marketing intermediaries in chanels of distribution

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MARKETING NOTES AND

COMMUNICATIONS

Marketing Intermediaries in

Channels of Distribution

for Services

James H. Donnelly, Jr.

Service marketers should take a fresh look at the channels

of distribution for services as distinct from the

channels concept followed for goods.

A LTHOUGH marketing is defined in terms ofservices as well as products, marketers gen-

erally have concentrated their attention on prod-ucts, with the assumption that services are mar-

keted using the same guidelines. In most areas,this assumption has proved essentially true; in

the area of marketing channels, however, it is not

only incorrect but its application has limited our

understanding of the marketing of services. Thisarticle seeks to broaden this understanding by

evaluating marketing channels for services as a

separate decision area from those for products.

Services and the Traditional Concept

of Channel of Distribution

Traditionally, the "channel of distribution" is

viewed as the sequence of firms nvolved in movinga product from the producer to the user. The

channel may be direct, as in the case where the

manufacturer sells directly to the ultimate con-

sumer, or it may contain one or more institutionalmiddlemen. Some of the middlemen assume risks

of ownership, some perform various marketingfunctions such as advertising, while others may

perform nonmarketing or facilitating functionssuch as transporting and warehousing.

Apparently using this concept as a frame of

reference, most marketing writers generalize thatbecause of the intangible and inseparable nature ofservices, direct sale is the only possible channel for

distributing most of them. (The only traditionalindirect channel used involves one agent middle-man. This channel is used in the distribution of

such services as securities, housing, ente rtainm ent,insurance, and labor. In some cases, individuals are

trained in the production of the service and fran-chised to sell it, e.g., dance studios and em ploymentagencies.) They note th at because they a re intangi-ble, services cannot be stored, transported, or in-

ventoried; and since they cannot be sepa rated fromthe person of the seller, they must be created and

distributed simultaneously. Finally, because thereis no physical product, traditional wholesalers andother intermediaries can rarely operate in suchmarkets, and retailing cannot be an independentactivity. For these reasons, it is generally conc luded

that the geographic area in which most servicemarketers can operate is, therefore, restricted.'All of these generalizations are certainly true,

using the concept of "channel of distribution"developed for goods. However, the practice of viewing the distribution of services using the frame-work developed for goods has severely lim-

ited thinking concerning their distribution. It has

focused attention away from understanding the

problem and identifying means to overcome the

handicaps of intangibility and inseparability. Most

importantly, however, it has led to a failure todistinguish conceptually between the productionand distribution of services; hence , it supports the

idea that they must be created and distributedsimultaneouslv. This has resulted in a lackof a tten-

1. The l i terature on the problems of service market ing ingeneral , and the distribut ion of services specifically, is

scarce. For examples , see: Philip Kotler, Marketing for Non

profit Organizations (Englewood Cliffs. N.J.: Prentice-Hall1975), pp. 190-199; William J. Stanton , Fundamentab of

Marketing, 4th ed. (New York: McGraw-Hill Book Co., 1975)Chap. 24; John Rathmel l , Marketing and the Senice Sector

(Camb ridge, Mass. : W inthrop Publishers , 1974), Chap. 7and Seymour Baranoff and J am es H. Donnelly, Jr., "Selecting Channels of Distribut ion for Services, " in Handbook of



56 Journal of Marketing, January 197

tion to "channel" decisions for producers of ser-vices.

Marketing Intermediaries in theDistribution of Services

Despite traditional thinking concerning the dis-tribution of services, channels of distribution have

evolved in many service industries, which useseparate organizational entities as intermediariesbetween the producer and user of the service.These intermediaries play a variety of roles inmaking the services available to prospective us-ers. Some examples from various service indus-tries illustrate this point.

Financial

The retailer who extends a bank's credit to itscustomers is an intermediary in tbe distributionof credit. In the marketing of credit card plans,banks rely heavily on the retail merchant to assistin encouraging customers to apply for and use thecard. In fact, many banks have actually compen-sated merchants for various kinds of incentivecredit card promotions. Thus, when a retailer be-comes part of a credit card plan he is, in effect,becoming an intermediary in the channel of dis-tribution for credit.

In recent years, the banking industry has beenvery active in developing new retail banking ser-vices, particularly those that use the technology of

more sophisticated hardware and data-processingsystems. One of these, "direct pay deposit," per-mits an employee to have his pay deposited di-rectly into his checking account. By authorizinghis employer to deposit his pay, the employeesaves a trip to the bank and avoids forgetting tomake a deposit. He gets a receipt from theemployer and deposits are shown on his monthlybank statement. Bankers benefit by tbe reducedpaperwork involved in the processing of checks.In the marketing of such plans, banks obviously

must rely heavily on employers to encourageemployees to apply for the service. Thus, when anorganization agrees to become part of such aplan, it becomes an intermediary in the distribu-tion of a bank's service.

Health Care

The distribution of health care services is ofvital concern today as the nation faces what hasbeen widely described as a "delivery gap" inhealth care. In health care delivery, the insepara-

• ABOUT THE AUTHOR.

bility characteristic presents more of a handicathan in other service industries because tbe use(patient) litercilly places himself "in the hands" othe seller. However, although direct personal contact between producer and user is necessary, newand more efficient channels of distribution appeto be evolving.

