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.

Marketing Intermediaries
Travel
TravelAgents
Agents

Tour
TourWholesalers
Wholesalers
Specialists:
Specialists:
Brokers
Brokers&&Junket
JunketReps
Reps

Concierges
Concierges

Hotel
HotelRepresentatives
Representatives

Internet
Internet
Global
GlobalDistribution
Distribution
Systems
Systems

National,
National,State,
State,
and
Local
Tour
and Local TourAgencies
Agencies
Consortia
Consortia&&Reservations
Reservations
Systems
Systems

2006 Pearson Education, Inc.

Upper Saddle River, NJ 07458

Marketing for Hospitality and Tourism, 4th edition

Kotler, Bowen, and Makens

E-Commerce & EMarketing

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

Complexit
ies
of
Distributi
on

Channels
Channels
Brand.com

Marriott.com, Starwood.com, hotels

own
web site

CRS/Voice

1-800-hiltons, 1-800ichotels, 3rd parties

GDS

Travel agents (Sabre, Galilieo, Amadeus,

Worldspan)

OTA

Online travel agents

Property
Direct/Other

Copyright 2011 Smith Travel Research

Walk-in, group/rooming list,

employee/discount, contract, Passkey

OTAOTA
Business
Models
Business Models
Merchant

Retail

Opaque

Copyright 2011 Smith Travel Research

Net rate, excludes commission

Includes commission, backed out

afterwards
Bidding method, brand not disclosed
until after sale

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

Copyright 2011 Smith Travel Research

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.