1. Chapter 13 Distribution Channels

2. “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 Kotler, Bowen, and Makens

3. 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 Kotler, Bowen, and Makens

4. 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 Kotler, Bowen, and Makens

5. 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 Kotler, Bowen, and Makens

6. 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 Kotler, Bowen, and Makens

7. 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 Kotler, Bowen, and Makens

8. 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 Kotler, Bowen, and Makens

9. 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 Kotler, Bowen, and Makens

10. 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 Kotler, Bowen, and Makens

11. 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 Kotler, Bowen, and Makens

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

13. 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 Kotler, Bowen, and Makens

14. 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 Kotler, Bowen, and Makens

15. 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 Kotler, Bowen, and Makens

16. 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 Kotler, Bowen, and Makens

17. 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 Kotler, Bowen, and Makens

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

19. 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 Kotler, Bowen, and Makens

20. 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 Kotler, Bowen, and Makens

21. 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 Kotler, Bowen, and Makens

22. 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 Kotler, Bowen, and Makens

23. 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 Kotler, Bowen, and Makens

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

25. 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 Kotler, Bowen, and Makens

26. 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 Kotler, Bowen, and Makens

27. 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 Kotler, Bowen, and Makens

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

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

30. 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 Kotler, Bowen, and Makens

31. 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 Kotler, Bowen, and Makens

32. 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 Kotler, Bowen, and Makens