1. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 074581 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.

2. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 074582 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.

3. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 074583 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

4. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 074584 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

5. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 074585 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.

6. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 074586 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

7. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 074587 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.

8. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 074588 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.

9. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 074589 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

10. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 0745810 Causes of Channel Conflict Incompatibility Difference in Perception Dependence

11. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 0745811 Conventional Distribution Channel vs. Vertical Marketing Systems Verticalmarketingchannel Manufacturer Retailer Conventionalmarketingchannel Consumer Manufacturer ConsumerRetailer Wholesaler

12. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 0745812 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

13. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 0745813 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

14. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 0745814 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

15. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 0745815 Franchisee-Advantages Brand Name Marketing Support Plans and Systems Reservation systems- Customers Contracts

16. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 0745816 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

17. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 0745817 Franchise is Only as Strong as-- Brand Name Competitive Advantage system Market demand for the product

18. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 0745818 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.

19. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 0745819 Selecting Channel Members Customer needs Attracting channel members Evaluating major channel alternatives 1. Economic criteria 2. Control criteria

20. Marketing for Hospitality and Tourism, 3e©2003 Pearson Education, Inc. Philip Kotler, John Bowen, James MakensUpper Saddle River, NJ 0745820 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.