Transcript 08 Channels of distrb

Channels of
Distribution in
Marketing
Tourism
Services
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Distribution Channels
• Distribution channels are involved in the process of making
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,
hotel sales representatives, incentive travel agents,
government tourist associations, consortia and reservations
systems and electronic distribution systems.
• The interactions and expectations of different channel
members are also discussed, as well as offering some
criteria for selecting, motivating, and evaluating channel
members.
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CHAPTER OBJECTIVES
1. Describe the nature of distribution
channels,
and tell why marketing intermediaries are
used.
2. Understand the different marketing
intermediaries available to the tourism
industry and the benefits each of these
intermediaries’ offers.
3. Know how to use the Internet as a
distribution channel.
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CHAPTER OBJECTIVES
4. Discuss channel behavior and organization,
explaining corporate, contractual, and vertical
marketing systems, including franchising.
5. Illustrate the channel management decisions
of selecting, motivating, and evaluating channel
members.
6. Identify factors to consider when choosing a
business location.
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Distribution 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) Information
(2) Promotion
(3) Contact
(4) Matching
(5) Negotiation
(6) Physical distribution
(7) Financing
(8) Risk taking
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Distribution Channels
• Selling through intermediaries is much more
efficient. 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
and thus companies must develop increasingly
complex distribution networks.
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How Distribution Channels Work
Distribution involves two questions:
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How do I get my product to the
customer?
How do I get the customer to my
product?
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How Distribution Channels Work
Distribution channels are important
– A group of organizations, independent or
not, that are involved in the process of
making a product or service available for
use or consumption
– Goal 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 Work
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Distribution in tourism is different
and complex
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Tourism product must be where the
customer is
Focus on “getting” the customer
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Intermediaries
Middlemen are intermediaries between
consumers and suppliers.
Customer (tourist) – middlemen – supplier
Using middlemen has many advantages for
both customers & suppliers
Tourism industry has been traditionally
characterized by its use of intermediaries.
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Figure - Structure of distribution channels
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Intermediaries
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Various middlemen that are included in the
travel and tourism industry are;
Travel agencies, Tour Operators,
Hotel marketing and booking schemes,
incentive travel organizations,
Sales representatives, representation firms
Computerized reservation system (CRS), global
distribution system (GDS), and
Others (internet, web sites, corporate travel dept., Travel
clubs)
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The Nature of Intermediation
• Benefits
– Producers are able to sell in bulk and
so transfer risk to intermediaries
– Producers can reduce promotion costs
by focusing on the travel trade, rather
than consumer promotion, which is
more expensive
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Benefits
– Consumers can avoid search and
transactions costs
– Consumers can benefit from the specialist
knowledge of intermediaries, their market
power and the resulting lower cost of
products
– Tourism firms can benefit from the
marketing, and international marketing,
network of many intermediaries
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The Nature of Intermediation
• Disadvantages
–Use of intermediaries by producers
will result in the loss of profit
margins and their degree of
marketing control and influence
over the process of distribution
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Distribution Channel Functions
1. Information: gathering and distributing marketing
research and intelligence information about the
marketing environment.
2. Promotion: developing and spreading persuasive
communications about an offer
3. Contact: finding and communicating with
prospective buyers
4. Matching: 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. Negotiation: agreeing on price and other terms
of the offer so that ownership or possession can
be transferred
6. Physical distribution: transporting and storing
goods
7. Financing: acquiring and using funds to cover
the costs of channel work
8. Risk taking: assuming financial risks such as the
inability to sell inventory at full margin.
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Travel Agents/Agencies
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Travel agent = person
Travel agency = company
They provide important info & sales links
Links between: tourists & tourism suppliers
Using Travel Agents, one of most common
(popular) ways to buy tourism products\services
• Many tourists now use Internet travel agencies:
Travelocity, Tripadviser, Expedia, & Orbitz etc.
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Travel Agencies
• One way of reaching a geographically diverse
marketplace is through travel agents.
• Due to the airlines driving their customers to
the Internet and the decrease in commission
paid to 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 Agencies
• Hotels also send information packages to travel
agents that include collateral material and hotel
news, including updates about hotel packages,
promotions, and special events.
• Hotels also invite travel agents to visit the property
on familiarization tours (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 numbers is essential to
servicing travel agents.
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Travel Agencies
• Via websites & e-mails Travel Agencies
compete with each other regardless of
their physical location
• They do not own products they sell, so
they have little or no inventory or cost
of goods sold
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Travel Agencies
• As commissions dwindle(fall), markups
(profits) increase
• Large volume agencies often earn
override commissions (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 Agent
• Travel counsellor
• Principal role is to supply the public with
travel products and services (such as insurance
and foreign exchange)
• Income is predominantly earned via
commissions
• Retail location and choice of reservation
systems are key decisions
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Getting the Product to the Customer
Tour Wholesalers
• Tour wholesalers assemble travel packages,
including transportation, accommodations, meals,
ground transportation, and entertainment. In
developing a package, a tour wholesaler contracts
with airlines and hotels for a specified number of
seats and rooms, receiving a quantity discount.
