The service principal provider encounters the following challenges while involving agents and brokers in distribution process:
Disadvantages of delivering services through agents and brokers
1. Loss of control over price: The representatives of service principals are experts on customer markets. Agent and brokers are typically empowered to negotiate price and configure services. Taking undue advantages of their position, the middlemen may even alter the marketing of services of the principal. This issue could be detrimental when a service provider relies on a high price to indicate a level of service quality. If the price can be reduced, it may undermine the brand image. The agents may misuse their power by charging different prices from different customers. If buyers compare prices and realize that they are being charged different prices, they may perceive the service principal as unethical.
2. Representation of multiple service principals: No doubt, independent agents representing several principals offer the customer a wide range of choices. But in many cases, such agents recommend goods or services to the customers which fetch them higher margin.
3. Loss of control over services encounters: There are greater chances for service principals in losing control over the service encounters between the customer and the intermediary.
4. Service wholesalers: Service wholesalers buy the rights of a large volume of service transactions. Then the whole lot is divided into smaller units for handling by other intermediaries such as retailers. For example, agencies book a large block of hotel accommodation at lower prices. Then the block is divided into smaller units for sale to retailers. The service wholesaler can even return the unsold blocks to the hotels concerned.
5. Electronic channels: Electronic channels do not require any direct human interaction. Pre-designed services such as information, education or entertainment are suitable for distribution electronically. The electronic channels include telephone and television channels, internet and web. A wide array of services are distributed through electronic channels. For example, movies, interactive news and financial services, desktop, video conferencing, distance learning, multimedia libraries and database, remote health services and interactive network-based games.
Use of electronic channels eliminates face to face contact with services providers. Using electronic channels overcomes the problems associated with services inseparability. It also allows a form of standardization of service provision.