Channels of Channels of DistributionDistribution in in

Marketing Marketing Tourism Tourism ServicesServices

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Distribution ChannelsDistribution Channels• Distribution channels are involved in the process of making the process of making

a product or service available to the consumer a product or service available to the consumer or business user.

• This chapter will explain the various functions of distribution channels and the intermediaries including travel agents, tour operators, tour wholesalers, specialists, travel agents, tour operators, tour wholesalers, specialists, hotel sales representatives, incentive travel agents, hotel sales representatives, incentive travel agents, government tourist associations, consortia and reservations government tourist associations, consortia and reservations systems and electronic distribution systemssystems and electronic distribution systems.

• The interactionsinteractions and expectationsexpectations of different channel members are also discussed, as well as offering some criteria for selecting, motivating, and evaluating selecting, motivating, and evaluating channel members.

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CHAPTER OBJECTIVES1. Describe the naturenature of distribution channels, and tell why marketing intermediaries are used.2. Understand the different marketing different marketing intermediaries intermediaries available to the tourism industry and the benefits each of these intermediaries’ offers.3. Know how to use the Internet how to use the Internet as a distribution channel.

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CHAPTER OBJECTIVESCHAPTER OBJECTIVES

4. Discuss channel behavior and organization, organization, explaining corporate, contractual, and vertical explaining corporate, contractual, and vertical marketing systemsmarketing systems, including franchising.5. Illustrate the channel management decisions channel management decisions of selecting, motivating, and evaluating channel of selecting, motivating, and evaluating channel membersmembers.6. Identify factors to considerfactors to consider when choosing a business location.

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Distribution ChannelsDistribution Channels• Members of the marketing channel perform the

following 8 key functions. The first 5 functions help to complete transactions. The last 3 help to fulfill the completed transactions; (1) 1) InformationInformation (2) (2) PromotionPromotion (3) (3) Contact Contact (4)(4) Matching Matching (5)(5) Negotiation Negotiation(6) (6) PhysicalPhysical distribution distribution (7) (7) Financing Financing ((8) 8) Risk takingRisk taking

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Distribution ChannelsDistribution Channels• Selling through intermediaries is much more

efficientefficient. Furthermore, competition, a global marketplace, electronic distribution techniques and a perishable product have increased the importance of distribution.

• In today’s competitive environment it is not enough to count on a central reservation system a central reservation system and thus companies must develop increasingly complex distribution networks.

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How Distribution Channels WorkHow Distribution Channels Work

Distribution involves two questionsDistribution involves two questions:– How do I get my product How do I get my product to the

customer?– How do I get the customer How do I get the customer to my

product?

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How Distribution Channels WorkHow Distribution Channels Work

Distribution channels are importantDistribution channels are important– A group of organizationsgroup of organizations, independent or

not, that are involved in the process of making a product or service available for use or consumption

– GoalGoal is to get the product where the customer is now or is going to be in the future

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How Distribution Channels WorkHow Distribution Channels Work

• Distribution in Distribution in tourism tourism is different and complex

– Tourism product must be where the where the customer iscustomer is

– Focus on “gettinggetting” the customer

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Middlemen Middlemen are intermediaries between consumers and suppliers.

Customer Customer (tourist) (tourist) – middlemenmiddlemen – suppliersupplier Using middlemenmiddlemen has many advantages for

both customers & suppliers Tourism industry has been traditionally

characterized by its use of intermediariesuse of intermediaries.

