Chapter 12

Distribution
Channels
 Chapter Objectives
• 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
 Chapter Objectives
• Discuss channel behavior and organization, explaining
corporate, contractual, and vertical marketing systems,
including franchising

• Illustrate the channel management decisions of

selecting, motivating, and evaluating channel members

• Identify factors to consider when choosing a business

location
Distribution Channels
• A distribution channel is a set of independent
organizations involved in the process of making a
product or service available to the
consumer/customers or business user
• Used to move the customer towards the product
• For example, Ritz-Carlton receives a significant share of
business from travel agents because of aggressive development
of this channel
 Why Use Marketing
Intermediaries?
• Selling through wholesalers and retailers usually is much more
efficient and cost effective than direct sales
Supply Chains and the value
delivery Network
Supply Chains and the value
delivery Network

Why is the term "value delivery

network" a more relevant
expression than
"supply chain" or "demand
chain"? In hospitality.
 Supply Chains and the value
delivery Network

‘’value delivery network" encompasses a broader perspective that

focuses on the entire process of creating, delivering, and
enhancing value for the customer.

Value delivery network is more appropriate because it is made up

of the company, suppliers, distributors, and ultimately customers
who partner with each other to improve the performance of the
entire system.

Reasons? Next slide

 Supply Chains and the value
delivery Network

1.Emphasizes customer-centricity and delivering value at every

touchpoint.
2.Highlights collaboration and integration among stakeholders.
3.Allows for flexibility and adaptability in a dynamic industry.
4.Takes a holistic approach, considering all aspects of the
experience.
5.Helps businesses find competitive advantages for long-term
success.
 Distribution Channel Functions
• Members of the marketing channel perform the following 8
key functions. The first 5 functions help to Transaction
completion (most capacity) transactions. The last 3 help to
fulfill (finish) the completed transactions;
(1) Information
(2) Promotion
(3) Contact
(4) Matching
(5) Negotiation
(6) Physical distribution
(7) Financing
(8) Risk taking
 Distribution Channel Functions
• Information: gathering and distributing marketing research
and intelligence information about the marketing
environment e.g. A hotel's website provides essential details about room
types, amenities, rates, and availability to potential guests, enabling them to
make informed decisions about their stay.

• Promotion: developing and spreading persuasive

communications about an offer. E.g. A restaurant runs a social
media campaign to advertise a new menu or seasonal specials, enticing
customers to visit and try their offerings.
 Distribution Channel Functions
• Contact: finding and communicating with prospective buyers. E.g. A
travel agent connects with multiple hotels, airlines, and local tour operators to
create customized vacation packages for their clients.

• Matching: shaping and fitting the offer to the buyer’s needs,

including such activities as manufacturing, assembling, and
packaging. E.g. An online travel agency (OTA) like Expedia or Booking.com
aggregates various accommodation options, allowing users to filter, compare, and select
the best fit for their needs and preferences.

• Negotiation: agreeing on price and other terms of the offer so that

ownership or possession can be transferred. E.g. A corporate event planner
negotiates discounted rates with a conference center for a large group booking, ensuring the best
possible price for their organization.
 Distribution Channel Functions
• Physical distribution: transporting and storing goods. E.g. A food delivery
service like Talabat partners with local restaurants to pick up and deliver meals to customers' homes, providing
convenience and expanding the restaurants' customer reach.

• Financing: acquiring and using funds to cover the costs of channel

work. E.g. An airline partners with a buy now, pay later (BNPL) service like Affirm or
Klarna, allowing customers to book their flights and pay for them in interest-free installments
over a predefined period.

• Risk taking: assuming financial risks such as the inability to sell

inventory at full margin. E.g. A boutique hotel owner decides to renovate and
transform their property into an eco-friendly, sustainable lodging option, incorporating solar
power, zero-waste practices, and locally sourced materials.
 Number of Channel Levels
• Channel level can be described as distribution
channels

• Direct marketing channel

• Retailer

• Wholesaler
Customer Marketing Channels
Customer Marketing Channels
Which country has the most advanced
distribution channels in the world
based on hospitality and tourism?
United states
France
United Kingdom
Australia
Singapore
 Marketing Intermediaries

Travel Agents Tour Wholesalers

Specialists:
Concierges
Brokers Reps

Hotel Representatives
Global Distribution
Systems
National, State,
and Local Tour Agencies

Consortia & Reservations

Systems
Marketing Intermediaries
 Marketing Intermediaries

• It is estimated that online booking accounts for about 57% of

all travel bookings worldwide in 2022, while the remaining
43% of bookings are made through traditional travel agencies,
call centers, or directly with airlines, hotels, and other travel
providers.
 Channel Behavior
• Channel members are dependent upon one another and must
work together for the channel to operate successfully