• Retail travel agents sell these packages. The tour
wholesaler has to provide a commission for the
travel agent and give consumers a package that is
perceived to be a better value than what they could
arrange on their own.
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Getting the Product to the Customer
Tour Wholesalers
• With the increased number of international
resorts, tour wholesalers are becoming a
powerful member of the distribution channel.
• It is impossible for travel agents to know every
resort. Instead, they rely on catalogs provided by
tour wholesalers.
• For example, the Caribbean resort industry is
particularly dependent on tour wholesalers, who
provide over half the business.
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Getting the Product to the Customer
Specialists
1. Tour brokers sell motor coach tours. For
example, tours through New England, tours
around Mardi Gras, and tours of Washington,
D.C.
2. Motivational houses provide incentive travel as
rewards for exceptional employees or
distributors.
3. Junket (free) reps serve the casino industry as
intermediaries for premium players.
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Getting the Product to the Customer
Hotel 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
cost effective too.
Hotel sales representatives should represent
non-competing hotels.
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Getting the Product to the Customer
• Government tourist associations: National, state
and local tourist agencies can disseminate
information to travelers and potential travelers
• Consortia 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 Product
Consortia
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It is a loosely knit group of independently
owned and managed properties (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 resources and
reducing expenses for individual properties
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Getting the Product to the Customer xxx
Franchising
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Commonly used in hospitality to:
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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 Customer
Franchising
– Contracts and control between
franchisee/franchisor vary and cover:
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Marketing support
Revenues to the franchisor
Duration of agreement
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Getting the Product to the Customer
Management without ownership
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Many hotels today manage without
ownership
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Increases distribution without the financial
cost and risk
Also known as a “management contract”
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Getting the Customer to the Product
Reservation services
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Used by hotels to market themselves independently
Only connects them to the channels of distribution
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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 Product
Representation firms
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A channel of distribution that brings a hotel to
the marketplace
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Market the hotel and sales for independent hotels
that do not have sales or reservation networks
Termed “soft brands”
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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 Product
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 Product
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 Product
Corporate travel departments and travel
management companies
– Services range from a travel director who
creates policies and contracts with travel
suppliers to a full, in-house travel agency
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Referred to as the corporate or managed
business traveler
Goal is to balance the need of employee and
employer
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Concierges
Concierges, bell staff, and front-desk employees
can be good sources of business for local
hospitality products and travel such as
restaurants, tours, and fishing guides.
Concierges can be a 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 systems
15.12.2014
• 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, Galileo connect travel agents to
500 airlines, 40 car rental companies, 47,000
hotels, 370 tour operators and all the major
cruise lines.
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Getting the Customer to the Product
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 Product
Global distribution systems (GDS)
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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
• Distribution channels are more than simple
collections of firms tied together by various flows.
• They are complex behavioral systems in which
people and companies interact to accomplish goals.
• Although channel members are dependent on each
another, 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
conflict.
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Channel Behavior
• Horizontal conflict is conflict between firms at the
same 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 involves a number
of factors, including customer needs, the
company’s ability to attract channel members,
the economic feasibility of the channel
member, and the control that might be given
up to gain a channel member.
A. Customer needs: Selecting channel members
start with determining the services that
consumers in various target segments want.
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Selecting Channel Members
B. 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. 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. Control 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 Suppliers
• The company and its intermediaries must agree on
the terms and 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
to pay the commission within a certain number of
days.
• After the selection of the channel member, a
company 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 strategy and
target market of the company.
B. Regional analysis involves the selection of
geographic market areas. A firm needs to make
sure that a region has sufficient and stable
demand to support this firm.
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The business location
C. Choosing the area within the region:
Demographic, psychographic characteristics
and 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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Internet
• The Internet is quickly becoming an effective distribution
channel. Some of the advantages of the Internet are that it
never closes, it allows companies to tangibilize 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
ticket sales through its web site.
• Restaurant companies that use the Internet as a
distribution channel, such as 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 Product
Internet channels
– Now reaching 80 % of US households,
the internet’s influence on hospitality is
growing
– Internet has evolved:
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Provides information
Simplifies transactions
Improving technology with complex
interactions taking place
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Getting the Customer to the Product
Website
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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 Product
Websites
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Two audiences
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Potential customer
Search engine
Functionality best practices
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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 Product
Website-generated market research data
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Computer servers track visitors and record
surfing and clicking behavior
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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 Distribution
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The internet has fundamentally changed travel
and hospitality distribution
Challenges
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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 chapter
slides
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