment and delivery. Shopping does fulfill a social function that theweb cannot easily replicate, but this did not stop the momentous shiftthat has taken place within the past 50 years; from corner shops to su-permarkets, and then from supermarkets to giant out-of-town discountretailers. Generational change also seems certain to boost the use of theweb for the New Network Economy. Youth who grow up with comput-ers are likely to find that doing their shopping on them comes naturally(The Economist, February 26, 2000).

A. Ben Oumlil and C. P. Rao 27

The real revolution in the New Network Economy may lie in some-thing not immediately obvious: disregard the new retailers, the lowerprices, or huge changes in logistics and delivery. What is truly newabout the Internet is its’ ability to generate different pricing mecha-nisms while allowing price and product comparisons to be made andvarious kinds of auctions and exchanges to take place (The Economist,February 26, 2000).

Two things are making this possible. The Internet provides a perfectmedium for aggregating buyers and sellers from all around the world.The Internet also offers an excellent way of comparing prices and col-lecting information (i.e., on new products, or on recent bids) (The Econ-omist, February 26, 2000).

Price and product comparisons have been made easier by the develop-ment of “shopping bots.” Websites such as Mysimon.com and DealPilot.com enable buyers quickly to compare products, prices, and availability.As e-commerce grows and as people start to use it more to buy such big-ger-ticket items as cars, the role of comparison-shopping agents could be-come far more significant (The Economist, February 26, 2000).

Multi-Marketing

When a service firm varies its service, intermediary, and/or cus-tomer, multi-marketing takes place. Five major forms of multi-market-ing currently exist (Light 1986). The first form is termed the “all roadslead to Rome” approach. This approach provides the same service,through different types of intermediaries, to the same type of customers(i.e., intensive channel). Through the implementation of this approach,the firm’s attempt is to target a set of customers and reach them by everypossible means. However, two drawbacks to this approach are evident:(1) some of the intermediaries may be inefficient, and (2) the distribu-tion system may be difficult to comprehend and manage due to its manydifferent “roads” (i.e., channels).

The second multi-marketing approach is termed “different strokesfor different folks.” The idea behind this approach is that a firm pro-vides the same service, through different intermediaries, to differentconsumer segments. The firm’s objective is that each intermediary in-volved possesses a competitive advantage and is in a better position toreach more customers. Since each intermediary is knowledgeable abouthis/her customers, he/she is able to serve them more effectively. How-ever, this approach also faces the same drawbacks as the “all roads lead

28 SERVICES MARKETING QUARTERLY

to Rome” method. In addition, the problem of understanding severaldistinct market segments also arises.

The third multi-marketing approach is termed “the customer is king.”In this method, the firm offers different services, through different in-termediaries, to one set of customers. A firm using this approach may betrying to leverage its current customer base by selling new kinds of ser-vices to them. The firm must know the customer very well for this ap-proach to work. The disadvantages of inefficiency and complexity areadditional drawbacks associated with this method.

The fourth multi-marketing approach is termed “fill up the pipeline.”In this case, the firm sells different services, through one intermediary,to different sets of customers. A firm using this approach may be tryingto accomplish one of two things. The firm may be trying to use all of theavailable capacity profitably and/or it may be seeking synergy. For thisapproach to be successful, the intermediary is of extreme importanceand thus must be very qualified and knowledgeable.

The final multi-marketing approach is termed “all things to all peo-ple.” This method involves different services being sold, through differ-ent intermediaries, to different sets of customers. The major drawbackof this approach is found in attempting to organize all of the differentparticipants in the channels.

As the service industry continues to grow and as competition in-creases, a more concerted effort to solve the conflicts found in servicesdistribution will exist. At present, however, no concrete answers havebeen found. In the meantime, let us hope the following comment, madeby a disgruntled service customer, is not indicative of the state of affairsin the marketing of services in the United States: “We want you, unlesswe have to be creative or courteous or better than barely adequate. Inthat case, get lost” (Mitchell 1984).

For the services marketing manager, this is a time of caveat ven-ditorum. Management complacency today can deliver a fatal blowwhile astute services marketing managers will prepare for tomorrow bytackling the challenges of service distribution today.

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