1. Special Topics
Marketing Channels for Services &
Franchising

2. Major Topics for Service Channels17
Characteristics of Services and Implications**
Focus of Service Marketing Channel**
Key Service Channel Intermediaries*
Source of Service Distribution Problem*
Service Delivery Strategy
Additional Issues

3. Five Characteristics of Services17
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

4. Implications of Service Characteristics for Channel Management*17
Implications of Service Characteristics for Channel Management*
• Intangibility & Channel Management
• Inseparability & Channel Management
• Variability of Services & Channel Management
• Perishability of Services & Channel Management
Higher Customer Involvement & Channel Management

5. Intangibility & Channel Management17
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.

6. Inseparability & Channel Management17
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.

7. Variability & Channel Management16
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.

8. Perishability of Services & Channel Management17
Perishability of Services & Channel Management
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

9. 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

10. 3. Key Service Channel Intermediaries*:
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,.)
product/trade name franchising

11. 4. A Key Source of Service Distribution Problem*:
Gap 3: (Actual) Service delivery does not meet the specifications of the principal (service provider).

12. Service-Quality Model*
Word-of-mouth
communications
Personal needs
Past experience
Expected service
Consumer
Gap 5
Perceived service
Gap 1
Service delivery (including
pre- and post-contacts)
External
communi-
cations to
consumers
Gap 4
Gap 3*
Marketer
Translation of perceptions
to service-quality specifications
Gap 2
Management perceptions
of consumer expectations 11

13. 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.*

14. 5. Effective Service Delivery Strategy through Intermediaries
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

15. 6. Additional Perspectives
Important considerations for developing &
operating marketing channels for services
Channel Flows
Channel Structure
Franchised Channels

16. Channel Flows for Services17
• 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 Services17
Channel level for services: Zero?
Distribution intensity: scalable
Ownership and function
(type of intermediaries): Pre-sale
and Post-sale  multichannel

18. Major Topics for Franchising
0. Basics
Why?
Before you sign up
Franchise Contract*
The Plural Form*
Concerns and Challenges

19. 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

20. 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

21. 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.

22. III. Types of Franchising
Product/trade name
Business format
©McGraw-Hill Companies, Inc. 2002

23. Franchising is Unique Legal Nonbusiness
Combination of Three Relationships:
Nonbusiness
Business
Legal
©McGraw-Hill Companies, Inc. 2002

24. IV. Why Become a Franchisee?
Help through the Start-Up Package
Site Selection
Facility Design
Lease Negotiation
Operational Manuals
Management Training
Employee Training
Help through Ongoing Supports
Field Supervision
Management Reports
Merchandising and Promotional Materials
National Advertising
Auditing and Record Keeping
©McGraw-Hill Companies, Inc. 2002

25. 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

26. 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

27. VII. The Franchise Contract
Specifying Rights and Responsibilities  Giving and Taking Hostages
The Payment System: Two-part system (Initial Investment + Royalty)
Who will be the Landlord?
Termination
©McGraw-Hill Companies, Inc. 2002

28. VIII. Benefits of the Plural Form
Modeling
Socialization
Interfirm Ratcheting
Mutual Learning
©McGraw-Hill Companies, Inc. 2002

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

30. X. Ongoing Franchising Challenges
Survival
Gaining and Keeping Cooperative Atmosphere
Inherent Goal Conflict: Sales Focus versus Profit Focus*

31. FOR FRANCHISORS AND FRANCHISEES
TYPICAL SALES-TO-PROFIT RELATIONSHIPS
FOR FRANCHISORS AND FRANCHISEES
Adapted from Carmen and Klein (1986)