Distribution channel of Hotel Industry

Overview

In this document, we will be analyzing the Distribution channel in Hotel Industry. We

will be discussing the various distribution channel prevailing in the Hotel Industry as
a whole, evaluating their advantages-disadvantages. We will be looking into all the
distribution channels of a real organization and how it is maintaining it.
Subsequently, we will be looking into conflicts among distribution channel and what
can be done to improve the performance of channel or what technological mix can
be applied to the overall consortium of distribution channels to improve the
performance and overall profit of the Hotel Industry.
Distribution channel of Hotel Industry

THE HOTEL INDUSTRY must be widely defined to include the broad spectrum of
lodging establishments other than hotels such as motels, motor inns, tourist courts,
and in some instances, rental condominiums. If we are to gain perspective
necessary to define and describe the hotel industrys channels of distribution we
must adopt an even broader view and see hotels as they function within the whole
travel industry. No longer are the various travel venders neatly separated, for
example, intro, hotel companies, transportation companies, travel agents, tour
operators, and caterers. Instead there has been movement toward the development
of what Kotler calls vertical marketing systems (VMS) in which hotel and
transportation companies, especially airlines, work within the same corporate
systems and perhaps even engage in catering operations and travel tour
operations. This article defines the marketing channels found in the hotel industry
and relates them to that larger framework of the travel industry.
The Customers Need for Information
The endless combinations and permutations of alternative routes, transportation
modes, times, and lodging accommodations make many travel decisions difficult
even for the initiated. When the seasonal changes in rates and schedules are added
to the confusion, .and need for good information and promotion becomes necessary
so that the industry can function.
With growing disposable income around the globe and the increased speed and
frequency of jet flights, the growth of travel both domestic and foreign, appears
assured. New travel destinations are developing and people now collect lists of
countries visited as symbols of their worldliness and affluence. Further, the business
world has moved to multi-national firms operating on virtually every continent, so
overseas business travel is now common. The speedy dissemination of reliable
travel information is therefore necessary to accommodate both the growing demand
for, and the increasing complexity of, lodging and transportation arrangements.
The Sellers Need for Identification
With the emergence of increasing demand, new travelers, and new destinations,
there arises concomitantly a complicating problem from the supply side of the travel
industry-mainly the supply of lodging accommodations. Hundreds of thousands of
lodging establishments are seeking to gain identity with untold millions of potential
customers covering the whole spectrum of incomes, interests, knowledge,
sophistication, and needs; but few single establishments can afford the marketing
costs. The solution of this fundamental problem leads us to the development of the
current channels of distribution in the travel industry.
Distribution channel of Hotel Industry

Channels of Distribution
Accepting the premise of the basic industry problem, scattered and little-known
establishments seeking identity among a world of potential customers, it quickly
becomes apparent that the hotels have a need to be represented to the customers.
Since cost limitations obviously prohibit every hotel from being represented
personally, apparently the most economical channel for selling of rooms is to follow
(a) the informational flow giving location, price, room availability and reservation
verification, and (b) the promotional flow which consists of personal selling by
agents, who also provide a platform for distribution of promotional literature.
MARKETING CHANNELS IN THE HOTEL INDUSTRY
Distribution channel of Hotel Industry

Direct Channels.
Essentially, the distribution channels between hotel and customer can be
categorized simply as either -direct or indirect. Regardless of whether the hotel is
independent or affiliated, the direct channel between a given hotel and the
consumer, while absolutely vital, is concerned chiefly with the sales function. More
specifically the individual hotels _ salesmen concentrate upon, (a) maintaining
sales contact with channel intermediaries such as tour operators, travel agents,
representatives and transportation companies; (b) maintaining sales contact with
community firms and organizations in an attempt to obtain lodging and function
business; (c) following leads furnished by other sources, e.g., the headquarters
marketing department if it is part of chain organization. It is a common practice for
the local hotel salesman to travel considerable distance across the country seeking
to close a major sale such as a business meeting or convention. The hotel cannot
survive without its own salesforce regardless of the power of the headquarters sales
and marketing force.

