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DISTRIBUTION,

PRICING AND
PROMOTION OF
SERVICES
Distribution
Distribution embraces three
interrelated elements:
! Information and promotion ow
! To get customer interested in
buying the service
! Negotiation ow
! To sell the right to use a service
! Product ow
! To develop a network of local sites
Distribution of
Supplementary and Core
Services
Distribution relates to both core services
and supplementary services
! Core services for people processing and
possession processing services require
physical locations
! Core services for mental stimulus
processing and information processing
can be distributed electronically
Distribution of
Supplementary and
Core Services
! Supplementary services can be
tangible or intangible in nature;
latter can be distributed widely and
cost-eectively via nonphysical
channels
! Telephone
! Internet
Information and Physical Processes
of Augmented Service Product
Exceptions
Billing
Payment
Information
processes
Information
Consultation
Safekeeping
Physical
processes
Order-
taking
Core
Hospitality
Determining
the type of
contact:
options for
service
delivery
Six Options for Service
Delivery

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Channel
Preferences Vary
among Customers
! For complex and high-
perceived risk services,
people tend to rely on
personal channels
! Individuals with greater
condence and
knowledge about a
service/channel tend to
use impersonal and self-
service channels
Channel
Preferences Vary
among Customers
! Customers with
social motives tend
to use personal
channels
! Convenience is a key
driver of channel
choice
PLACE DECISIONS
! Cost, productivity, and access
to labor are key determinants
to locating a service facility
! Fast food vs. Specialty Stores
! Locational constraints
! Operational requirements
- Airports
! Geographic factors
- Ski resorts and resors
! Need for economies of scale
- Hospitals
PLACE DECISIONS
! Ministores
! Creating many small
service factories to
maximize geographic
coverage
- Automated kiosks
! Separating front and back
stages of operation
- Jollibee Commissary
! Locating in multipurpose
facilities
! Proximity to where
customers live or work
- Service stations

TIME DECISIONS
! Traditionally, schedules were
restricted
! Service availability limited to
daytime, 40 to 50 hours a
week
! Sunday historically considered
as a rest day in Christian
tradition,
Saturday in Jewish tradition,
and Friday in Muslim tradition
TIME DECISIONS
! Today
! For exible, responsive
service operations:
- 24/7 service24 hours a day, 7
days a week, around the world
(Service Perspectives 4.3)
! Some organizations still avoid
7-day operations, for
example:
- Atlanta-based Chick-l-A
Being closed on Sunday is part
of our value proposition
PRICING STRATEGy
Pricing strategy
Costs
Competition
Value to customer
Approaches to
pricing
! Cost-based pricing
! Set prices relative to nancial costs
(problem: dening costs)
! Activity-based costing
! Pricing implications of cost analysis
! Competition-based pricing
! Monitor competitors pricing strategy
(especially if service lacks dierentiation)
! Who is the price leader? Does one rm
set the pace?
! Value-based pricing
! Relate price to value perceived by
customer
Cost Based
! Traditional costing approach
! Emphasizes expense categories
(arbitrary overhead allocation)
! May result in reducing value generated
for customers
! ABC management systems
! Link resource expenses to variety and
complexity of goods/services produced
! Yields accurate cost information
! When looking at prices, customers
care about value to themselves, not
what service production costs
Value BASED
! Value exchange will not take
place unless customer sees
positive net value in
transaction
! Net value = Perceived benets
to customer (gross value)
minus all Perceived outlays
(Money, Time, Mental/Physical
eort)
! Monetary price is not only
perceived outlay in
purchasing, using a service
! Consumer surplus: dierence
between price paid and
amount customer would have
been willing to pay in absence
of other options
Enhancing net
value
! Enhance gross value
benets delivered
! Add benets to core
product
! Enhance
supplementary
service
! Manage perceptions
of benets delivered
ENHANCING NET
VALUE
! Reduce outlayscosts incurred
by customers
! Reduce price and/or other
monetary costs of acquisition
and usage
! Cut amount of time required
to evaluate, buy, use service
! Lower physical and mental
eort associated with
purchase and use
! Reduce perceptions of amount
of cost, time, eort required
Enhancing
Perceptions of
Gross Value
! Reduce uncertainty
! Service guarantees
! Benet-drivenpricing aspect(s)
of service that create value
! Flat rate (quoting a xed price in
advance)
! Relationship pricing
! Nonprice incentives
! Discounts for volume purchases
! Discounts for purchasing
multiple services
! Low-cost leadership
! Convince customers not to
equate price with quality
! Keep economic costs low to
ensure protability at low price
Paying for Service:
The Customers
Perspective
! Customer expenditures on
service comprise both nancial
and nonnancial outlays
! Incremental nancial outlays
! Price of purchasing service
! Expenses associated with
search, purchase activity, usage
! Nonmonetary costs
! Time costs
! Physical costs
! Psychological (mental) costs
! Sensory costs (unpleasant
sights, sounds,
feel, tastes, smells)
Determining Total Costs of
a Service to Customer
hyslcal eorL
sychologlcal
burdens
Sensory
burdens
necessary
follow-up
roblem
solvlng
lncldenLal expenses
Cperaung cosLs
urchase
1lme
Money
* lncludes all ve
cosL caLegorles
Search cosLs*
urchase and servlce
encounLer cosLs
Aer cosLs*
! Which clinic would you patronize if you
needed a chest x-ray (assuming all three
clinics offer good quality)?

