Presentation on theme: "Distribution Channels"— Presentation transcript:
1 Distribution Channels Marketing for Hospitality and TourismKotler, Bowen and MakensDistribution ChannelsChapter 12
2 Learning ObjectivesDescribe 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.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.
3 Supply ChainThe Supply Chain consists of Upstream and Downstream partnersUpstream partners are firms that supply what is needed to create a product or serviceDownstream partners connect the firm with its customersA better approach is to think of the supply chain as a Value Delivery Network where all parties partner with each to improve the performance of the entire systemProducing a product or service and making it available to buyers requires building relationships not just with customers, but also with key suppliers and resellers in the company’s supply chainThis supply chain consists of “upstream” and “downstream” partnersUpstream from the company is the set of firms that supply the raw materials, components, parts, information, finances, and expertise needed to create a product or serviceDownstream marketing channel partners, such as wholesalers and retailers, form a vital connection between the firm and its customersThe term supply chain may be too limitedIt takes a make-and-sell view of the businessA better approach is a value delivery network made up of the company, suppliers, distributors, and ultimately customers who “partner” with each other to improve the performance of the entire system
4 Distribution Channel Functions InformationPromotionContactMatchingNegotiationPhysicalDistributionFinancingRisk TakingA distribution channel moves goods from producers to consumersMembers of the marketing channel perform many key functions (The first five functions help complete transactions; the last three help fulfill the completed transactions):InformationGathering and distributing marketing research and intelligence information about the marketing environmentPromotionDeveloping and spreading persuasive communications about an offerContactFinding and communicating with prospective buyersMatchingShaping and fitting the offer to the buyer’s needs, including such activities as manufacturing, grading, assembling, and packagingNegotiationAgreeing on price and other terms of the offer so that ownership or possession can be transferredPhysical distributionTransporting and storing goodsFinancingAcquiring and using funds to cover the costs of channel workRisk takingAssuming financial risks such as the inability to sell inventory at full margin
5 Major Hospitality Distribution Channels Direct BookingGDSsTravel AgentsOTAsTour WholesalersHospitalityDistributionChannelsDirect bookingOn average, reservations received directly at the hotel account for 54.3% of a hotel’s reservations, but only 46.5% of the revenue.Managers often like to encourage direct booking because of the low transaction costsOnline Travel Agencies (OTA)Online travel agencies only account about 6.5% of a hotel’s reservationOne way of dividing OTAs is into opaque and non-opaqueThe non-opaque OTAs includes merchant, retail and referral modelsThe most popular non-opaque sites are merchant agencies which collect payment from the customer and include well-known names like Hotels.com, Travelocity and ExpediaOpaque sites reduce cannibalization of brand.com by not disclosing the brand and specific hotel one is purchasing until it is purchased in a nonrefundable transaction with the consumerWhen using opaque OTAs one should consider that it can reduce the perceived value for those who purchase through brand.com, if people in the same hotel discuss what they paid for the roomIt can also bring in price sensitive guests that will not spend money on food and beverageOne important feature of an OTA is people often search through hotel choices and then go to brand.com to book the reservationThus, it is important that the hotel have a good presence in terms of photos and description on the OTAAnother type of OTA is a retail agency, which is similar to a conventional travel agencyThe hotel pays a commission to the agent and collects the mono the room rental directly from the guestGlobal Distribution SystemsGlobal distribution systems (GDSs) are computerized reservation systems that serve as a product catalog for travel agents and other distributors of hospitality productsTravel AgentsOne way of reaching a geographically diverse marketplace is through travel agentThe number of travel agents has been decreasing in recent years due to the growth of direct booking and customers self-booking travel on the InternetTour WholesalersTour wholesalers assemble travel packages usually targeted at the leisure marketThese generally include transportation and accommodations but may include meals, ground transportation, and entertainmentIn developing a package, a tour wholesaler contracts with airlines and hotels for a specified number of seats and rooms, receiving a quantity discountThe wholesaler also arranges transportation between the hotel and the airport
6 Vertical Marketing Systems CorporateVMSContractualVMSAdministeredVMSFor the channel as a whole to perform well, each channel member's role must be specified, and channel conflict must be managedThe channel will perform better if it includes a firm, agency, or mechanism that provides leadership and has the power to assign roles and manage conflict.Vertical marketing system (VMS) consists of producers, wholesalers, and retailers acting as a unified systemOne channel member owns the others, has contracts with them, or wields so much power that they must all cooperateThe VMS can be dominated by the producer, the wholesaler, or the retailerCorporate VMSCoordination and conflict management are attained through common ownership at different levels in the channelA corporate VMS combines successive stages of production and distribution under single ownershipAdministered VMSCoordinates successive stages of production and distribution not through common ownership or contractual ties but through the size and power of the partiesContractual VMSConsists of independent firms at different levels of production and distribution who join through contracts to obtain economies or sales impact
