Distribution Channels

Distribution Channels
Foreword: “Adversarial power relationships work only if you never have to see or work with the other party again.” Peter Drucker-

OBJECTIVES After reading this chapter, you should be able to: 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. Discuss channel behavior and organization, explaining corporate, contractual, and vertical marketing systems, including franchising.

OBJECTIVES After reading this chapter, you should be able to: Identify factors to consider when choosing a business location. Illustrate the channel management decisions of selecting, motivating, and evaluating channel members.

Sunflower Travel Sunflower Travel of Wichita, and Belair/Empress Travel in Bowie, Maryland, typify the kind of business most threatened by new marketing channels, particularly the surge in Internet selling. they face some scary new-age competitors In recent years, they have seen online competitors, ranging from Expedia, Travelocity, Priceline, and Orbitz to newcomers like Trip.com. To make matters worse, airlines now sell more than half of their own tickets online and no longer pay travel agencies commissions on ticket sales. tab

Sunflower Travel Hotels are also aggressively promoting booking on their Web sites to avoid paying 10% commissions to travel agents. Travel ranks as the number-one product sold over the Internet. these new channels give customers more choices, and threaten the very existence of many travel agencies During the 1990s, the number of US travel agents dropped by 18%, and some studies suggest another 25% will go out of business in the next few years. this is a worldwide trend tab

Sunflower Travel In the UK, leisure travelers booking through travel agents has dropped by 12% over the last three years. the number of travel agent members of the Association of British Travel Agents (ABTA) dropped 14% There is a fancy word to describe this phenomenon: disintermediation, the elimination of a layer of intermediaries from a marketing channel. Disintermediation includes not only elimination of channel levels through direct marketing but also the displacement of traditional sellers by radically new types of intermediaries. tab

Sunflower Travel Disintermediation works only when a new channel form brings greater value to consumers. success of Internet-based travel distributors suggests they are bringing value to the customer To survive, travel agents will have to counter lower prices offered by Internet distribution with another form of value: personal service. Sunflower Travel has added a number of value-added products, including adventure and active travel such as white-water rafting, safaris, houseboat rental, and trips to remote fishing lodges. tab

Sunflower Travel Many consumers are likely to seek the advice of an expert when purchasing these travel products. Travel agents that add personalized service and unique or customized products will be able to survive disintermediation. tab

Supply Chains and the Value Delivery Network
Introduction Producing a product or service & making it available to buyers requires building relationships with key suppliers & resellers in the company’s supply chain. the “upstream” and “downstream” partners Upstream from the company are firms that supply raw materials, components, parts, information, finances, and expertise. Downstream marketing channel partners, such as wholesalers and retailers, form a vital connection between the firm and its customers. marketers have traditionally focused on the downstream tab

Supply Chains and the Value Delivery Network
Description Both upstream & downstream partners may also be part of other firms’ supply chains. it is the unique design of each company’s supply chain that enables it to deliver superior value to customers An individual firm’s success depends not only on how well it performs, but on how well supply chain & marketing channels compete with competitors. The term supply chain may be too limited a better term is a value delivery network of the company, suppliers, distributors & customers who “partner” with each other to improve performance of the entire system tab

Nature and Importance of Distribution Systems
Description If properties are the heart of a hotel company, distribution systems are the circulatory system. distribution systems provide a steady flow of customers A well-managed distribution system can make the difference between a market-share leader and a company struggling for survival. Competition, a global marketplace, electronic distribution techniques, and a perishable product have increased the importance of distribution. it isn't enough to count on a central reservations system & your own sales force tab

Nature and Importance of Distribution Systems
Description Globalization has meant that many hotel companies must choose foreign partners to help them market or distribute their products. New electronic distribution methods have resulted in the growth of international reservation systems. The importance of distribution has increased because hospitality products are perishable. tab

Nature of Distribution Channels
Introduction A distribution channel is a set of independent organizations involved in making a product or service available to the consumer or business user. development of a distribution system starts with the selection of channel members Distribution networks in the hospitality industry consist of contractual agreements & alliances between independent organizations. In the hospitality & travel industries, distribution systems move the customer to the product: the hotel, restaurant, cruise ship, or airplane tab

Why Are Marketing Intermediaries Used? Why does Shenago China sell its chinaware to restaurants through an intermediary? While doing so means giving up control over pricing the products, Shenago does gain advantages from selling through an intermediary. the company does not have to maintain several display rooms and a large sales force in every major city Selling through wholesalers and retailers usually is much more efficient than direct sales. figure 12–1 shows one way that intermediaries can provide economies tab

