Chapter 13 Distribution Channels

“Adversarial power relationships work only if you never have to see or work with the other party again.” -Peter Drucker ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Chapter Objectives Describe the nature of distribution channels, and tell why marketing intermediaries are used Understand the different marketing intermediaries available to the hospitality industry and the benefits each of these intermediaries offers Know how to use the Internet as a distribution channel ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Chapter Objectives Discuss channel behavior and organization, explaining corporate, contractual, and vertical marketing systems, including franchising Illustrate the channel management decisions of selecting, motivating, and evaluating channel members Identify factors to consider when choosing a business location ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Distribution Channels A distribution channel is a 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 ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Why Use Marketing Intermediaries? Selling through wholesalers and retailers usually is much more efficient and cost effective than direct sales ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

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

Distribution Channel Functions Contact: finding and communicating with prospective buyers Matching: shaping and fitting the offer to the buyer’s needs, including such activities as manufacturing, grading, assembling, and packaging ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Distribution Channel Functions Negotiation: agreeing on price and other terms of the offer so that ownership or possession can be transferred Physical distribution: transporting and storing goods ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Distribution Channel Functions Financing: acquiring and using funds to cover the costs of channel work Risk taking: assuming financial risks such as the inability to sell inventory at full margin ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Number of Channel Levels Channel level can be described as distribution channels Direct marketing channel Retailer Wholesaler ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

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

Marketing Intermediaries National, State, and Local Agencies Consortia and Reservation Systems Global Distribution Systems Internet Travel Agents Tour Wholesalers Specialists Hotel Reps Concierges ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Marketing Intermediaries Travel Agents Tour Wholesalers Concierges Specialists: Brokers & Junket Reps Internet Hotel Representatives Global Distribution Systems National, State, and Local Tour Agencies Consortia & Reservations Systems ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Channel Behavior Channel members are dependent upon one another and must work together for the channel to operate successfully Members should understand and accept their roles, coordinate their goals and activities, and cooperate to attain overall channel goals ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Channel Conflict Horizontal conflict is conflict between firms at the same level of the channel i.e. retailer to retailer Vertical conflict, which is more common, refers to conflicts between different levels of the same channel i.e. retailer to wholesaler ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Channel Organization A vertical marketing system (VMS) consists of producers, wholesalers, and retailers acting as a unified system One channel member either owns the others, has contracts with them, or wields so much power that they all cooperate ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Conventional vs. Vertical Marketing Channels ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Vertical Marketing Systems Corporate VMS combines successive stages of production and distribution under single ownership Administered VMS coordinates successive stages of production and distribution through the size and power of the parties Contractual VMS consists of independent firms at different levels of production and distribution who join through contracts to obtain economies or sales impact ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Franchising Granting the right to engage in offering, selling, or distributing goods or services under a marketing format which is designed by the franchisor The franchisor permits the franchisee to use its trademark, name, and advertising Higher survival rates ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Disadvantages – Franchiser Distribution system – other systems can add conflict, Little Caesars going into K-marts cases conflict with other Little Caesars in the area. Consistency Changing operation – Pizza Hut adding delivery Advertising expenditures ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Franchisee – Advantages Marketing Support Brand Name Contracts Reservation systems- Customers Plans and Systems ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Franchisee – Disadvantages Value of brand name determined by franchiser Introduction of new products determined by franchiser Your reliability tied to the rest of the system ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

A Franchise is Only as Strong as – ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Channel Organization Alliances are developed to allow two organizations to benefit from each other’s strengths Horizontal marketing systems are two or more companies at one level that join to follow a new marketing opportunity Multichannel marketing occurs when a single firm sets up two or more marketing channels to reach one or more customer segments ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Selecting Channel Members Customer Needs Attracting Channel Members Evaluating Major Channel Alternatives Economic Feasibility of the Channel Member Control Criteria ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Business Location Understand the marketing strategy and target market of the company Conduct a regional analysis, which involves the selection of geographic market areas Select an area within that region Choose individual sites ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Best Practices Expedia Orbitz Priceline Travelocity Trip ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Key Terms Administrative VMS Agent Alliances Broker ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Key Terms Channel conflict Channel level Contractual VMS Corporate VMS ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Key Terms Direct marketing channel Franchise organization Horizontal conflict Horizontal marketing systems (HMS)   ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens

Key Terms Multichannel marketing Retailer Vertical conflict Vertical marketing system (VMS) Wholesaler ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens