Chapter 13: Distribution Channels

All roads lead to Rome

Chapter Objectives

Describe the nature of distribution channels Understand the different marketing intermediaries and the benefits they offers. Know how to use the Internet as a distribution channel Discuss channel behavior and organization Illustrate the channel management decisions of selecting, motivating and evaluating channel members. Identify factors to consider when choosing a business location.

Nature and Importance of Distribution Channels

Distribution channels is the circulatory

system of a hospitality company.

Competition, a global marketplace,

electronic distribution techniques have increased the importance of distribution.

In the global economic market,

companies should create innovative ways to approach to new and existing

Distribution Channel
What is a Distribution Channel?

A set of organizations (intermediaries)

involved in the process of making a product or service available for use or consumption by the consumer or business user.

Used to move the customer towards the

product

Distribution Channel Functions

Information: gathering and distributing

marketing research and intelligence information about the marketing environment.

Promotion: developing and spreading persuasive

communications about an offer

Contact: finding and communicating with

prospective buyers

Matching: shaping and fitting the offer to the

buyers needs, including such activities as manufacturing, grading, assembling, and

Distribution Channel Functions

Distribution Channel
Information Promotion Contact Matching Negotiation Physical Financing Risk Taking

Key Functions
Gathering and distributing marketing research about the environment Developing and spreading persuasive communications about an offer Finding and communicating with prospective buyers Shaping and fitting the offer to the buyers need Agreeing on price and terms of the offer so ownership or possession can be transferred Distribution: transporting and storing goods Acquiring and using funds to cover the costs of channel work Assuming financial risks such as the inability to sell inventory at full margin

Number of Channel Levels

Channel Level - Each Layer of Marketing Intermediaries that Perform Some Work in Bringing the Product and its Ownership Closer to the Final Buyer. 0-level channel Producer Producer 1-level channel Producer Producer 2-level channel Producer Producer Retailer Retailer Consumer Consumer

Consumer Consumer Consumer Consumer Consumer Consumer

Wholesaler Wholesaler Wholesaler Wholesaler

Jobber Jobber

Retailer Retailer

3-level channel Producer Producer

Retailer Retailer

Marketing Intermediaries

Travel Agents

Tour Wholesalers

Concierges

Specialists: Brokers & Junket Reps Hotel Representatives

Internet Global Distribution Systems

National, State, and Local Tour Agencies Consortia & Reservations Systems

Marketing Intermediaries
Travel Agents (TAs)

31,000 TA in the U.S.A. (1999) Decreasing due to Internet and less

commission

Commission: Airlines 5 %, hotels 10%,

cruises 15% GDS* when making reservation for * Mostly used hotels

TAs use toll- free numbers, CRS or

Companies are a major source of travel

Marketing Intermediaries
Tour Wholesalers
A company that operates as an intermediary between the travel product supplier and the retail travel agent in the marketplace. (Tour operators often operate as wholesalers.)
Supplier Wholesaler Travel agent

Tour Packages Usually Air travel + lodging may include [ meals + entertainment + ground transportation + sightseeing tours + special entrance fees]

Marketing Intermediaries
Tour Wholesalers

Usually targeted at the leisure market Retail TAs sell wholesalers tour

packages. They get discounts from airlines or hotels Break even point is usually achieved at 85 % of sale. USTOA requires $100,000 indemnity bond. Usually resort hotels are dependent on

Marketing Intermediaries
Specialists: Tour Brokers,
Motivational Houses and Junket Reps.

Tour brokers sell motor coach tours.

Trips to college and sporting events, tours built around Mardi Gras.

Motivational houses provide

incentive travel to companies offered to their employees. gamblers. Junket reps get a commission

Junket reps maintain lists of casino

Marketing Intermediaries
Hotel Representatives HR sell hotel rooms and services in a distant market area and receive a straight commission, a commission plus a salary, or a combination of both. National, State, and Local Tourist Agencies (CVBs) Supply information and promote an area, a state or country. Usually they deal with conferences, exhibits or conventions

Marketing Intermediaries
Consortia and Reservation Systems

A consortium is a group of hospitality

organizations that is allied for the mutual benefit of its members (Leading Hotels of the World, Supranational, Utell, Tulip). reservation services for hotels.

Reservation systems provide a central Hotel Chain Reservation Systems vs.

