Chapter Six

6 Distribution Channels for Hotels

6.1 Introduction

Distribution: One of components of marketing mix that in simplest task transfer the product
from the production place to the purchase place to the customer. In other words, the main task of
distribution management is placing the goods in hand of potential customers at the right time and
place. (Roosta, A. Venus, D. Ebrahim, Abdul. ", 2009).

Distribution role in hospitality marketing is difficult to understand because there is no actual

physical transportation of a product. Most of the time, the production and consumption of a
product happen simultaneously for example, a guest who ordered a meal in restaurant will
usually consume the meal before leaving.

Distribution Channel: The American Marketing Association defines the channel of distribution
as “an organized network of agencies and institutions which, in combination, perform all the
activities required to link producers with users to accomplish the marketing task”. Distribution
here refers to the physical and legal path that products follow from the point of production to the
point of consumption.

A distribution channel is a set of independent organizations involved in the process of making a

product or service available to the consumer or business user.

It is often difficult to standardize the distribution system and use the same approach in every
country, because there are many individual differences to be considered. Consumer spending
habits can negate attempts to standardize distribution. The location where consumers are used to
buying will also influence distribution. The predominant distribution channel for hotels remains
direct contact with the property through telephone, fax or e-mail, which, according to Horwath’s
Worldwide Hotel Industry Study.

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 6.2 Distribution Channel for Hotels

HOTEL AND SUPPLEMENTARY ACCOMMODATION

Indirect
Direct Auto Hotel Airl Tou
Chair or matic Repr ines r
Associatio Reser esent Ope
n vation ative rato
Headquart Servic
ers e rs
Reservatio
n system

Travel
Agents

CONSUMERS/ TOURISTS/ GUESTS

Fig. Marketing Channels in the Hotel Industry.

Hundreds and thousands of tourist accommodation establishments are seeking to gain identity
with untold millions of potential customers covering the whole spectrum of incomes, interests,
knowledge, sophistication and needs, but only a few well-established hotels can afford the
marketing costs. The solution of this fundamental problem leads to the development of channels
of distribution in the travel industry. Hotels have a need to be represented to the customers. The
distribution channels between hotel and customer can be categorized as either direct or indirect.

I. Direct Channel

Direct channel are the most common for hospitality organizations because the producer (hotel)
sells directly to the consumer (guest). This allows the hotel or organizations to have close contact

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 with the consumer and able to react quickly to changes in the market. For example, primarily
hotel’s website, phone, walk-in business.

The direct channel between a given hotel and the customer is concerned chiefly with the sales
function. The hotel sales executives concentrate upon:

(a) Maintaining sales contact with channel intermediaries’ such as tour operators, travel
agents, representatives and transportation companies.
(b) Maintaining sales contact with companies and organizations in an attempt to obtain
Lodging and functional business.
(c) Following leads furnished by other sources e.g., the headquarters, marketing department
if it is a part of chain organization.

A hotel cannot survive without its own sales force, regardless of the power of the headquarters
sales and marketing force.

II. Indirect Channel

An indirect channel means that there will be at least one intermediary that is responsible for one
or more channel functions. There are a few indirect channels in the hospitality industry but they
are more related to travel industry. For example, tour operators work directly with hotels and
airlines to combines services to market as a tour packages to travel agents. Then the travel agents
will sell the package to guests.

Indirect channels of distribution include the travel agents, hotel representatives, tour operators,
space brokers, airlines and the centralized reservation and sales operations of franchised or chain
hotels, to help make the room booked by the customers.

A travel agent (OTA): may deal on the customer’s behalf directly with the hotel. They sell
travel products to customers online and act as agent for hotels. For example, Expedia, trip
advisor etc.

Hotel representatives: They act as sales and reservation agents for a number of non-competing
hotels’ such as resorts, but the hotel representative concept is more frequently used by hotels.

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 Tour operators: tour operator is wholesaler that specializes in packaging tours and itineraries.
Wholesalers can offer vacation packages to the traveling public at lower price than an individual
traveler can arrange because the service are brought in large quantities at discounted prices. They
reserve wholesale blocks of rooms in anticipation of selling group tours through their retailers,
the travel agents.

