Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Chapter 13 Distribution Channels What is a Distribution Channel? A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user.

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Why are Marketing Intermediaries Used? The use of intermediaries results from their greater efficiency in making goods available to target markets. Offer the firm more than it can achieve on it’s own through the intermediaries: –Contacts, –Experience, –Specialization, –Scale of operation. Purpose: match supply from producers to demand from consumers.

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Distribution Options Move customers to the service Move service to delivery system to customers –Catering cooked on location Deliver tangible element of service to customers –Pizza delivery Pick-up things on which service is to be performed –Valet service in hotels Operate at arm’s length –mail, telephone, computer, often use multiple approaches

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Distribution Channel Functions Information Promotion Contact Matching Negotiation Physical 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 buyer’s need Agreeing on price and terms of the offer so ownership or possesion can be transfered Distribution: transporting and storing goods Financing Acquiring and using funds to cover the costs of channel work Distribution Key Function Channel Risk Taking Assuming financial risks such as the inability to sell inventory at full margin

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Wholesaler Jobber Retailer Consumer  Retailer Consumer  Producer 0-level channel – Direct Wholesaler Retailer Consumer  Producer 2-level channel Producer 3-level channel 1-level channel Producer 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.

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Marketing Intermediaries Travel Agents Tour Wholesalers Concierges Specialists: Brokers & Junket Reps Specialists: Brokers & Junket Reps Internet Hotel 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 for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Internet The Internet is quickly becoming an effective distribution channel. –It never closes. –It allows companies to tangibilize their products and services. –It reaches a broad geographic areas. –It allows interaction with the guests. –It saves labor.

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Channel Behavior & Conflict The channel will be most effective when: –each member is assigned tasks it can do best. –all members cooperate to attain overall channel goals and satisfy the target market. When this doesn’t happen, conflict occurs: –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. For the channel to perform well, each channel member’s role must be specified and conflict must be managed.

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ POWER-CONFLICT CONFLICT-CAUSES Giving a special deal to a larger channel member Direct selling Not servicing your products -parts and technical advice Adding new channels may cause conflict with existing channels

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Causes of Channel Conflict Incompatibility Difference in Perception Dependence

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Conventional Distribution Channel vs. Vertical Marketing Systems Verticalmarketingchannel Manufacturer Retailer Conventionalmarketingchannel Consumer Manufacturer ConsumerRetailer Wholesaler

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Corporate Common Ownership at Different Levels of the Channel Contractual Contractual Agreements Among Channel Members Administered Leadership is Assumed by One or a Few Dominant Members Degree of Direct Control Channel Organization Types of Vertical Marketing Systems

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Franchising - Part of Vertical Marketing System Advantages-Franchiser n % of gross sales n Assume 15% net return on sale and 4% franchise fee n Four franchises return the same as one company owned store n 2% of gross sales for advertising, may be charges for reservation system

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Disadvantages-Franchiser n Distribution system--other systems can add conflict, Little Caesars going into K-marts cases conflict with other Little Caesars in the area. n Consistency n Changing operation--Pizza Hut adding delivery n Advertising expenditures

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Franchisee-Advantages Brand Name Marketing Support Plans and Systems Reservation systems- Customers Contracts

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Franchisee Disadvantages n Value of brand name determined by franchiser n Introduction of new products determined by franchiser n Your reliability tied to the rest of the system

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Franchise is Only as Strong as-- Brand Name Competitive Advantage system Market demand for the product

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Channel Organization (cont’d) Horizontal Marketing Systems: two or more companies at one level who join to follow a new marketing opportunity. Multi-channel Systems: single firms that set up two or more marketing channels to reach one or more customer segments.

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ Selecting Channel Members Customer needs Attracting channel members Evaluating major channel alternatives 1. Economic criteria 2. Control criteria

Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ The Business Location There are four steps in choosing a 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. 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, Competition, and Checklist, Statistical Analysis, or a combination of both.