Intermediaries

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Figure - Structure of distribution channelsStructure of distribution channels

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Various middlemen that are included in the travel and tourism industry are;

• TTravel agencies,ravel agencies, Tour Operators, Tour Operators,• HHotel marketing and booking schemes, otel marketing and booking schemes,

incentive travel organizations, incentive travel organizations, • SSales representatives, ales representatives, representation firms representation firms• CComputerized reservation system (CRS), global omputerized reservation system (CRS), global

distribution system (GDS)distribution system (GDS), and, and • Others Others (internet, web sites, corporate travel dept., Travel (internet, web sites, corporate travel dept., Travel

clubs)clubs)

IntermediariesIntermediaries

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The Nature of IntermediationThe Nature of Intermediation

• BenefitsBenefits– Producers are able to sell in bulk and bulk and

so transfer risk to intermediariesso transfer risk to intermediaries– Producers can reduce promotion can reduce promotion costs

by focusing on the travel trade, rather than consumer promotion, which is more expensive

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BenefitsBenefits

– Consumers can avoid search and search and transactions coststransactions costs

– Consumers can benefit from the specialist specialist knowledge of intermediaries,knowledge of intermediaries, their market power and the resulting lower cost of products

– Tourism firms can benefit from the marketing, marketing, and international marketing, international marketing, network of many intermediariesnetwork of many intermediaries

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The Nature of IntermediationThe Nature of Intermediation

• DisadvantagesDisadvantages–Use of intermediaries by producers

will result in the loss of profit margins and their degree of marketingmarketing control and influenceinfluence over the process of distributionprocess of distribution

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Distribution Channel Functions1.1. InformationInformation: gathering and distributing marketing

research and intelligence information about the marketing environment.

2.2. PromotionPromotion: developing and spreading persuasive communications about an offer

3.3. ContactContact: finding and communicating with prospective buyers

4.4. MatchingMatching: shaping and fitting the offer to the buyer’s needs, including such activities as manufacturing, grading, assembling, and packaging

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Distribution Channel Functions

5.5. NegotiationNegotiation: agreeing on price and other terms of the offer so that ownership or possession can be transferred

6.6. PhysicalPhysical distributiondistribution: transporting and storing goods

7.7. FinancingFinancing: acquiring and using funds to cover the costs of channel work

8.8. Risk takingRisk taking: assuming financial risks such as the inability to sell inventoryinventory at full margin.

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Travel Travel Agents/Agents/AgenciesAgencies

• TravelTravel agentagent = person person • Travel agency = companycompany • They provide important info & sales info & sales links • Links between: tourists & tourismtourism supplierssuppliers • Using Travel Agents, one of most common (popular)

ways to buy tourism products\services • Many tourists now use Internet travel agencies:

Travelocity, Travelocity, Tripadviser, Tripadviser, Expedia, & Orbitz Expedia, & Orbitz etc.etc.

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Travel AgenciesTravel Agencies

• One way of reaching a geographically diverse marketplace is through travel agentstravel agents.

• Due to the airlines driving their customers to the Internet and the decreasedecrease in commission paid to travel agents travel agents by the airlines, the number of travel agents has been decreasing in recent years.

• Hotels interested in travel agency business are listed in airline reservation systems and hotel guides.

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Travel AgenciesTravel Agencies• Hotels also send information packages to travel

agents that include collateral material and hotel collateral material and hotel news, including updates about hotel packages, news, including updates about hotel packages, promotions, and special events. promotions, and special events.

• Hotels also invite travel agents to visit the property on familiarization tours (fam trips). (fam trips).

• Airlines assist with fam trips by providing free airfare.• Hotels seeking travel agent business must make it

easy for agents to make reservations. • Providing toll-free reservation toll-free reservation numbers is essential to

servicing travel agents. 20

Travel AgenciesTravel Agencies

• Via websites & e-mails Travel Agencies compete with compete with each other regardless of their physical location

• They do not own products they sell, so they have little or no inventory no inventory or cost of goods sold

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Travel AgenciesTravel Agencies

• As commissions dwindle(fall), markupsmarkups (profits) increase

• Large volume agencies often earn overrideoverride commissionscommissions (above the normal percentage)

• They are destinations experts and make beneficial recommendations

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Figure-Conceptual model of the process and factors influencing agents’ destinations recommendations

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The Role of the Retail AgentThe Role of the Retail Agent

• Travel counsellorTravel counsellor• Principal role is to supply the public with

travel products and services (such as insurance and foreign exchange)

• Income is predominantly earned via Income is predominantly earned via commissionscommissions

• Retail location and choice of reservation Retail location and choice of reservation systems are key decisionssystems are key decisions

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Getting the Product to the CustomerGetting the Product to the Customer

Tour WholesalersTour Wholesalers• Tour wholesalers assemble travel packages,

including transportation, accommodations, meals, transportation, accommodations, meals, ground transportation, and entertainmentground transportation, and entertainment. In developing a package, a tour wholesaler contracts with airlines and hotels airlines and hotels for a specified number of seats and rooms, receiving a quantity discount.

