Distribution Channels

A distribution channel - 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 or the product to the customer

Organic development of an industry
Place = Distribution

The 4Ps
Product, Price, Place, Promotion

What the P of Price is to Revenue
Management, the P of Place is to
Distribution
Distribution also describes
Locations for hotel brand distribution
Franchising
Ownership
Management contracts
The sales staff and system
Group sales or volume accounts
Reservations and transient sales
National sales offices
Representation firms, consortia
Distribution
Today distribution in the hospitality industry
generally references transient sales today

Revenue management and distribution merging
together

Internet marketing includes distribution issues
Distribution Channel Functions
Information: consumer behavior search
stage
Promotion: messaging
Negotiation: price and other terms
(how is this done online?
Physical distribution: think e-tickets?
Prospecting: finding, communicating, and
tracking prospective buyers

Digitalization and Connectivity
Digitalization - converting text, data,
sound, and image into a stream of bits
that can be dispatched at high speeds
from one platform to another
Connectivity - building networks
connecting people and companies;
social and mobile convergence
Direct versus Indirect Channels
Direct Channels
Employed sales staff
National sales staff
Brand.com
Voice/CRS/Mobile
Indirect Intermediaries
Why use them?
Why so many of them?
Getting the Customer to the Product
Reservation
services
Representation
firms
Consortia
Incentive travel
organizations
Corporate travel
management

Global distribution
systems (GDS)
Traditional off-line
travel agents
Central reservation
systems (CRS)
Internet channels
Websites
Push vs. Pull strategies
Pushing the product down through the
distribution channel TO the customer
Incentives to travel agents and intermediaries

Pulling the customer up through the
distribution to the channel
Traditional media/private sales/CRM
Why Use Intermediaries?
History of travel

Selling through wholesalers and retailers usually is
much more efficient and cost effective than direct
sales

Fragmentation of the travel purchase and travel
inventory, transportation (idea of lift), hotels,
attractions, meeting facilities, restaurants, and so on.
Travel Agents
Tour Wholesalers
Concierges
Specialists:
Brokers & Junket Reps
Internet
Hotel Representatives
Consortia & Reservations
Systems
Global Distribution
Systems

National, State,
and Local Tour Agencies

Marketing Intermediaries
2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition
Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
E-Commerce & E-Marketing
E-commerce involves buying and selling
processes supported by electronic means,
primarily the Internet

E-marketing is company efforts to
communicate about, promote, and sell
products and other services over the Intranet;
also web or Internet Marketing

Not easy to separate but different issues
E-Commerce Domains
B2C (business to consumer)
Branded websites
B2B (business to business)
Passkey
C2B (consumer to business)
User groups
C2C (consumer to consumer)
Blogs; review sites are blends of above
Internet Intermediaries
History of the internet as a discount channel
Price and convenience key drivers still
Dominance about inventory allocation
Consistency of all 4Ps by channel
How Product is described
Pricing parity
Channel profitability
Communication needs to vary by segment (channel)


THE GDS: 1970s Look and Feel

Complexities
of
Distribution
Channels
Copyright 2011 Smith Travel Research
Channels
Brand.com
Marriott.com, Starwood.com, hotels
own
web site
CRS/Voice 1-800-hiltons, 1-800ichotels, 3
rd
parties
GDS
Travel agents (Sabre, Galilieo, Amadeus,
Worldspan)
OTA Online travel agents
Property
Direct/Other
Walk-in, group/rooming list,
employee/discount, contract, Passkey
OTA Business Models
Copyright 2011 Smith Travel Research
OTA Business Models
Merchant Net rate, excludes commission
Retail
Includes commission, backed out
afterwards
Opaque
Bidding method, brand not disclosed
until after sale
Copyright 2011 Smith Travel Research
Major OTAs and Default Business Models
Bookings.com retail
Expedia merchant
Hotels.com merchant
Hotwire opaque
Orbitz merchant
Priceline opaque
Travelocity merchant
Travelweb merchant
Other OTAs merchant, retail, & opaque
Estimated Cost per channel excluding Brand
and Switch fees per transient reservation
Brand.com $2 - $5
CRS/Voice
$2-4/inquiry plus
$6-12/net booking
GDS $4.50-$6
Property Direct/Other $3.25 - $13
OTA - Merchant $17-$35 or 20%
OTA - Retail $10
OTA - Opaque $5 9
Hebs, 2011, Cullen & Heisel, 2012
Major Issues/Challenges
Costs have risen as has competition
Global differences in systems
Technology also flattening this
System hard to change and complex to manage
Historical controls of GDS, OTA
Diversity of travel parts makes all of the
distribution points part of the experience and if an
intermediary fails, so does the experience
Major Issues/Challenges
Fragmented owner-manager relationships
Capital costs for technology and talent
Travel agents reinvention imperative remains
Battle of the brandsbrand channels that is!
Big data: not new
Proliferation: more more more more
Mobile?
Monetizing social media
Evaluation of Channels
Control and cost of each channel
Tracking of statistics to better negotiate
contracts in the future
Understand when and why to use a channel
Good channel management ensures
customer satisfaction AND revenue
optimization AND profit maximization
Goal for hotels in distribution
Q: What is the definition of revenue
management?
A: Selling the right product to the right
customer at the right time for the right (read:
maximum) price!by the right channel!
References
Cullen, Kathleen and Caryl Helsel, Defining Revenue
Management, Top Line to Bottom Line, HSMAI Foundation,
Bethesda, MD, 2006
Green, Cindy Estis, Demystifying Distribution, HSMAI
Foundation, Bethesda, MD, 2005.
Ho, Alfred, Importing, Exporting and Investing in China,
World Trade, March 2007, pp 20-22.
Kotler, Bowen, Makens, Marketing for Hospitality and
Tourism, 4
th
Edition, Pearson, Upper Saddle River, NJ, 2006
PricewaterhouseCoopers, Hospitality Directions Europe
Edition, Briefing Paper, November 2007
Electronic Design, The Cell Phone Simply Irresistible,
January 12, 2006, p90-91.
PhoCusWright, Inc, European Online Travel Overview,
March 2006.