1. Channels of Distribution in Marketing Tourism Services

2. Distribution Channels
Distribution channels are involved in the process of making a product or service available to the consumer or business user.
This chapter will explain the various functions of distribution channels and the intermediaries including travel agents, tour operators, tour wholesalers, specialists, hotel sales representatives, incentive travel agents, government tourist associations, consortia and reservations systems and electronic distribution systems.
The interactions and expectations of different channel members are also discussed, as well as offering some criteria for selecting, motivating, and evaluating channel members.

3. CHAPTER OBJECTIVES
1. Describe the nature of distribution channels, and tell why marketing intermediaries are used.
2. Understand the different marketing intermediaries available to the tourism industry and the benefits each of these intermediaries’ offers.
3. Know how to use the Internet as a distribution channel.

4. CHAPTER OBJECTIVES
4. Discuss channel behavior and organization, explaining corporate, contractual, and vertical marketing systems, including franchising. 5. Illustrate the channel management decisions of selecting, motivating, and evaluating channel members. 6. Identify factors to consider when choosing a business location.

5. Distribution Channels
Members of the marketing channel perform the following 8 key functions. The first 5 functions help to complete transactions. The last 3 help to fulfill the completed transactions;
(1) Information
(2) Promotion
(3) Contact
(4) Matching
(5) Negotiation
(6) Physical distribution
(7) Financing
(8) Risk taking

6. Distribution Channels
Selling through intermediaries is much more efficient. Furthermore, competition, a global marketplace, electronic distribution techniques and a perishable product have increased the importance of distribution.
In today’s competitive environment it is not enough to count on a central reservation system and thus companies must develop increasingly complex distribution networks.

7. How Distribution Channels Work
Distribution involves two questions:
How do I get my product to the customer?
How do I get the customer to my product?

8. How Distribution Channels Work
Distribution channels are important
A group of organizations, independent or not, that are involved in the process of making a product or service available for use or consumption
Goal is to get the product where the customer is now or is going to be in the future

9. How Distribution Channels Work
Distribution in tourism is different and complex
Tourism product must be where the customer is
Focus on “getting” the customer

10.   Intermediaries
Middlemen are intermediaries between consumers and suppliers.
Customer (tourist) – middlemen – supplier
Using middlemen has many advantages for both customers & suppliers
Tourism industry has been traditionally characterized by its use of intermediaries.

11. Figure - Structure of distribution channels

12.   Intermediaries
Various middlemen that are included in the travel and tourism industry are;
Travel agencies, Tour Operators,
Hotel marketing and booking schemes, incentive travel organizations,
Sales representatives, representation firms
Computerized reservation system (CRS), global distribution system (GDS), and
Others (internet, web sites, corporate travel dept., Travel clubs)

13. The Nature of Intermediation
Benefits
Producers are able to sell in bulk and so transfer risk to intermediaries
Producers can reduce promotion costs by focusing on the travel trade, rather than consumer promotion, which is more expensive

14. Benefits Consumers can avoid search and transactions costs
Consumers can benefit from the specialist knowledge of intermediaries, their market power and the resulting lower cost of products
Tourism firms can benefit from the marketing, and international marketing, network of many intermediaries

15. The Nature of Intermediation
Disadvantages
Use of intermediaries by producers will result in the loss of profit margins and their degree of marketing control and influence over the process of distribution

16. 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
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

17. 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
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.

18. Travel Agents/Agencies
Travel agent = person
Travel agency = company
They provide important info & sales links
Links between: tourists & tourism suppliers
Using Travel Agents, one of most common (popular) ways to buy tourism products\services
Many tourists now use Internet travel agencies: Travelocity, Tripadviser, Expedia, & Orbitz etc.

19. Travel Agencies
One way of reaching a geographically diverse marketplace is through travel agents.
Due to the airlines driving their customers to the Internet and the decrease in commission paid to travel agents by the airlines, the number of travel agents has been decreasing in recent years.
Hotels interested in travel agency business are listed in airline reservation systems and hotel guides.

20. Travel Agencies
Hotels also send information packages to travel agents that include collateral material and hotel news, including updates about hotel packages, promotions, and special events.
Hotels also invite travel agents to visit the property on familiarization tours (fam trips).
Airlines assist with fam trips by providing free airfare.
Hotels seeking travel agent business must make it easy for agents to make reservations.
Providing toll-free reservation numbers is essential to servicing travel agents.

