Establishing a service channel: a transaction cost analysis of a channel contract between a cruise line and a tour operator

Abstract

Services marketing literature treats the distribution of services as distributing service delivery, as opposed to service sales. Yet, many services are not delivered at the time of the sale, and the firm is selling a promise that the service will be delivered at some future time. This paper shows that this advanced selling has serious transaction cost implications to the firm and a potential intermediary.

Through a case study, and using a transaction cost approach, a contract between a cruise line and a tour operator is analyzed. The results show that service intermediaries aren’t able to take inventory and are unable to demonstrate their commitment. Consequently, both parties would be unwilling to establish a contract. However, commitment can be achieved through the intermediary investing in relationship-specific assets that it could recover, subject to performance. Similarly, the firm could pledge its capacity for its investment in the specific assets. Such a mechanism aligns the interests of both.