CHAPTER VII

Distribution
is the process of making a product or service available for the consumer or
business user who needs it. This can be done directly by the producer or service provider or
using indirect channels with distributors or intermediaries.

DISTRIBUTION SYSTEM

the ‘place’ aspect of a company’s marketing mix; its purpose is to provide an adequate
framework for making a company’s product or service available to the consumer.

The Nature and Types of Distribution Channels

A distribution channel is a method of delivery used by a supplier, carrier or destination

marketing organization. There are two different types of distribution channels that a firm can use

to deliver its product. The first and most simple form of distribution is a direct distribution

channel, a channel through which a company delivers its product to the consumer without the

outside assistance of any independent intermediaries. In such a case. The service provider is

solely responsible for the delivery of its product. Some restaurant uses a direct distribution

channel to market products to potential customers. They perform all the necessary channel

functions on their own, without relying on any assistance from outside intermediaries.

The second type of distribution channel used to deliver a product is an indirect

channel. In this case, the service provider makes use of independent intermediaries to help

facilitate the distribution of its product. Outside intermediaries such as travel agents, tour

operators and other tourism specialists assist the supplying company by helping to attract

consumers the product or destination.

DISTRIBUTION CHANNEL

a direct or indirect delivery arrangement used by a supplier, carrier or destination

marketing organization

DIRECT DISTRIBUTION CHANNEL

a channel through which a company delivers its product to the consumer without the

outside assistance of any independent intermediaries.

INDIRECT DISTRIBUTION CHANNEL a channel through which a company distributes

its product with the assistance of independent intermediaries

 Functions of the Distribution

In order for a company’s distribution system to operate effectively, members must

perform several key functions. One member can carry out these functions alone, or they can be

executed by a number of different channel participants. The functions are listed below; tasks

should be assigned to those members that are best equipped to carry each of them out.

1. Acquiring information.

The purpose of this task is to gain access to relevant, complete, accurate and timely

information, thus enabling the company to assess its marketing environment.

Information can be acquired through both primary and secondary research, using

both qualitative and quantitative techniques.

2. Promotion.

The purpose of promotion is to communicate the benefits of the destination’s product

to the consumer. This can be achieved through a variety of means, including the use

of brochures, videos, magazine advertisements and websites.

3. Contact.

Making contact with potential customers is critical to a company’s success. It is

important that the company establishes contact with its target market in order to be

able to communicate effectively the benefits of its product.

4. Negotiation.

The negotiation of high-quality arrangements and contracts is key to any business

relationship. In the case of a tourism distribution system, it is important for the

member to negotiate agreements with regard to price, operating procedures and

other issues that may arise among the system’s participants.

5. Physical distribution.

Obviously, a distribution system cannot be effective if there are no means of actually

delivering the service to the consumer. The service provider is responsible for

ensuring the successful distribution of its product at this stage.

6. Financing.

An important task for every member of the distribution channel is to acquire the

necessary resources to pursue its activities. Without funds in place, it may be

impossible for the company to distribute its product.

 Distribution and Physical Location

It is important to acknowledge that distribution as a marketing term can also refer to the

physical location, as this is a prerequisite of consumption of the core service. Operational

requirements may set tight constraints for the distribution of some tourism services. Airports, for

example, are often inconveniently located relative to travellers’ homes, offices or destinations.

Because of space, noise and environmental factors, finding suitable sites for the construction of

new airports is a complex task. The need for economies of scale may be another restriction on

location. Also, many tourism services require a fixed geographic location that severely restricts

distribution.

Marketing Intermediaries

Marketing intermediaries are channels of distribution that include travel agents,

tour operators, travel specialists and the internet. Their purpose is to help the service

provider complete the six different functions listed earlier. Through the use of channel

intermediaries, a company is able to expand the strength of its distribution network and to reach

a much larger

portion of its target market. As a result, the combined marketing efforts of the entire distribution

network will lead to an increase in the number of customers using the service, thus boosting

overall revenues.