21. Travel Agencies
Via websites & s Travel Agencies compete with each other regardless of their physical location
They do not own products they sell, so they have little or no inventory or cost of goods sold

22. Travel Agencies
As commissions dwindle(fall), markups (profits) increase
Large volume agencies often earn override commissions (above the normal percentage)
They are destinations experts and make beneficial recommendations

23. Figure-Conceptual model of the process and factors influencing agents’ destinations recommendations

24. The Role of the Retail Agent
Travel counsellor
Principal role is to supply the public with travel products and services (such as insurance and foreign exchange)
Income is predominantly earned via commissions
Retail location and choice of reservation systems are key decisions

25. Getting the Product to the Customer Tour Wholesalers
Tour wholesalers assemble travel packages, including transportation, accommodations, meals, ground transportation, and entertainment. In developing a package, a tour wholesaler contracts with airlines and hotels for a specified number of seats and rooms, receiving a quantity discount.
Retail travel agents sell these packages. The tour wholesaler has to provide a commission for the travel agent and give consumers a package that is perceived to be a better value than what they could arrange on their own.

26. Getting the Product to the Customer Tour Wholesalers
With the increased number of international resorts, tour wholesalers are becoming a powerful member of the distribution channel.
It is impossible for travel agents to know every resort. Instead, they rely on catalogs provided by tour wholesalers.
For example, the Caribbean resort industry is particularly dependent on tour wholesalers, who provide over half the business.

27. Getting the Product to the Customer Specialists
Tour brokers sell motor coach tours. For example, tours through New England, tours around Mardi Gras, and tours of Washington, D.C.
Motivational houses provide incentive travel as rewards for exceptional employees or distributors.
Junket (free) reps serve the casino industry as intermediaries for premium players.

28. Getting the Product to the Customer
Hotel sales representatives sell hotel rooms and services in a given market area. These persons are independent of the hotels sales force but are often more knowledgeable of their local market and, in the long run, more cost effective too. Hotel sales representatives should represent non-competing hotels.

29. Getting the Product to the Customer
Government tourist associations: National, state and local tourist agencies can disseminate information to travelers and potential travelers
Consortia are groups of hospitality organizations that are allied for the mutual benefit of the members.
This allows the property to be independent in ownership and management while taking advantage of group marketing efforts.

30. Getting the Customer to the Product
Consortia
It is a loosely knit group of independently owned and managed properties (e.g. hotels or travel agencies) with different names, a joint marketing distribution purpose, and a common consortium designation
Purpose is to open a channel of distribution by maximizing combined marketing resources and reducing expenses for individual properties

31. Getting the Product to the Customer
Franchising
Commonly used in hospitality to:
Increase the distribution network
Increase revenue
Obtain geographical presence
Access the company’s industry experience and marketing tools
Also common in non-hospitality firms

32. Getting the Product to the Customer
Franchising
Contracts and control between franchisee/franchisor vary and cover:
Marketing support
Revenues to the franchisor
Duration of agreement

33. Getting the Product to the Customer
Management without ownership
Many hotels today manage without ownership
Increases distribution without the financial cost and risk
Also known as a “management contract”

34. Getting the Customer to the Product
Reservation services
Used by hotels to market themselves independently
Only connects them to the channels of distribution
SynXis or Pegasus
Links directly to GDS or Internet without needing brand affiliation
Reservation systems provide a central reservation system for hotels. They allow international and national guests to call a local number to contact the hotel.

35. Getting the Customer to the Product
Representation firms
A channel of distribution that brings a hotel to the marketplace
Market the hotel and sales for independent hotels that do not have sales or reservation networks
Termed “soft brands”
Represent both the representation firm and their own independent brand
Maintain independence with representation but also have access to marketing programs

36. Getting the Customer to the Product
Representation firms offer:
Standards for membership
Connectivity to electronic channels of distribution
Sales initiatives
Marketing programs
Participation in trade shows

37. Getting the Customer to the Product
Incentive travel organizations (incentive houses)
A company that specializes in handling incentive reward travel which rewards top-performing employees
Need for new and exciting destinations and for the trip to be perfectly executed
Thoroughly review the destination and facilities, sell it to the company and sell it to the employee

38. Getting the Customer to the Product
Corporate travel departments and travel management companies
Services range from a travel director who creates policies and contracts with travel suppliers to a full, in-house travel agency
Referred to as the corporate or managed business traveler
Goal is to balance the need of employee and employer

39. Concierges
Concierges, bell staff, and front-desk employees can be good sources of business for local hospitality products and travel such as restaurants, tours, and fishing guides.
Concierges can be a major source of business for a restaurant that has a unique menu, atmosphere, or simply excellent food and service.

40. Global distribution systems
Global distribution systems (GDSs) are computerized reservation systems that serve as a product catalog for travel agents and other distributors of tourism products.
For example, Galileo connect travel agents to 500 airlines, 40 car rental companies, 47,000 hotels, 370 tour operators and all the major cruise lines.