• Retail travel agents Retail travel agents sell these packages. The tour wholesaler has to provide a commissioncommission for the travel agent and give consumers a package that is perceived to be a better value a better value than what they could arrange on their own.

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Getting the Product to the CustomerGetting the Product to the Customer

Tour WholesalersTour Wholesalers

• With the increased number of international resorts, tour wholesalers are becoming a powerful member powerful member of the distribution channel.

• It is impossible for travel agents to know every resort. Instead, they rely on catalogscatalogs provided by tour wholesalers.

• For example, the Caribbean resort industry is particularly dependent on tour wholesalerswholesalers, who provide over half the business.

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Getting the Product to the CustomerGetting the Product to the Customer

SpecialistsSpecialists

1. Tour brokersbrokers sell motor coach tours. For example, tours through New England, tours around Mardi Gras, and tours of Washington, D.C.

2.2. MotivationalMotivational houses provide incentive travel as rewards for exceptional employees or distributors.

3.3. JunketJunket (free) reps serve the casino industry as intermediaries for premium players.

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Getting the Product to the CustomerGetting the Product to the Customer

Hotel sales representativesHotel sales representatives sell hotel rooms and services in a given market area. These persons are independent of the hotels sales force but are often more knowledgeable of their local market and, in the long run, more more cost effectivecost effective too. Hotel sales representatives should represent non-competing hotelsnon-competing hotels.

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Getting the Product to the CustomerGetting the Product to the Customer

• Government tourist associationsGovernment tourist associations: National, state and local tourist agencies can disseminate information to travelers and potential travelers

• ConsortiaConsortia are groups of hospitality organizations that are allied for the mutual benefit of the members.

This allows the property to be independent in ownership and management while taking advantage of group marketing efforts.

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Getting the Customer to the ProductGetting the Customer to the Product

ConsortiaConsortia– It is a loosely knit group of independently independently

owned and managed owned and managed propertieproperties (e.g. hotels or travel agencies) with different names, a joint marketing distribution purpose, and a common consortium designation

– Purpose is to open a channel of distribution by maximizing combined marketing resmaximizing combined marketing resources and reducing expenses for individual properties

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Getting the Product to the CustomerGetting the Product to the Customer

FranchisingFranchising– Commonly used in hospitality to:• Increase the distribution network• Increase revenue• Obtain geographical presence• Access the company’s industry experience and

marketing tools

– Also common in non-hospitality firms

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Getting the Product to the CustomerGetting the Product to the Customer

FranchisingFranchising– Contracts and control between

franchisee/franchisor vary and cover:• Marketing support• Revenues to the franchisor• Duration of agreement

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Getting the Product to the CustomerGetting the Product to the Customer

Management without ownershipManagement without ownership• Many hotels today manage without

ownership– Increases distribution without the financial

cost and risk

• Also known as a “management contractmanagement contract”

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Getting the Customer to the ProductGetting the Customer to the Product

Reservation servicesReservation services– Used by hotels to market themselves independently– Only connects them to the channels of distribution• SynXis or Pegasus• Links directly to GDS or Internet without needing

brand affiliation

Reservation systems provide a central reservation system for hotels. They allow international and national guests to call a local number to contact the hotel.