Travel Agents

Travel agents offer the tourism customer a variety of services, including everything from

transportation plans and tour packages to insurance services and accommodation. They are

the most widely used marketing intermediaries in the tourism industry. An agency will earn a

commission for each sale, the amount depending on the type of product sold.

Today, the travel agency market is very competitive. Barriers to entry are low and as a result

there are many new entrants, which is especially true of the rapidly growing segment of online

agents. Independent travel agents are under pressure not only from e-agents but also from

direct selling by tour operators. They therefore seek to differentiate themselves, and add value

to the product in order to justify their role in the value chain and retain market share. Travel

agencies perform four distinct functions that pertain to a company’s distribution system.
1. Distribution and sales network.

Travel agents are a key player in the distribution and sale of a company’s product under

an indirect distribution system. Travel agents essentially act as tour brokers that bring

the buyers and sellers of travel products together. The agents have access to an

extensive network of suppliers and customers and are able to help facilitate interaction

between the two by identifying the particular needs of each group.

2. Reservations and ticketing.

Making reservations and issuing tickets are two of the more traditional roles of travel

agents. Through the use of a global distribution system (GDS) such as Galileo,

Abacus or Sabre, travel agents can place reservations in numerous locations throughout

the world.

3. Information provision and travel counselling. Travel agents have a wealth of

information at their disposal. They possess an extensive knowledge of tourism

destinations and are well equipped to offer advice to the inexperienced traveller.

Whether a customer is looking for a quick flight across the country or planning a major

expedition around the world, travel agents can provide valuable assistance.

4. Design of individual itineraries.

The person-to-person nature of the travel agent business allows the travel agent to gain

an in-depth understanding of customers’ travel needs. By identifying what a customer’s

specific needs are, the agent can put together a personalized itinerary. Travel agents

can arrange transportation, accommodation, insurance, activities and tours, all with the

intent of satisfying the traveller’s particular needs and expectations.

Despite the benefits that travel agents can provide to a company’s distribution

system, the emergence of new and cheaper distribution tools such as the internet has

placed the future role of travel agents in doubt. For this reason, a large number of travel

agencies are seeking new positioning strategies to maintain their foothold in the tourism

market. In the last decade, most airline carriers have eliminated base commissions for

travel agents, so many agents are charging service fees to customers. Agents used to

earn up to 10 per cent on all airline tickets sold; approximately one-third of agency

business came from the sale of scheduled airline tickets. Apart from charging fees to

customers, agencies are now looking at other ways to make up for the loss of airline
 commissions, including selling more package tours and cruises and focusing on selling

their expertise.

Tour Operators

Tour operators are organizations that offer packaged vacation tours to the general

public.

These packages can include everything from transportation, accommodation and activities

to entertainment, meals and drinks. Tour operators typically focus their marketing efforts on

the leisure market, which represents the dominant buying group.

Tour operators have the ability to bring in large volumes of customers. They receive

discounted rates from various service providers in exchange for providing a large number of

guaranteed visitors. Tour operators make their profits by providing low-margin travel packages

to a large number of consumers.

However, tour operators are increasingly selling their packages direct to customers,

cutting out the intermediary, by using their own outlets or web pages.

Convention/Meeting Planners and Corporate Travel Managers

Convention and meeting planners plan and co-ordinate their organizations’ external

meeting events. These planners work for associations, corporations, large non-profit

organizations, government agencies and educational institutions. Some combine the task of

convention planning with that of corporate travel management, whereas other organizations split

up the tasks. The private sector is also involved in the marketing of conventions and exhibitions.

Travel Specialists

Travel specialists are intermediaries that specialize in performing one or more functions

of a company’s distribution system. Hotel representatives, for example, specialize in providing

contact with a hotel’s customers in order to identify their specific accommodation needs.
 Other examples of specialist intermediaries are tour brokers, motivational houses and

junket representatives. Tour brokers sell coach tours, which are attractive to a variety of

markets. Such tours are important to hotels en route as well as to the attractions themselves.