Indirect Channels.
But of increasing importance now to the lodging industry is the growth of the
indirect channels of distribution through such intermediaries as the travel agents,
hotel representatives, tour operators, space brokers, airlines, and the centralized
reservation and sales operations of franchised or chain hotels to help make the
room sales for the hotels.
While travel agents may deal on the customers behalf directly with a hotel,
frequently the travel agents deal through the other intermediaries who hold blocks
of rooms or otherwise act as agents for the hotels. Thus there are frequently two or
more intermediaries involved in consummating the sale of a room. The functions
and activities of these intermediaries can be described as follows: -
Hotel Representative act as sales and reservation agents for a number of
noncompeting hotels such as resorts, but the hotel representative concept is more
frequently used by foreign hotels selling to the U.S. market.
- Tour Operators reserve wholesale blocks of rooms in anticipation of selling group
tours s through their retailers, the travel agents.
- Automated Reservation Service such as American Express Space Bank, maintains
for a fee in their computers an inventory of available hotel rooms from around the
world so that travel agents can buy rooms for their customers.
Distribution channel of Hotel Industry

- Airlines, chiefly for overseas destinations, maintain an inventory of room

availability to accommodate customers sand travel agents who prefer to make
complete arrangements witch but one phone call for flight and room reservations.
- Centralized Reservation and Sales Operation of associated, franchised, or chain
hotels/ / motels facilitate the flow of room availability information to potential
consumers, and of course, promote, sell and accept reservations for space.
While it has proven helpful to utilize travel agents and other sorts of intermediaries
as listed above to sell hotel rooms, there have been several significant changes
recently. As a result of movement of independents to affiliate with each other, the
development of large groups of franchised establishments, and the surge in industry
corporate chain growth there have come (a) greater economies of scale in
promotion, (b) increased speed and economy in the flow of information in both
directions in the channels between hotels and clients, (c) and a moving of the point-
of-sale closer to the customers point-of-decision to travel. This latter has been
accomplished chiefly through the development of the 24-hour per day single
number, nation-wide, toll-free reservation system - the 1-800 telephone number.
This one device, makes it possible to buy a hotel room almost anywhere in the world
at the moment of the decision, wherever the customer may be.
All of the channels illustrated and described above are functioning now because
they are economically necessary to make a market between hoteliers and
consumers. Because hotel space is a service, its distribution channels are relatively
fluid and responsive to change - unlike the distribution channels for goods which are
subject to the time and cost limitations of physical distribution. Thus so long as
competitive innovations occur and entrepreneurs seek to implement them in search
of survival, growth, and profit, these channels of distribution are subject to change.

Global distribution channel

GDS provide pricing, availability, and reservation functionality to a world-wide
market of consortia, who can book airline, car, hotel, and other travel arrangements
for their customers. The four main GDS are Sabre, Galileo, Amadeus, and
Worldspan. The GDS feed most consortia, providing a major source of business for
hotels that capture strong corporate demand. Some of the main international
consortia are ABC, BSI, American Express, BCD, CCRA, Carlson Wagonlit, Radius, and
Thor. Pricing for GDS typically involves a low initial set-up fee of less than $1,000,
and per-transaction fees that can range from $10 to $15 per reservation.
Transaction fees can become costly, as some hotels focus on lowering rates to
maintain relationships with the travel agency in an attempt to generate more
revenue instead of acquiring customer information and focusing on improving CAC
and CLV.
It is important for hotels to ease the booking process for travel agents by including
the right type of information and rates in the GDS, and by keeping hotel information
current, including all attractions and points of interest that attract guests.
Distribution channel of Hotel Industry

There are services available to hoteliers to help measure the effectiveness of GDS,
such as TravelClicks Hotelligence reports, which monitor the performance of
different consortia in their respective markets. Agency360, also a service provided
by TravelClick, identifies the main travel agencies used by a competitive set or
located within a geographical area, and provides information that can be used to
recognize key corporate accounts in the hotel market.
The GDS distribution channel remains an important part of the industry, and it can
have a significant impact on the amount of commercial demand captured. Data
mining will help managers understand how many room nights are being booked and
the typical season and day of the booking, which will in turn help them recognize
how to maximize profit from these accounts and avoid displacing higher-rated
demand.
GDS channel advertising opportunities are also available to increase the exposure of
the hotel on the GDS. Investing in a targeted GDS and consortia advertising
campaign can be an effective way of increasing business from this distribution
channel. Special consortia rates can be used to reward agencies that deliver
consistent business to the hotel.