7 Contractual VMS Contractual VMS Alliances Franchises A contractual VMS consists of independent firms at different levels of production and distribution who join through contracts to obtain economies or sales impactFranchisingFranchising is a method of doing business by which a franchisee is granted the right to engage in offering, selling, or distributing goods or services under a marketing format which is designed by the franchisorThe franchisor permits the franchisee to use its trademark, name, and advertising.For the right to use the name, methods of operation, and other benefits that come with a franchise, the franchisee pays an initial fee, a royalty, and a marketing fee to the franchise organizationAlliancesAnother form of contractual agreement, are developed to allow two organizations to benefit from each other’s strengthAlliances by two or more noncompeting firms are a popular and effective way of expanding marketsFor example, restaurants are developing alliances with convenience stores and hotel properties to distribute their products
8 Advantages and Disadvantages of Franchises Brand recognitionLess chance of failurePremade ads and marketing plansFaster business growthHelp with site selectionArchitectural plansSupport for operational systemsNational contracts with suppliersProduct developmentConsultingHelp with financingDisadvantagesFees and royalties are requiredLimits the products and recipesRequirements for operating hoursRequired to offer certain productsA poorly operated company can negatively affect the reputation of the entire chainFranchisor’s performance affects franchiseesSome franchisees may benefit more than others
9 Other Management Systems Horizontal Marketing SystemsMultichannel Marketing SystemsHorizontal Marketing SystemsTwo or more companies at one level join to follow a new marketing opportunityBy working together, companies can combine their capital, production capabilities, or marketing resources to accomplish more than what one company can accomplish working aloneMultichannel Marketing SystemsWith the proliferation of customer segments and channel possibilities, more companies have adopted multichannel marketing distributionSuch multichannel marketing occurs when a single firm sets up two or more marketing channels to reach one or more customer segments
10 Evaluating Channel Alternatives Economic Feasibility of the Channel MemberControl CriteriaEconomic Feasibility of the Channel MemberEach channel produces different levels of sales and costsThe business that channel members bring must offset the cost of paying and supporting the channel memberThese costs are measured two waysDirectlyBy opportunity costsA company must regularly evaluate the performance of its intermediariesAs business changes, the value of an intermediary may changeControl CriteriaAn important consideration in the choice of channels is controlControl is also an important consideration in franchising and choosing multiple channel membersLevels of SalesCosts
11 Business Location Understanding the Marketing Strategy & Target Market Conducting a Regional AnalysisSelecting an Area Within that RegionChoosing Individual SitesOne of the most important aspects of distribution for hospitality organizations is locationIn general, there are four steps in choosing a locationUnderstanding the marketing strategy and target market of the companyConducting a regional analysisInvolves the selection of geographic market areasSelecting an area within that regionChoosing individual sitesA key consideration in site analysis is compatible businessesA restaurant or hotel will look for potential demand generatorsA firm also looks at competitorsSite evaluation includes accessibility
12 Key TermsAdministered VMS A vertical marketing system that coordinates successive stages of production and distribution, not through common ownership or contractual ties, but through the size and power of one of the parties.Agent A wholesaler who represents buyers or sellers on a more permanent basis, performs only a few functions, and does not take title to goods.Alliances Alliances are developed to allow two organizations to benefit from each other’s strengths.Broker A wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiations.Channel conflict Disagreement among marketing channel members on goals and roles—who should do what and for what rewards.Channel level A level of middleman that performs some work in bringing the product and its ownership closer to the final buyer.
13 Key Terms (cont.)Contractual VMS A vertical marketing system in which independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone.Corporate VMS A vertical marketing system that combines successive stages of production and distribution under single ownership. Channel leadership is established through common ownership.Direct marketing channel A marketing channel that has no intermediary levels.Franchise A contractual vertical marketing system in which a channel member called a franchiser links several stages in the production distribution process.Horizontal conflict Conflict between firms at the same level.Horizontal marketing systems (HMS) Two or more companies at one level join to follow new marketing opportunities. Companies can combine their capital, production capabilities, or marketing resources to accomplish more than one company working alone.
14 Key Terms (cont.)Multichannel marketing Multichannel distribution, as when a single firm sets up two or more marketing channels to reach one or more customer segments.Online Travel Agent (OTA) A travel agency that conducts business through the Internet with no physical locations or stores.Retailer Business whose sales come primarily from retailing.Supply Chain Upstream and downstream partners. Upstream from the company is a set of firms that supply raw materials, components, parts, information, finances, and expertise needed to create a product. Downstream marketing channel partners, such as wholesalers and retailers form a vital connection between the firm and its customers.Vertical conflict Conflict between different levels of the same channel.
15 Key Terms (cont.)Vertical marketing system (VMS) A distribution channel structure in which producers, wholesalers, and retailers act as a unified system: Either one channel member owns the others, or has contracts with them, or has so much power that they all cooperate.Wholesaler Firms engaged primarily in wholesaling activity.