Automated reservation service: They maintain for a free in their computers an inventory of
available hotel rooms from around the world’ so that travel agents can buy rooms for their
customers.

Airlines: Mostly for overseas destinations, airlines maintain an inventory of room availability to
accommodate customers and travel agents who prefer to make complete arrangements with one
phone call for flight and room reservations.

Global distribution systems (GDS): A computerized reservation system that connects the travel
agent to hotels, airlines, cruise lines, car rentals, and other services.

Centralized reservation and sales operation (CRS): Computerized reservation system of a

hospitality company that allows customers to make reservations without having to contact the
company directly. Associated franchised, or chain hotels facilitate the flow of information
regarding availability of rooms thereby promoting sale and accepting reservations for space.

III. Internet distribution channels

There are several different types of electronic business-to-consumer distribution channels for
hotel rooms. One form is a chain’s own Web site. As described above, many chains have added
the capability to market and book not only guest rooms but also banquets and other catered
functions, meetings, and conferences.

The impact of the Internet on the hotel industry, as well as on other facets of the broader travel
industry, has been revolutionary. Half of all travelers buy travel online and even more go online
to research travel plans. PhoCusWright, a market research firm, reported that as of 2009, online

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leisure and business travel outperformed every other distribution channel. Moreover, it is likely
that the majority of all bookings will occur through the Internet in the very near future.

One study found that competitive pricing was the key motivating factor that encouraged
consumers to purchase travel online. The pricing advantage outweighed the additional benefits of
saving time, getting bonus loyalty club points, having more control, or obtaining better
information. Third-party sites are increasingly used for hotel rate shopping prior to consumers
booking directly on hotel Web sites. The response from hotel chains has been to withhold
inventory from the online travel sites as well as to feature cheaper rates on their own Web sites.
Independent hotels have benefited from the Internet as well. Customers can inspect the rooms
and get information on the unfamiliar independent hotel’s services through the property’s Web
site. These hotels subsequently can compete in ways that they could not prior to this technology.

6.3 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.

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.

Negotiation: agreeing on price and other terms of the offer so that ownership or possession can
be transferred.

6.4 Stages of Design Distribution Channels

Desirable distribution channel is a channel that will meet customers' needs and be competitive.
The stages of designing the distribution channel are as follows:

1. Analyze of customer service needs: at this stage, the customer needs analyzed carefully,
purchase amount, waiting time, the number of suppliers, diversity of products and expected
support services for customer are specified at this stage.

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2. Setting goals and identify the limits of distribution channels: the goals of distribution
channels are determined at this point according to the characteristics of each product. Decision
about whether directly or indirectly through the distribution channel at this point is taken. In
addition, in this stage the limitations in the distribution system are characterized. The restrictions
are competing firms distribution channels and laws and regulations governing.

3. Determine the available options (available channels distribution): after consideration of

the services requested by our customers and distribution channels setting goals, at this stage the
available channels in the market should be identified. Types of available intermediaries, the
number of required agents, and the conditions and responsibilities of each of the intermediaries
can be identified at this stage.

4. Evaluate and select various options: each of them according to three main criteria of
economic controls and compliance with the conditions evaluated and reviewed after determining
the applicable distribution channels. Then according to the results of the assessment appropriate
channel or distribution channels should be selected.

5. Contract and control: after determination of the distribution channel or channels required
personal in the selected channel should be determined and educated, motivate them and
eventually they can be assessed. Since marketing environment and the product life cycle are not
fixed, we should always be ready to change provisions and perform corrective actions on the
selected channel.

6. Choice of distribution channel partners: before selecting channel members we should paid
to assess clients' demands of channels. And after the mixed designed channels, the next step is
determining a proper distribution channel, evaluation, selection and contract signing with the
best channel partners.

7. Search method: for most products and markets, an important source is references and key
customer reviews that distributors work with them in the market and also the use of distributor
lists in geographical location on the Internet and other resources.

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