! Price Php 850
! Located 15 mins away
by car or transit
! Next available
appointment is in 1
week
! Hours: Mon-Fri,
8AM-10PM
! Estimated wait at clinic
is about 30 to 45 mins
! Price Php 450
! Located 1 hour away by
car or transit
! Next available
appointment is in 3
weeks
! Hours: Mon-Fri,
9AM-5PM
! Estimated wait at clinic
is about 2 hours
Cllnlc A Cllnlc 8
! Price Php 1250
! Located next to your
office or college
! Next appointment is
in 1 day
! Hours: Mon-Fri,
8AM-10PM
! By appointment-
estimated wait at
clinic is 0 to 15 mins
Cllnlc C
Increasing Net Value by
Reducing
Nonmonetary Costs of
Service
! Reduce time costs of service at each
stage
! Minimize unwanted psychological
costs of service
! Eliminate/redesign unpleasant/
inconvenient procedures
! Eliminate unwanted physical costs of
service
! Decrease unpleasant sensory costs of
service
! Unpleasant sights, sounds, smells, feel,
tastes
Putting Service Pricing
into Practice
! How much to charge?
! The pricing tripod model provides a
useful departure point
! A specic gure must be set for the
price
! Need to consider the pros and cons,
the ethical issues
! What basis for pricing? (How dene
unit of service?)
! Completing a task
! Admission to a service performance
! Time based
! Monetary value of service delivered
(e.g., commission)
! Consumption of physical resources
(e.g., food and beverages)
Putting Service Pricing
into Practice
! Who should collect payment?
! Service provider or specialist
intermediaries
! Direct or nondirect channels
! Where should payment be
made?
! Conveniently located
intermediaries
! Mail/bank transfer
! When should payment be
made?
! In advance
! Once service delivery has been
completed
Putting Service Pricing
into Practice
! How should payment be made?
! Cash
! Token
! Stored value card
! Electronic fund transfer
! Charge card (debit/credit)
! Vouchers
! Third-party payment
! How to communicate prices?
! Relate the price to that of
competing products
! Ensure price is accurate and
intelligible
IMC in
SERVICES
Communicating Services
Presents Both Challenges
and Opportunities