Why Are Marketing Intermediaries Used? Figure How a distributor reduces the number of channel transactions. tab

Distribution Channel Functions A distribution channel moves goods from producers to consumers. overcoming time, place & possession gaps separating goods and services from those who would use them Members of the marketing channel perform many key functions: Information - gathering & distributing marketing research and intelligence information about the marketing environment. Promotion - developing and spreading persuasive communications about an offer. tab

Distribution Channel Functions Contact - finding & communicating with buyers. Matching -shaping & fitting the offer, including manufacturing, grading, assembling & packaging. Negotiation - agreeing on price & other terms so that ownership or possession can be transferred. Physical distribution - transporting & storing goods. Financing - acquiring & using funds to cover the costs of channel work. Risk taking - assuming financial risks such as the inability to sell inventory at full margin. tab

Distribution Channel Functions The first five functions help complete transactions, the last three help fulfill the completed transactions. All these functions have three things in common: they use scarce resources they can often be performed better through specialization they can be shifted among channel members Shifting functions to the intermediary may keep producer costs and prices low, but intermediaries must add a charge to cover the cost of their work. functions should be assigned to channel members who can perform them most efficiently tab

Number of Channel Levels Distribution channels can be described by the number of channel levels. each layer that performs some work in bringing the product closer to the final buyer is a channel level Because the producer and the final consumer both perform some work, they are part of every channel. the number of intermediary levels show the length of a channel Fig. 12–2 shows several consumer distribution channels. tab

Number of Channel Levels Figure 12-2 Business-to-consumer and business-to-business marketing channels. tab

Number of Channel Levels Channel 1 - called a direct marketing channel, has no intermediary level. it consists of a manufacturer selling directly to consumers Channel 2 - contains one level, in consumer markets, this level is typically a retailer. Channel 3 - contains two levels, typically a wholesaler & a retailer. this type of channel is used by smaller manufacturers Channel 4 - three levels. the jobber buys from wholesalers and sells to smaller firms that are not served by larger wholesalers tab

Number of Channel Levels A greater number of intermediaries in the channel means less control, more complexity, and more cost. All institutions in the channel are connected by several types of flows: physical flow of products flow of ownership payment flow information flow promotion flow These flows can make channels with only one or a few channels very complex. tab

Number of Channel Levels Many specialized channels are available to hospitality and travel organizations. travel agents; tour wholesalers; specialists hotel representatives; concierges national, state, and local tourist agencies consortia and reservation systems global distribution systems the Internet A manager must choose the intermediaries that will make up the distribution system. and the number of levels the distribution system will have tab

Marketing Intermediaries
Travel Agents One way of reaching a geographically diverse marketplace is through travel agents. In addition to selling airline tickets, travel agents book hotel sales, and nearly all cruise travel. hotels typically pay 10% commission to travel agents cruise lines can pay up to 15% Hotels seeking travel agent business must make it easy for agents to make reservations. a toll-free reservation numbers is essential hotels generating many bookings from travel agents have a separate number dedicated to business travel tab

Travel Agents Hospitality providers who serve travel agents must remember that agents entrust the hotel with their customers. they must do everything possible to make a favorable impression to ensure future business from that agent When business is obtained through an intermediary, the hospitality provider has two customers the guest and the intermediary The majority of cruise lines do not sell directly to the ultimate consumer but insist that bookings be made through travel agents or tour operators. tab

Travel Agents Corporate travel agents are one of the strongest areas of the travel agency business. US corporations spend over $150 billion on travel Many organizations sign an exclusive agreement with one travel agency, and employees are required to book through this firm. The travel agency assumes responsibility for locating the least expensive travel alternatives for the company. tab

Tour Wholesalers Tour wholesalers assemble travel packages usually targeted at the leisure market. 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 wholesaler has to provide a commission for the travel agent & give consumers a package perceived as a better value than they could arrange themselves. plus make a profit for themselves, and the margin on each package is small tab

Tour Wholesalers Generally, wholesalers must sell 85% of packages available to break even. this high break-even point leaves little room for error, & it is not uncommon for a tour wholesaler to go broke It is important to check the history of the tour operator, receive a deposit & get paid promptly. additional security is provided by dealing with members of the U.S. Tour Operators Association (USTOA) With the increased number of international resorts, tour wholesalers are becoming a powerful member of the distribution channel. tab