Independent Reservation Systems

Marketing Intermediaries
Global Distribution Systems

GDSs were originally developed by the

airlines in 1960s GDSs are computerized reservation systems GDS connects many CRS of different hospitality companies. Major GDSs: Sabre, Worldspan, Galileo, Amadeus. Amadeus-largest in Europe and Latin America (155,000 TA) Galileo connects TAs to 500 airlines, 40

Starwood CRS

Hertz CRS

Global Distributio n System GDS

Delta CRS

Choice Hotels CRS

Marriott CRS

Marketing Intermediaries
Tr av Internet elo c Became an effective distribution channel. ity
billion (10% of the total travel business market). Total hotel sales over internet $5 billion Marriott takes 10,000 reservation a day. Southwest airlines over a billion dollars through its web site. Restaurants on-line orderingPizza Hut, and Pr ice Domino pizza. ia lin Expedia: Over 7 million visitors a month ed e xp E Advantages-24 hours, color picture, video

In 2003, Internet sales reached $ 25.2

 A channel will be most effective when all

members cooperate to attain overall channel goals and satisfy the target market.

Channel Behavior & Organization

Channel conflict occurs when channel

Conflict occurs at two level:

members are disagree over goals and roles

Horizontal Conflict occurs among firms at

the same level of the channel, i.e retailer to retailer. Vertical Conflict occurs between different levels of the same channel, i.e. wholesaler to retailer.

Conventional Distribution Channel vs. Vertical Marketing Systems

Conventional marketing channel

Manufacturer

Wholesaler Retailer Consumer

Retailer

Consumer

Wholesaler

Vertical marketing channel

Manufacturer

Channel Organization Types of Vertical Marketing Systems

Common Ownership at Different Levels of the Channel

Corporate

Degree of Direct Control

Contractual Agreements Among Channel Members

Contractual

Leadership is Assumed by One or a Few Dominant Members

Administered

Vertical Marketing System

Franchising

The franchisor permits the franchise to use its trademark, name and advertising. In U.S.A. 700,000 franchise ~about $ 850 billion sales Franchised hotels account ~ 65 percent of room supply.
Starting a new business: 20 percent chance for survival Buying an existing business: a 70 percent chance for survival Buying a franchise: a 90 percent chance for survival Hotel franchises: Choice hotels, Holiday Inns, Sheraton Inns, Hilton inns Restaurant franchises: Mc Donalds, Burger King, KFC, Pizza Hut, T.G.I. Franchises

Vertical Marketing System

Franchising
Franchisor

Advantages
1. Capital for growth 2. Faster growth 3. Additional management 4. Additional income 1. Lower risk 2. Established brand name 3. Successful business plan 4. Expert assistance

Disadvantages
1. Lower potential profits 2. Controlling service quality 3. Controlling firm image

Franchisee 1. Franchisee fees 2. Lack of freedom 3. Controlled by franchisor

Vertical Marketing System

Another form of contractual agreement Allow two or more organizations to

Alliances

benefit from each others strengths. 7-Eleven sells Dunkin Donuts in 2,000 of its stores Embassy suites has Red Lobster restaurants located in its hotels. Chain fast-food operations are located in convenience stores. Airline alliances: SAS-Continental, DeltaKorean Airlines

Vertical Marketing System

Alliances

Pool policy expertise, costs, and capabilities Gain preferred access to each others local customer base

Implement consumeroriented, commercially driven operations and services

Trade for preferred relationship with global networks

Horizontal Marketing Systems

Horizontal Marketing Systems: Two or

more companies at one level who join to follow a new marketing opportunity. Seaworld offers tickets at a discount to an automobile club. In return, Seaworld gains access to several hundred thousand automobile club members Multi-channel Marketing Systems: Single firms that set up two or more marketing channels to reach one or more

Selecting Channel Members

Customer needs

Victoria House in Belize A small chain hotel be advised to choose one travel agency chain or work in key cities that are likely to generate business.

Attracting channel members

Evaluating major channel alternatives

1. Economic criteria MGM hotel; Tour Operators vs. Travel Agencies. 2. Control criteria Franchise control/quality control

E-mail VictoriaHouse@centralamerica.com For reservations use the e-mail Reservation Form Call us toll free from US or Canada 1-888-535-8832 / 1-800-948-3770

The Business Location

Three secrets of successful retailing:
Location! Location! Location! Location depends on the firms marketing strategy. There are four steps in choosing a location. 1. Understanding the marketing strategy and target market of the company. Downtowns, freeways, near airports, 2. Regional analysis involves the selection of geographic market areas. A firm needs to make sure that a region

The Business Location

3.
Choosing the area within the region: Demographic, psychographic characteristics and competition are factors to consider. 4. In choosing the individual site, business will consider several factors: Compatible businesses, Competition, Potential demand generators, Residential communities, profile of prospective customers, shopping centers.

Chapter 19