Distribution Channels A distribution channel - set of independent organizations involved in the process of making a product or service available to the.

Distribution Channels A distribution channel - set of

independent organizations involved in the process of making a product or service available to the consumer or business user

Used to move the customer towards the product or the product to the customer

Organic development of an industry

Place = Distribution

The 4Ps Product, Price, Place, Promotion

What the “P” of Price is to Revenue Management, the “P” of Place is to Distribution

Distribution also describes Locations for hotel brand distribution

Franchising Ownership Management contracts

The sales staff and system Group sales or volume accounts Reservations and transient sales National sales offices Representation firms, consortia

DistributionToday “distribution” in the hospitality industry

generally references transient sales today

Revenue management and distribution merging together

Internet marketing includes distribution issues

Distribution Channel Functions

Information: consumer behavior “search stage”

Promotion: messaging Negotiation: price and other terms

(how is this done online? Physical distribution: think e-tickets? Prospecting: finding, communicating, and

tracking prospective buyers

Digitalization and Connectivity

Digitalization - converting text, data, sound, and image into a stream of bits that can be dispatched at high speeds from one platform to another

Connectivity - building networks connecting people and companies; social and mobile convergence

Direct versus Indirect Channels Direct Channels

Employed sales staff National sales staff Brand.com Voice/CRS/Mobile

Indirect – Intermediaries Why use them? Why so many of them?

Getting the Customer to the Product

Reservation services

Representation firms Consortia Incentive travel

organizations Corporate travel

management

Global distribution systems (GDS)

Traditional off-line travel agents

Central reservation systems (CRS)

Internet channels Websites

Push vs. Pull strategies

Pushing the product “down” through the distribution channel TO the customer Incentives to travel agents and intermediaries

Pulling the customer “up” through the distribution to the channel Traditional media/private sales/CRM

Why Use Intermediaries?

History of travel

Selling through wholesalers and retailers usually is much more efficient and cost effective than direct sales

Fragmentation of the travel purchase and travel inventory, transportation (idea of “lift”), hotels, attractions, meeting facilities, restaurants, and so on.

Travel AgentsTravel Agents Tour WholesalersTour Wholesalers

ConciergesConcierges Specialists: Brokers & Junket Reps

Specialists: Brokers & Junket Reps

InternetInternet Hotel RepresentativesHotel Representatives

Consortia & Reservations Systems

Consortia & Reservations Systems

Global Distribution Systems

Global Distribution Systems

National, State, and Local Tour Agencies

National, State, and Local Tour Agencies

Marketing Intermediaries

©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th editionUpper Saddle River, NJ 07458 Kotler, Bowen, and Makens

E-Commerce & E-Marketing E-commerce involves buying and selling

processes supported by electronic means, primarily the Internet

E-marketing is company efforts to communicate about, promote, and sell products and other services over the Intranet; also web or Internet Marketing

Not easy to separate but different issues

E-Commerce Domains B2C (business to consumer)

Branded websites B2B (business to business)

Passkey C2B (consumer to business)

User groups C2C (consumer to consumer)

Blogs; review sites are blends of above

Internet Intermediaries

History of the internet as a discount channel Price and convenience key drivers still Dominance about inventory allocation Consistency of all 4Ps by channel

How Product is described Pricing parity Channel profitability Communication needs to vary by segment (channel)

THE GDS: 1970s Look and Feel

Complexities of Distribution

Channels

Copyright 2011 Smith Travel Research

Channels

Brand.comMarriott.com, Starwood.com, hotel’s

own web site

CRS/Voice 1-800-hiltons, 1-800ichotels, 3rd parties

GDSTravel agents (Sabre, Galilieo, Amadeus,

Worldspan)

OTA Online travel agents

Property Direct/Other

Walk-in, group/rooming list, employee/discount, contract, Passkey

OTA Business Models

Copyright 2011 Smith Travel Research

OTA Business Models

Merchant Net rate, excludes commission

RetailIncludes commission, backed out

afterwards

OpaqueBidding method, brand not disclosed

until after sale

Copyright 2011 Smith Travel Research

Major OTAs and Default Business Models

Bookings.com retail

Expedia merchant

Hotels.com merchant

Hotwire opaque

Orbitz merchant

Priceline opaque

Travelocity merchant

Travelweb merchant

Other OTAs merchant, retail, & opaque

Estimated Cost per channel excluding Brand and Switch fees per transient reservation

Brand.com $2 - $5

CRS/Voice $2-4/inquiry plus $6-12/net booking

GDS $4.50-$6

Property Direct/Other $3.25 - $13

OTA - Merchant $17-$35 or 20%

OTA - Retail $10

OTA - Opaque $5 – 9

Hebs, 2011, Cullen & Heisel, 2012

Major Issues/Challenges Costs have risen as has competition Global differences in systems

Technology also flattening this System hard to change and complex to manage

Historical controls of GDS, OTA Diversity of travel “parts” makes all of the

distribution points part of the experience and if an intermediary fails, so does the experience

Major Issues/Challenges Fragmented owner-manager relationships Capital costs for technology and talent Travel agents reinvention imperative remains Battle of the brands—brand channels that is! Big data: not new Proliferation: more more more more Mobile? Monetizing social media

Evaluation of Channels

Control and cost of each channel Tracking of statistics to better negotiate

contracts in the future Understand when and why to use a channel Good channel management ensures

customer satisfaction AND revenue optimization AND profit maximization

Goal for hotels in distribution

Q: What is the definition of revenue management?

A: Selling the right product to the right customer at the right time for the right (read: maximum) price!…by the right channel!

References Cullen, Kathleen and Caryl Helsel, Defining Revenue Management,

Top Line to Bottom Line, HSMAI Foundation, Bethesda, MD, 2006 Green, Cindy Estis, Demystifying Distribution, HSMAI Foundation,

Bethesda, MD, 2005. Ho, Alfred, Importing, Exporting and Investing in China, World

Trade, March 2007, pp 20-22. Kotler, Bowen, Makens, Marketing for Hospitality and Tourism, 4 th

Edition, Pearson, Upper Saddle River, NJ, 2006 PricewaterhouseCoopers, Hospitality Directions Europe Edition,

Briefing Paper, November 2007 Electronic Design, The Cell Phone Simply Irresistible, January 12,

2006, p90-91. PhoCusWright, Inc, European Online Travel Overview, March 2006.