Tour Brokers, Motivational Houses & Junket Reps Tour brokers sell motor coach tours, which are attractive to a variety of markets. Some motor coach tours are seasonal, some are based on one event, and others are year round. for hotels on their routes, motor coach tours can provide an important source of income Motivational houses provide incentive travel offered to employees or distributors as a reward. the incentive trip is usually to a resort area and includes first-class or luxury properties tab

Tour Brokers, Motivational Houses & Junket Reps Junket reps serve the casinos as intermediaries for premium players. They are paid a commission on the amount the casino earns from the players or in some cases on a per player basis. Members of a junket receive complimentary or low-cost hospitality services, including air transportation, ground transportation, hotel lodging, food and beverage, and entertainment. the amount of complimentary services received depends on the amount players gamble in the casino tab

Hotel Representatives Hotel representatives sell hotel rooms and hotel services in a given market area. they receive straight commission, a commission plus a salary, or a combination of both It is often more effective for hotels to hire a hotel representative than to use their own salesperson. true when the market is distant one cultural differences may make it hard for an outsider to penetrate the market The choice of a hotel rep should not be taken lightly. frequent changes in hotel representatives are not cost efficient or cost effective tab

National, State and Local Tourist Agencies National, state & local agencies are a great way to get information to the market and gain room bookings. National associations promote tourism within their own countries. State agencies promote the state resources and attractions overseas, nationally & in the state itself. state agencies usually have visitor information centers located throughout the state, often at entrance points Regional associations can also help the independent and chain operators. tab

Consortia and Reservation Systems Reservation systems provide a central reservation system for hotels, and usually provide the system for small chains or provide an overseas reservation service, allowing international guests to call a local number to contact the hotel. A consortium is a group of hospitality organizations that is allied for the mutual benefit of the members. the consortium allows a property to be independent in ownership & management while gaining the advantages of group marketing Marketing is often the reason consortia are formed. tab

Global Distribution Systems Global distribution systems (GDSs) are computerized reservation systems serving as a product catalog for travel agents & other hospitality product distributors. Originally developed by the airlines to promote sales, before the Internet, GDSs offered a way for suppliers and end users to connect globally. A distribution service provider provides the connection between a hotel’s CRS and the GDS. There are four main GDSs: Amadeus, Galileo, Sabre, and Worldspan tab

Internet Major hotel chains such as Hilton and Marriott book millions of dollars’ worth of rooms over the Web. Hilton books over $3.5 billion in hotel rooms per year, 80% through its own web sites Internet reservations account for almost 40% of leisure a& business travel bookings. group & meeting planning revenue booked over the Internet has already exceeded 40% Almost all hotel brand web sites offer a low price guarantee, encouraging guests to book directly. rather than through an intermediary tab

Internet One model of distribution on the Internet is called the merchant model, where distributors mark up discounted net-rate hotel rooms. the distributor makes the difference between the net rate and the selling price of the room Initially, managers saw this model as a channel that would sell off their extra rooms performing a function similar to wholesalers Internet distributors simply sold the rooms online in direct competition and often cheaper than rooms for sale on the hotel’s web site. tab

Internet Hotel companies have now taken action to gain pricing control over their products. many now guarantee the lowest prices for their rooms will be available on their Web sites Priceline & Hotwire use an opaque system where the buyer cannot specify a particular hotel or airline. those with a brand preference cannot compare prices with specific hotels Persons who purchase from a third party on the Internet pay the third party. tab

Internet Merchant model, opaque sites, as well as online travel agents all offer alternatives for sellers. The least costly channel for the distribution of hotel rooms is the direct channel over the Internet that is why hotel brands have placed emphasis on their own Web sites, offering low-price guarantees Restaurant companies are also using the Internet as a distribution channel. Pizza Hut and Domino’s have online ordering systems. Olive Garden has its menu online and encourages the customer to call the restaurant and preorder the food tab

Internet Technology is changing how we order in casual and quick-service restaurants. Point of sale (POS) systems are now available that allow guests to make reservations over the Internet and include when they want to pick up the order. based on how busy the restaurant is, the POS will time the placing of the order so it is ready when the guest arrives Some of the advantages of the Internet are that it never closes, it is open twenty-four hours a day, seven days a week, has worldwide coverage, and can transmit color pictures. tab