! May be dicult to
communicate service
benets to customers,
especially when
intangible
! Intangibility creates four
problems:
! Abstractness
! No one-to-one
correspondence with
physical objects (nancial
security, safety)
! Generality
! Items that comprise a class
of objects, persons, or
events
! Nonsearchability
! Cannot be searched or
inspected before purchase
! Mental impalpability
! Customers nd it hard to
grasp benets of complex,
multidimensional new
oerings
Advertising Strategies for
Overcoming Intangibility

Intangibility problem Advertising strategy



" Generality
# objective claims Document physical system capacity
Cite past performance statistics
# subjective claims Present actual service delivery incident
" Nonsearchability Present customer testimonials
Cite independently audited performance
" Abstractness Display typical customers beneting
"
" Impalpability Documentary of step-by-step process,
Case history of what rm did for customer
Narration of customers subjective
experience
Source: 8anwarl Mlual and !ulle 8aker, Adveruslng SLraLegles for PosplLallLy Servlces," !"#$%&& (")%& *$+ ,%-)*.#*$) /+01$1-)#*2"$ 3.*#)%#&4 43, Aprll 2002, 33
Using Metaphors to
Communicate Value
Propositions
! Tangible metaphors help to
communicate benets of service
oerings, for example:
! Metaphors communicate value
propositions more dramatically
and emphasize key points of
dierence
! Highlight how service benets are
actually provided
! Can you suggest some examples
from recent advertising?
uPL: romoung Lhe Lmclency of
lLs lmporL Lxpress Servlce (llg 6.4)
use of an easlly grasped
meLaphor
Peavlly knoued sLrlng
represenLs how complex
lmporung can be
SLralghL sLrlng represenLs
how easy lL would be
uslng uPL's express
servlce
Source: CourLesy uPL Lxpress Slngapore
Facilitate Customer
Involvement in
Production
! When customers are actively
involved in service production,
they need training to perform
well
! Show service delivery in action
! Television and videos engage
viewer
! Dentists showing patients
videos of surgical procedures
before surgery
! Streaming videos on Web and
podcasts are new channels to
reach active customers
Facilitate Customer
Involvement in
Production
! Advertising and publicity can
make customers aware of
changes in service features and
delivery systems in b2b and
b2c contexts
! Sales promotions to motivate
customers
! Oer incentives to make
necessary changes
! Price discounts to encourage
self-service on an ongoing
basis
Help Customers to
Evaluate
Service Offerings

! Customers may have diculty
distinguishing one rm from
another
! Provide tangible clues related
to service performance
! Firms expertise is hidden in low-
contact services
! Need to illustrate equipment,
procedures, employee activities
that take place backstage
! Some performance attributes lend
themselves better to advertising than
others
! Airlines
! Boast about punctuality
! Do not talk overtly in advertising
about safety, admission that things
might go wrong make prospective
travelers nervous
! Use indirect approach: promote
pilot expertise, mechanics
maintenance skills, newness of
aircraft
Help Customers to
Evaluate
Service Offerings

! Live service performances
are time-specic and cant
be stored for resale at a
later date
! For example, seats for
Friday evenings
performance; haircut at
Supercuts on Tuesdays
! Advertising and sales
promotions can change
timing of customer use
Stimulate or
Dampen Demand to
Match Capacity
! Examples of demand
management strategies
! Reducing usage during
peak demand periods
! Stimulating demand
during demand during
o-peak period, for
example:
! Run promotions that oer
extra valueroom
upgrades, free breakfast
Stimulate or
Dampen Demand to
Match Capacity
! Frontline personnel are
central to service
delivery in high-contact
services
! Make the service more
tangible and personalized
! Advertise employees at
work to help customers
understand nature of
service encounter
Promote the
Contributions of
Service Personnel
! Show customers work
performed behind the scenes to
ensure good delivery
! To enhance trust, highlight
expertise and commitment of
employees whom customers
normally do not normally
encounter
! Advertisements must be realistic

! Messages help set customers


expectations
! Service personnel should be
informed about the content of
new advertising campaigns or
brochures before launch
Promote the
Contributions of
Service Personnel