41. Getting the Customer to the Product
Central reservation systems (CRS)
Computerized reservation system of a hospitality company that allows customers to make reservations without having to contact the company directly
All major hotel chains worldwide now communicate from their CRS and GDS directly to the individual hotels
Seamless (continuos)connectivity allows two-way inventory management

42. Getting the Customer to the Product
Global distribution systems (GDS)
The system connects the travel agent to hotels, airlines, cruise lines, care rentals, and other services
Additional fees are added at each point in booking
To avoid this, many companies are now directly marketing to customers

43. Channel Behavior
Distribution channels are more than simple collections of firms tied together by various flows.
They are complex behavioral systems in which people and companies interact to accomplish goals.
Although channel members are dependent on each another, they often act alone in their own short-run best interests.
They frequently disagree on the roles each should play on who should do what for which rewards. Such disagreements over goals and roles generate channel conflict.

44. Channel Behavior
Horizontal conflict is conflict between firms at the same level of the channel. For example, some Pizza Inn franchisees may complain about other Pizza Inn franchisees cheating on ingredients and giving poor service, thereby hurting the overall Pizza Inn image.
Vertical conflict refers to conflicts between different levels of the same channel. For example, the agreement between Little Caesar’s and K-mart. This agreement provided a great opportunity to increase Little Caesar’s franchiser’s sales. However, to some Little Caesar’s franchisees it meant an erosion of their sales.

45. Selecting Channel Members
Selecting channel members involves a number of factors, including customer needs, the company’s ability to attract channel members, the economic feasibility of the channel member, and the control that might be given up to gain a channel member.
A. Customer needs: Selecting channel members start with determining the services that consumers in various target segments want.

46. Selecting Channel Members
B. Company’s ability to attract channel members: Companies vary in their ability to attract qualified intermediaries. Well-known hotel companies that have a reputation for paying commissions promptly and honoring the reservations of travel agents will have no trouble gaining the support of travel agencies.
On the other hand, when contracting with a hotel sales representative, the hotel company will want to investigate the number and type of other hotels that the firm represents, the size and quality of its workforce.

47. Selecting Channel Members
C. Economic criteria: Each channel will produce different levels of sales and costs. The business that channel members bring must offset the cost of paying and supporting the channel member. D. Control criteria: Using sales representatives offers less control than building your own sales force. For example, the company may have trouble getting franchisees to add new products or to participate in promotions.

48. Responsibilities of Channel Members and Suppliers
The company and its intermediaries must agree on the terms and responsibilities of each channel member.
For instance, hotels make it clear to travel agents which rates are commissionable and the amount of commission to be paid, and they often guarantee to pay the commission within a certain number of days.
After the selection of the channel member, a company must continuously motivate its channel members, such as providing positive incentives.

49. The Business Location
It is crucial particularly for tourism organizations. There are four steps in choosing a best 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.

50. The business location
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 in the form of potential demand generators should be consistent with the firm’s customers so they can look for customer sources within a given area.

51. Internet
The Internet is quickly becoming an effective distribution channel. Some of the advantages of the Internet are that it never closes, it allows companies to tangibilize their products, it reaches broad geographic areas, it allows interaction with the guests, and it saves labor.
Major hotel chains such as Hilton, Marriott and Best Western book millions of dollars worth of rooms over the Web. Southwest Airlines received over a billion dollars in ticket sales through its web site.
Restaurant companies that use the Internet as a distribution channel, such as Pizza Hut and Domino’s have online ordering systems. Travel agencies such as Hotels.com, Travelocity and Expedia are capitalizing the growing benefits of the Internet.

52. Getting the Customer to the Product
Internet channels
Now reaching 80 % of US households, the internet’s influence on hospitality is growing
Internet has evolved:
Provides information
Simplifies transactions
Improving technology with complex interactions taking place

53. Getting the Customer to the Product
Website
Is the hospitality modern day equivalent of the rack brochure
Should reflect the personality of the hotel with visuals
Focus on the needs of the customer
will vary based on market segment
Many fail to provide visitors with information needed to make a purchase decision

54. Getting the Customer to the Product
Websites
Two audiences
Potential customer
Search engine
Functionality best practices
Reservation area should be at the front of the page
acquisition section should be on the home page
Site should convey the best value to the customer and keep them interested
Security has to be conveyed

55. Getting the Customer to the Product
Website-generated market research data
Computer servers track visitors and record surfing and clicking behavior
First page visited
Last page visited
Navigation sequences
Referring site
Average number of pages visited
Time on site
Low cost tool

56. Future Challenges of Online Distribution
The internet has fundamentally changed travel and hospitality distribution
Challenges
The consideration set for travel options has expanded
Price transparency and consistency
Need to manage transaction costs
Reallocation of marketing dollars
“Onward distribution”
Rise of third parties that are going after the group market
Increase in packaging

57. Discussion
Do you believe that traditional travel agents will one day be obsolete? What can they do to make themselves a competitive distribution channel?

58. End of chapter slides