Internet By using a menu, web sites can provide a lot of information while enabling users to quickly access information of interest. Visitors to an Internet site have the ability to print hard copies of information provided on the site. A major advantages of the Internet is it saves labor. the Internet is an excellent example of how service companies can get the customer to be their employee When making reservations or purchasing products online, the customer is acting as a reservation agent. tab

All-Inclusive Resorts A growing number of vacationers wish to simplify their vacation travel and to receive excellent value. usually they use a independent Internet brokers Many of these are highly reputable and may be tour operators or travel agents, but a few have shown that the buyer must exercise extreme caution. promises don’t always materialize, overbookings or cancellations occur, and the property itself may attempt to “bait and switch” unwary buyers Still, the Internet & all-inclusive resorts appear to be a great partnership with a bright future. tab

Concierges Concierges, bell staff & desk employees can be good sources of business for local hospitality products. Restaurants wishing to cultivate a relationship with concierges usually invite them to experience the restaurant firsthand. The restaurant should also supply the hotel with menus to show guests asking about the restaurant and instruct staff on how to handle calls from a concierge When such requests do come, the person answering the phone at the restaurant should be courteous and understand the situation. tab

Channel Behavior and the Organization
Distribution channels are complex behavioral systems in which people and companies interact to accomplish goals. Some channel systems consist of formal interactions among loosely organized firms. others consist of formal interactions guided by strong organizational structures Channel systems do not stand still, and new types surface and new channel systems evolve. tab

A distribution system consists of dissimilar firms that have banded together for their common good. each member is dependent on the others, specializing in performing one or more functions Because the success of individual channel members depends on general channel success, all channel firms should work together. Individual channel members rarely take such a broad view, and are usually more concerned with their own short-run goals and dealings with the firms operating closest to them in the channel. tab

Horizontal conflict is conflict between firms at the same level of the channel. Vertical conflict, more common, refers to conflicts between different levels of the same channel. Managers must give careful thought to the choice of distribution channels as it can have long-term effects. and must work to resolve conflicts within the distribution channel when they do occur Some conflict in the channel is healthy competition. without it, the channel could become passive & noninnovative tab

In a large company, formal organizational structure assigns roles and provides needed leadership. in a distribution channel made up of independent firms, leadership and power are not formally set Traditionally, distribution channels have lacked the leadership needed to assign roles & manage conflict. Historically, distribution channels have been loose collections of independent companies, each showing little concern for overall channel performance. in recent years, new types of organizations have appeared to provide stronger leadership and improved performance tab

Channel Organization - Conventional A conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its profits, even at the expense of profits for the system as a whole. No channel member has much control over the other members, and no formal means exist for assigning roles and resolving channel conflict. tab

Growth of Vertical Marketing Systems One of the biggest recent channel developments has been the vertical marketing systems that have emerged to challenge conventional marketing systems. contrasted here are the two types of channel arrangements Figure Conventional marketing channel compared to vertical marketing systems. tab

Channel Organization - Vertical A vertical marketing system (VMS) is producers, wholesalers, and retailers acting as a unified system. one channel member owns the others, has contracts with them, or wields so much power they cooperate The VMS can be dominated by the producer, wholesaler, or retailer, and were originally developed to control channel behavior & manage conflict. a major benefit is economies through size, bargaining power & elimination of duplicated services VMSs have become dominant in consumer marketing, serving as much as 64% of the market. tab

Channel Organization - Vertical A corporate VMS combines successive stages of production and distribution under single ownership coordination & conflict management are attained through common ownership at different levels in the channel In an administered VMS, leadership is assumed by one or a few dominant channel members. airlines have been affected by administered VMSs since the birth of the industry A contractual VMS joins independent firms through contracts to obtain economies or sales impact. an important form of contractual VMS is franchising tab

Franchising Franchising 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 designed by the franchisor. Franchising has been the fastest growing retailing form in recent years. franchised hotels account for more than 65% of the existing US hotel-room supply A reason for the popularity of franchising is that it is the safest way to start a new business. tab

Franchising 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 organization. in the case of hotels, a fee for use of the central reservation system is also charged Initial fee & royalty depend on the brand equity of the franchise, and the stronger the market position, the more valuable the brand name. a McDonald’s franchise offers more value than a Mr. Quick franchise tab

Franchising Advantages of the franchise to the franchisee: recognition of brand; less chance of a business failure national advertising, premade advertisements, and marketing plans faster business growth help with site selection; architectural plans operational systems, software & manual to support the systems national contracts with suppliers product development; consulting help with financing tab