Motivational houses provide incentive travel, offered to employees or distributors as a reward for

their efforts. Incentive trips usually involve staying in high-class accommodation in resort areas.

Junket representatives serve the casino industry as intermediaries for premium

players. Junket reps maintain lists of gamblers who like to visit certain gaming areas such as

Las Vegas, Reno or Atlantic City, and they work for one or two casinos rather than the whole

industry. Junket reps are paid a commission on the amount the casino earns from the players

or, in some cases, on a per-player basis.

The Internet

Tourists are turning in increasing numbers to the internet to help them plan and book

their travel. Some stakeholders in the travel industry, such as airlines, car rental companies and

international hotel chains, have been quick to grasp the potential for marketing and selling their

services online. They have recognized an opportunity to bypass intermediaries and to sell their

basic products and services directly to the customer. Many hotels have developed web-based

booking tools for both leisure and group sales.

Figure below shows a model of online distribution applicable to many destinations, and

illustrates the various ways customers can reach individual websites. In the diagram, the

browser window is depicted below the customer because it can have an impact on the ultimate

message delivery, usability, and pathway to the operator websites. The most common means of

navigating through the online maze from customers to operator is typically for the customers to

select the search engine or index service of their preference. For example, if they are looking for

a hotel in the Paris area, they will type in, or funnel down through search categories to

something like

‘Paris France’ or ‘Paris France Hotels. The other route they may take is to click on a link from a

search engine to a destination travel guide or an electronic broker.

Channel Conflict and Organization
Channel Conflict
In order for companies within a distribution channel to be successful, it is necessary that they

work together. When every member in the value chain co-operates, it allows the channel to

combine its resources to perform in a more efficient and effective manner. The success of the

entire channel will in turn benefit all the individual members. Unfortunately, many companies in

the tourism and hospitality industry tend to focus on their own, individual performance rather

than on that of the entire chain. They frequently disagree about the roles each should play or

who should do what for which rewards. Thus a co-operative marketing system is often difficult to
achieve, and a common occurrence is channel conflict, in which one member perceives another

to be engaged in behaviour that prevents or hinders the first member from achieving its goals.

There are two main forms of channel conflict: horizontal conflict and vertical conflict.

Horizontal conflict takes place between organizations at the same level of the distribution

channel. An example is a conflict over territory between two Best Western franchises. Due to

the rapid growth of this company, it is common for two separate franchises to compete for the

same market segment of customers. Vertical conflict occurs between organizations at different

levels of the same channel, and it is more common. An example is the argument between travel

agents and airlines over the latter’s cutting of base commissions for the former.

The conventional marketing system

is the traditional system that organizations used to adopt because the conventional hierarchical
structure was consistent with the structure within individual organizations. This distribution
system consists of a loose collection of independent organizations, each of which tries to
maximize its own success.

For example, many small hotels pay a commission to travel agents, but no formal contract is

signed between the hotel and the agent. The hotel simply communicates its policy and can, if it
wishes, make rooms unavailable to travel agents on a temporary basis. Although this system
has worked in the past, trends of globalization and technological advancement have

forced many tourism organizations to reorganize their distribution channel into a vertical

marketing system in order to remain competitive.

1. allows economies of scale. The entire chain is able to produce goods or services less
expensively than competitors due to economies of scale (i.e., declines in unit costs of
production as the volume of production increases), thus giving all channel members a
competitive advantage;
2. makes managing conflict easier. With just one member dominating the channel, this
leader has the authority to punish those channel members that are creating conflict, as
well as to implement solutions to resolve such situations;
3. eliminates duplication. The vertical integration of the distribution channel allows all
duplicated duties to be eliminated. This increases the efficiency of the chain;
4. levers bargaining power. The vertical integration of the channel gives the system and its
members more power to bargain than when channel members work individually;
5. creates shared goals. The system allows for all the members of the channel to benefit
from an achieved goal, rather than only one specific member benefiting.