While medical care is traditionally associate

with the present solo-practice, fee-for-service sytem, several alternative delivery systems abeing developed. One method that has receivesome attention is the health maintenance organzation (HMO) concept.^ This type of delivery sytem stresses the creation of group health care cliics using teams of salaried health practitione(physicians, pharmacists, technicians, etc.) thserve a specific enrolled membership on a prepabasis.

The HMO is not a new method of producin

health care. It does, however, perform an intemediary role between practitioner and patient. increases availability and convenience by proviing a central location and "one-stop shoppingFor example, a member can visit a general pratitioner for a particular ailment and undergtreatment by the appropriate specialist in thsame visit. Tbe HMO also assumes responsibilifor arranging or providing hospital caremergency care, and preventive services. In addtion, the prepaid nature of the program encou

ages more frequent preventive visits, while thtraditional philosophy of medical care is primaily remedial. HMO programs have inspired simlar innovations in other phases of health carsuch as dentistry.^

Insurance

The vending machines found in airports for aicraft accident insurance have been finding theway into other areas such as travel accident isurance, which is now available in many motchains. Group insurance written througemployers and labor unions has also been etremely successful. In each instance, the insuance industry has used intermediaries to distriute their service.

Communication

Witb growth potential basically limited population growth since the mid-1950s, firms the communication industry have sought ways increase the availability and convenience of th

2. M. R. Greenlick, "The Im pact of Prepaid G roup Insance on American Medical Care: A Cri t ical E valua t ion," TAnnals of the American Academy of Political and Social S



Marketing Notes and Communications 57

services. One means hais been the walk-up tele-phone. Companies or organizations that providespace for a walk-up phone serve as intermediariesfor te lephone communicat ion.

In each of the examples cited here, means ofdistribution were used that consisted of separateorganizational entit ies between the producer ofthe ser\ ice and the user for the purpose of makingthe service available. These intermediaries werenot the traditional insti tutional middlemen thatcomprise the channel of distribution for goods.While the present "goods-based" concept ofchannel of distribution does not provide for this,the concept itself is not inadequate. Rather, theconcept of "market ing intermediary" must bedefined in the context of services. We propose thatany extra-corporate entity between the producer of a

service and prospective users that is utilized to make

the service available and/or more con venient is a

marketing intermediary for that service.

Implications for Service Marketers

Services must be made available to prospective

users , and this implies distribution in the market-

ing sense of the word. The revised concept of the

distribution of services appears to have at least

two important implications for service marketers .

First, service marketers can (and rnust) distin-

guish conceptually between the production and

distribution of services. The problem of making

services more efficiently and widely availablemust not be ignored in favor of other elements of

the marketing mix that are easier to deal with.

For example, many service industries have been

crit icized for an "overdependence on advertis-

ing."" The problem of overdependence on one or

two elements of the marketing mix is one that

service marketers cannot afford. The sum total of

the marketing mix elements represents the total

impact of the firm's marketing strategy. The slack

created by severely restricting one element can-

not be compensated for by heavier emphasis onanother, s ince each element in the marketing mix

is designed to address specific problems and

achieve specific objectives.

Second, this discussion points out the crit ical

role of product development in the distribution of

services. It indicates that making services avail-

able is often a product development as well as a

distribution problem. In several of the examples

described, indirect distribution of the service was

made poss ible because "products" were de-

4. For example, see Robert W. Haas, "The Missing Link

veloped that included a tangible representation ofthe service. This facilitates the use of inter-mediaries, because the service can now be "sepa-rated" from the producer. Of course, the processmight be reversed: intermediaries could be lo-ca ted and appropria te "products" developed.

For example, the bank credit card is a tangiblerepre sentatio n of the ser\ ice of credit thoug h it is

not the service itself. As such, it has enabledbanks to overcome the inseparabili ty problemand use the retail merchant as an intermediary inthe distribution of credit. The credit card has alsomade it possible for banks to expand their geo-graphic markets by mainta ining credi t cus tomersfar outside their immediate trading areas, s ince i tenables subscribers to maintain an "inventory" ofthe bank's credit for use at their convenience. Thesame is true for the HMO membership card.Members can be treated or hospitalized while

away from home and still be covered by theirHMO membersh ip .

Implications for IMarketing Thought

Much thinking is left to be done before we de-velop a complete understanding of the very neb-ulous notion of distributing an intangible. It ishoped that this article has shown that such aneffort is w orth wh ile. A logical direction wo uldappear to be:

1. Identify characteristics of services that can

serve as means to classify them for purposes

of distribution, as has been done with goods

For example, one useful classification ap-

pecirs to be those services where direct con-

tact between buyer and seller is necessary

(e.g., medical and legal services) and those

where direct contact may not be necessary

and a tangible representation of the service

can exist (e.g., banking). For the latter group

more " intermediar ies" appear feas ible .

2. Identify the functions that need to be per

formed by intermediaries in channels of dis

tribution for each classification of services.

3. Identify and classify existing intermediarie

by the functions they perform, as has been

done with the intermed iaries that comprise the

channels of distribution for goods.

Certainly, a separate approach to the distribution

of services will provide marketers with poten

tially broader and more useful insights into thi

important facet of market ing.

The author would like to acknowledge the aid of Professo

marketing intermediaries in chanels of distribution

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