Franchising Disadvantages of purchasing a franchise: fees and royalties are required it limits the products sold and the recipes used the franchisee is often required to be open a minimum number of hours and offer certain products a poorly operated company can affect the reputation of the entire chain the franchisor’s performance affects the profitability of franchisees some franchisees may not benefit from national advertising as much as other franchisees—often a source of conflict tab

Franchising A reason companies decide to franchise is that it allows for increased distribution of their products. the franchisee’s money expands the business while the franchisor collects an initial fee and royalties Franchising is not effective for all companies. the company must be able to offer operational systems, management support, and a good business concept For new businesses it requires time and money to provide a good franchisee package. smaller chains often franchise to people who are close to the business tab

Franchising Advantages of franchising for the franchisor are: receives a percentage of gross sales expands brand gets support for national advertising campaign is able to negotiate support for national contracts with suppliers tab

Franchising Disadvantages of a franchise for a franchisor are: limits on other options of expanding distribution franchisees must be monitored to ensure product consistency limited ability to require franchisees to change operations franchisees want and need to have an active role in decision making tab

Subfranchising A variation of the traditional form is subfranchising. the franchisor sells the right to distribute a franchise to a third party, and this agent then sells to the franchisees The subfranchisor receives payment from franchises it has sold and passes a portion of these fees to the franchisor and retains the rest. the subfranchisor also provides management support for their franchisees One researcher estimates 31% of quick-service restaurants & 37% of family restaurants use subfranchise contracts. tab

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Alliances Alliances, another form of contractual agreement, are developed to allow two organizations to benefit from each other’s strengths. Restaurants are expanding their locations through alliances with hotel chains, providing the restaurant with a good location and access to the hotel’s guests the hotel gains the value of the restaurant brand name Many resorts have food courts similar to those in the malls, featuring branded fast-food outlets. use of branded restaurants is creating opportunities for restaurants to expand their distribution tab

Alliances Alliances by two or more noncompeting firms are a popular and effective way of expanding markets. restaurants are developing alliances with convenience stores and hotel properties to distribute their products Airlines are developing alliances to access customers in other parts of the world and to provide their customers with new destination opportunities. The National Motor Coach Network, a marketing consortium of motor coach operators, has developed a partner program to bring charter business to preferred hotels. tab

Growth of Horizontal Marketing Systems In horizontal marketing systems (HMS), two or more companies at one level join to follow a new marketing opportunity. Working together, companies can combine capital, production capabilities, or marketing resources to accomplish more than one company can alone such symbiotic marketing arrangements have increased in number in recent years, and the end is nowhere in sight tab

Growth of Multichannel Marketing Systems Today, with the proliferation of customer segments and channel possibilities, more companies have adopted multichannel marketing distribution. this occurs when a single firm sets up two or more channels to reach one or more customer segments The multichannel marketer gains sales with each new channel but also risks offending existing channels. existing channels can threaten to drop the marketer unless it limits competition or repays them some way Franchisees have brought suit against franchisors that developed competing operations in their market area. tab

Selecting Channel Members
Introduction Selecting channel members involves a number of factors: customer needs the company’s ability to attract channel members the economic feasibility of the channel member control that might be given up to gain a channel member Food service distributors used to be confined to selling to all types of sit-down restaurants. from college cafeterias & fast-food to exquisite dining Today, these companies serve a relatively new food service outlet known as convenience stores. tab

Customer Needs Selecting channel members starts with determining services consumers in various target segments want. To design an effective channel, the company must understand the services its customers require and then balance the needs of those customers against the feasibility and costs of meeting them tab

Attracting Channel Members Companies vary in their ability to attract qualified intermediaries. Well-known hotel companies with a reputation for paying commissions promptly and honoring the reservations of travel agents have no trouble gaining the support of intermediaries. A new hotel chain with only a few hotels will have difficulty getting most of the country’s travel intermediaries firm to sell its chain. it would be wiser for the new chain to choose one to work with in key cities that are likely to generate business tab

Attracting Channel Members When contracting with a hotel sales representative, the hotel company should investigate the number and type of other hotels that the firm represents. It will also want to investigate the size and quality of its workforce. just as a company carefully chooses its employees, it should carefully choose channel members These firms will represent the company and will be partially responsible for the company’s image. tab