• Members should understand and accept their roles,

coordinate their goals and activities, and cooperate to attain
overall channel goals
 Channel Conflict

• Horizontal conflict is conflict between firms at the same level of the

channel (retailer to retailer) e.g. next slide
- KFC franchisees may complain about other KFC franchisees cheating on
ingredients and giving poor service, thereby hurting the overall KFC’s
image.
• Vertical conflict, which is more common, refers to conflicts between
different levels of the same channel (wholesaler to retailer)
• Burger king compulsory $ 1 burger cap for franchisees.
Channel Conflict Horizontal vs
Vertical
 Channel Organization
• A vertical marketing system (VMS) consists of producers,
wholesalers, and retailers acting as a unified system. Mc Donald's
drive through intercom outsourced.

• One channel member either owns the others, has contracts with
them, or wields so much power that they all cooperate. E.g. next
slide
Conventional vs. Vertical Marketing
Channels
 Vertical Marketing Systems
• Corporate VMS can exert tight control over
marketing activities due to ownership. a single
company controls multiple levels of the distribution
channel. Marriott International operates more than 30 hotel brands, including
Sheraton, Westin, W Hotels, and Ritz-Carlton

• Administered VMS coordinates successive stages of

production and distribution through the size and
power of the parties. where a dominant member of the
channel coordinates the activities of other members.
• National carriers control on travel agents or reservation systems (Iraqi Airways) or
Expedia or Booking.com, negotiate room rates and other services on behalf of the
hotels, and then sell them to consumers at a markup.
 Vertical Marketing Systems

• Contractual VMS consists of independent firms at

different levels of production and distribution who
join through contracts to obtain economies of scale. A
contract with a hotel representative (franchising)
Franchising
• Granting the right to engage in offering, selling, or
distributing goods or services under a marketing format
which is designed by the franchisor

• The franchisor permits the franchisee to use its

trademark, name, and advertising

• Startinga new business: a 20 percent chance for survival

• Buying an existing business: a 70 percent chance for survival
• Buying a franchise: a 90 percent chance for survival
 Disadvantages – Franchiser
• Distributionsystem – other systems can add conflict,
Subway going into malls cases conflict with other
Subway’s in the area.
• Consistency
• Changing operation
• Advertising expenditures
 Franchisee – Disadvantages
• Value of brand name determined by franchiser

• Introduction of new products determined by franchiser

• Your reliability tied to the rest of the system

A Franchise is Only as Strong as –

Brand Name

Franchise opportu
nities

Market demand for Competitive Advantage

the product system
 Channel Organization
• Alliances are developed to allow two organizations
to benefit from each other’s strengths. Hilton and Playa
Hotels & Resorts
• Horizontal marketing systems are two or more
companies at one level that join to follow a new
marketing opportunity. E.g.
 Channel Organization
• Multichannel marketing occurs when a single
firm sets up two or more marketing channels to
reach one or more customer segments
 Selecting Channel Members

• Customer Needs. Rotana hotel toll free number instead of US

contact with local KRG travel agent. E.g. MC Donald's drive thru

• Attracting Channel Members. Choosing the right Intermediaries to

represent you with expertise

• Evaluating Major Channel Alternatives

• Economic Feasibility of the Channel Member
• Control Criteria . Could be through franchise
 Responsibilities of Channel Members
and Suppliers
For instance:
Hotels make it clear to travel agents which rates are
commissionable and the amount of commission to be
paid, and they often guarantee to pay the
commission within a certain number of days.
 Business Location

1. Understand the marketing strategy and target market of

the company

2. Conduct a regional analysis, which involves the selection

of geographic market areas

3. Select an area within that region

4. Choose individual sites

5. Why do you think the business location is important from

a distribution perspective?
Franchise Case study
 Review questions

1. Discuss how you think technology will change

distribution channels in the hospitality channels
and travel industries over the next five years.
2. Explain the difference between a tour wholesaler
and a travel agent.
 Review questions

Answer: Technological progression over the next

five years will continue to reduce impact of
people such as travel agents, sales
representatives, etc., as more information and
reservation capabilities are shifted online,
especially through complex distribution systems
 Best Practices
• Expedia
• Orbitz
• Priceline
• Travelocity
• Trip
 Key Terms
• Administrative VMS

• Agent

• Alliances

• Broker
 Key Terms
• Channel conflict

• Channel level

• Contractual VMS

• Corporate VMS
 Key Terms
• Direct marketing channel

• Franchise organization

• Horizontal conflict

• Horizontal marketing systems (HMS)  

 Key Terms
• Multichannel marketing
• Retailer
• Vertical conflict
• Vertical marketing system (VMS)
• Wholesaler