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Getting the Customer to the ProductGetting the Customer to the Product

Representation firmsRepresentation firms– A channel of distribution that brings a hotel to

the marketplace• Market the hotel and sales for independent hotels

that do not have sales or reservation networks

– Termed “soft brands”Termed “soft brands”• Represent both the representation firm and their

own independent brand• Maintain independence with representation but also

have access to marketing programs

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Getting the Customer to the ProductGetting the Customer to the Product

Representation firms offer:Representation firms offer:– Standards for membership– Connectivity to electronic channels of

distribution– Sales initiatives– Marketing programs– Participation in trade shows

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Getting the Customer to the ProductGetting the Customer to the ProductIncentive travel organizations (incentive houses)Incentive travel organizations (incentive houses)– A company that specializes in handling incentive

reward travel which rewards top-performing employees

– Need for new and exciting destinations and for the trip to be perfectly executed

– Thoroughly review the destination and facilities, sell it to the company and sell it to the employee

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Getting the Customer to the ProductGetting the Customer to the Product

Corporate travel departments and travel Corporate travel departments and travel management companiesmanagement companies– Services range from a travel director who

creates policies and contracts with travel suppliers to a full, in-house travel agency• Referred to as the corporate or managed

business traveler• Goal is to balance the need of employee and

employer

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ConciergesConciergesConcierges, bell staff, and front-desk employees can be good sources of business for local for local hospitality products hospitality products and traveltravel such as restaurants, tours, and fishing guides. Concierges can be a major source of business major source of business for a restaurant that has a unique menu, atmosphere, or simply excellent food and service.

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Global distribution systemsGlobal distribution systems

• Global distribution systems (GDSs) are computerized reservation systems that serve as a product catalog for travel agents and other distributors of tourism products.

• For example, GalileoGalileo connect travel agents to 500 500 airlines, 4040 car rental companies, 47,000 47,000 hotels, 370370 tour operators and all the major cruise lines.

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Getting the Customer to the ProductGetting the Customer to the Product

Central reservation systems (CRS)Central reservation systems (CRS)– Computerized reservation system of a

hospitality company that allows customers to make reservations without having to contact the company directly

– All major hotel chains worldwide now communicate from their CRS and GDS directly to the individual hotels

– Seamless (continuos)connectivity allows two-way inventory management

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Getting the Customer to the ProductGetting the Customer to the Product

Global distribution systems Global distribution systems (GDS)– The system connects the travel agent to hotels,

airlines, cruise lines, care rentals, and other services

– Additional fees are added at each point in booking

– To avoid this, many companies are now directly marketing to customers

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Channel Behavior Channel Behavior • Distribution channels are more than simple than simple

collections of firms collections of firms tied together by various flows.• They are complex behavioral systems complex behavioral systems in which

people and companies interact to accomplish goals.• Although channel members are dependent on each

another, they often act alone they often act alone in their own short-run best interests.

• They frequently disagree on the roles each should play on who should do what for which rewards. Such disagreements over goals and roles generate channel generate channel conflict.conflict.

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Channel Behavior • Horizontal conflict is conflict between firms at the

same level of the chansame level of the channel. For example, some Pizza Inn franchisees may complain about other Pizza Inn franchisees cheating on ingredients and giving poor service, thereby hurting the overall Pizza Inn image.

• Vertical conflict refers to conflicts between different levels of the same channel. For example, the agreement between Little Caesar’s and K-mart. This agreement provided a great opportunity to increase Little Caesar’s franchiser’s sales. However, to some Little Caesar’s franchisees it meant an erosion of their sales.

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Selecting Channel Members Selecting Channel Members

Selecting channel members involves a number of factors, including customer needs, the company’s ability to attract channel members, the economic feasibilityeconomic feasibility of the channel member, and the control that might be given up to gain a channel member.A. Customer needsCustomer needs: : Selecting channel members start with determining the services that consumers in various target segments want.

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Selecting Channel Members Selecting Channel Members

B.B. Company’s ability to attract channel members Company’s ability to attract channel members:: Companies vary in their ability to attract qualified intermediaries. Well-known hotel companies that have a reputation for paying commissions promptly and honoring the reservations of travel agents will have no trouble gaining the support of travel agencies. On the other hand, when contracting with a hotel sales representative, the hotel company will want to investigate the number and type of other hotels that the firm represents, the size and quality of its workforce.