Evaluating Major Channel Alternatives The business that channel members bring must offset costs of paying and supporting the channel member. Each channel produces different levels of sales & costs, measured two ways: directly & by opportunity costs Another direct cost of working with intermediaries is the support they will need from the company. brochures & other collateral material, training, familiarization trips & regular communication A company should limit the size of their distribution system to one that they are able to support. tab

Evaluating Major Channel Alternatives An opportunity cost is created when we sell a product for a lower price than its market value. as when we discount products, only to find out that we could sell them for a higher price A company must regularly evaluate the performance of its intermediaries, for as business changes, the value of an intermediary may change. The intermediary may not perform as expected, in which case the company must work to try to bring about the desired performance or eliminate the intermediary if it becomes unprofitable. tab

Control Criteria Using sales representatives offers less control than building your own sales force. Sales representatives may prefer to sell rooms in other hotels because it requires less effort. They may avoid smaller customers, preferring to call on larger companies who can use most of the hotels they represent. This points out the importance of having data that show the degree of profit or loss from different customer groups and from all intermediaries. tab

Control Criteria In the absence of the information, marketing/sales managers are forced to make decisions based on the assumptions or guesses or personal preferences. it may be necessary for the marketing department to hire its own analyst to provide this vital information Control is also an important consideration in franchising and choosing multiple channel members. a problem with franchising is that a company sacrifices some control to gain wider distribution some companies have problems getting franchisees to meet quality control standards tab

Responsibilities of Channel Members and Suppliers
Introduction The company and its intermediaries must agree on the terms & responsibilities of each channel member. Hotels make it clear to travel agents which rates are commissionable, the amount of commission, and often guarantee to pay in a certain number of days. to avoid disputes, it is important to have an explicit arrangement in writing with channel members After the selection of the channel members, a company must continuously motivate its members. just as a firm must market to its employees, it must also market to its intermediaries tab

In general, there are four steps in choosing a location.
Business Location Introduction Many retailers say the three secrets of successful retailing are “location, location, and location.” One of the most important aspects of distribution for hospitality organizations is location. for businesses whose customers come to them, the business must be conveniently located Hotel sites are evaluated on attractiveness of their location to persons coming to that destination. each firm has its own set of location evaluation characteristics In general, there are four steps in choosing a location. tab

Business Location Selection Steps The first step is understanding the marketing strategy and target market of the company. The second step is regional analysis, which involves the selection of geographic market areas. The next step is to select an area within that region. Finally, the firm will choose individual sites. A restaurant or hotel will look for potential demand generators, which vary depending on target markets. In addition, a firm also looks at competitors. Site evaluation also includes reviewing accessibility. tab

Business Location Selection Steps
Site choice is often determined by a checklist, statistical analysis, or a combination of both. a checklist usually contains items such as those listed in the profile and specific building requirements A common type of statistical analysis used in site selection is regression analysis. the dependent variable in the equation is sales, and the independent variables are factors that contribute to sales The location must not only be favorable at the present time but also must continue to be good throughout the life of the business. tab

KEY TERMS Administered 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 tab

KEY TERMS 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. tab

KEY TERMS 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. tab

KEY TERMS 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. tab

KEY TERMS Horizontal marketing systems (HMS). Two or more companies at one level join to follow new marketing opportunities. Multichannel marketing. Multichannel distribution, as when a single firm sets up two or more marketing channels to reach one or more customer segments. Retailer. Business whose sales come primarily from retailing. Vertical conflict. Conflict between different levels of the same channel. tab

KEY TERMS Vertical marketing system (VMS). A distribution channel structure in which producers, wholesalers, and retailers act as a unified system. Wholesaler. Firms engaged primarily in wholesaling activity. tab

EXPERIENTIAL EXERCISES
Try One ! Visit a restaurant that offers takeout service. What have they done to facilitate takeout service? do they have a special order & pickup area? do they accept phone, fax or Internet orders? paper menus to take home; special packaging for takeout? Report on what you find and any suggestions that you might have. tab

EXPERIENTIAL EXERCISES
Try One ! Investigate franchises available in the hospitality or travel business. Select a franchise you feel would be a good business investment based on what the franchise offers and the fees the franchiser charges. support your findings in a two to three page report tab

INTERNET EXERCISES Try This !
Support for this exercise can be found on the Web site for Marketing for Hospitality and Tourism, Find a hospitality or travel company that allows customers to make reservations directly through their Web site. Who do you think will make reservations through this site, and do you think the design of the site is effective? explain your answer tab

END CHAPTER END

Distribution Channels

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