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Selecting Channel Members C. C. Economic criteria: Economic criteria: Each channel will produce different levels of sales and costs. The business that channel members bring must offset the cost of paying and supporting the channel member.D. D. Control criteriaControl criteria: Using sales representatives offers less control than building your own sales force. For example, the company may have trouble getting franchisees to add new products or to participate in promotions.

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Responsibilities of Channel Members and SuppliersResponsibilities of Channel Members and Suppliers

• The company and its intermediaries must agree on the terms and responsibilities of each channel responsibilities of each channel member.

• For instance, hotels make it clear to travel agents which rates are commissionable and the amount of commission to be paid, and they often guarantee they often guarantee to pay the commissionto pay the commission within a certain number of days.

• After the selection of the channel member, a company must continuously motivate must continuously motivate its channel members, such as providing positive incentives.

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The Business Location

It is crucial particularly for tourism organizations. There are four steps in choosing a best location.A. Understanding the marketing strategystrategy and target market of the company.B. RegionalRegional analysis involves the selection of geographic market areas. A firm needs to make sure that a region has sufficient and stable sufficient and stable demand demand to support this firm.

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The business location

C. Choosing the area within the region: Demographic, psychographic characteristics Demographic, psychographic characteristics and competition aand competition are factors to consider.D. In choosing the individual site, business will consider several factors. Compatible businesses in the form of potential demand generators should be consistent with the firm’s customers so they can look for customer sources within a given area.

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InternetInternet• The Internet is quickly becoming an effective distribution

channel. Some of the advantages of the Internet are that it never closesnever closes, it allows companies to tangibilizetangibilize their products, it reaches broad geographic areas, it allows interaction with the guests, and it saves labor.

• Major hotel chains such as Hilton, Marriott and Best Western book millions of dollars worth of rooms over the Web. Southwest Airlines received over a billion dollars in a billion dollars in ticket sales through its web site. ticket sales through its web site.

• Restaurant companies that use the Internet as a distribution channel, such as Pizza Hut and Domino’s Pizza Hut and Domino’s have online ordering systems. Travel agencies such as Hotels.com, Travelocity and Expedia are capitalizing the growing benefits of the Internet.

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Getting the Customer to the ProductGetting the Customer to the Product

Internet channelsInternet channels– Now reaching 80 % of US households,

the internet’s influence on hospitality is growing

– Internet has evolved:• Provides information• Simplifies transactions• Improving technology with complex

interactions taking place

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Getting the Customer to the ProductGetting the Customer to the Product

WebsiteWebsite– Is the hospitality modern day equivalent of the

rack brochure– Should reflect the personality of the hotel with

visuals– Focus on the needs of the customer– will vary based on market segment– Many fail to provide visitors with information

needed to make a purchase decision

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Getting the Customer to the ProductGetting the Customer to the Product

WebsitesWebsites– Two audiences• Potential customer• Search engine

– Functionality best practices• Reservation area should be at the front of the page• Email acquisition section should be on the home

page• Site should convey the best value to the customer

and keep them interested• Security has to be conveyed

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Getting the Customer to the ProductGetting the Customer to the Product

Website-generated market research data– Computer servers track visitors and record

surfing and clicking behavior• First page visited• Last page visited• Navigation sequences• Referring site• Average number of pages visited• Time on site

– Low cost tool

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Future Challenges of Online DistributionFuture Challenges of Online Distribution• The internet has fundamentally changed travel

and hospitality distribution• ChallengesChallenges– The consideration set for travel options has expanded– Price transparency and consistency– Need to manage transaction costs– Reallocation of marketing dollars– “Onward distribution”– Rise of third parties that are going after the group

market– Increase in packaging

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Discussion

• Do you believe that traditional travel agents will one day be obsolete? What can they do to make themselves a competitive distribution channel?

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End of End of chapter slideschapter slides

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