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 Global distribution

services systems (GDS)
Representation Traditional off-line
firms travel agents
Consortia Central reservation
Incentive travel systems (CRS)
organizations Internet channels
Corporate travel Websites
management
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 Agents Tour Wholesalers

Specialists:
Concierges
Brokers & Junket Reps

Internet Hotel Representatives

Global Distribution National, State,

Systems and Local Tour Agencies

Consortia & Reservations

Systems

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
Channels
Marriott.com, Starwood.com, hotels
Brand.com own
web site

CRS/Voice 1-800-hiltons, 1-800ichotels, 3rd parties

Travel agents (Sabre, Galilieo, Amadeus,

GDS
Worldspan)

OTA Online travel agents

Property Walk-in, group/rooming list,

Direct/Other employee/discount, contract, Passkey

Copyright 2011 Smith Travel Research

 OTA
OTABusiness Models
Business Models

Merchant Net rate, excludes commission

Includes commission, backed out

Retail
afterwards

Bidding method, brand not disclosed

Opaque
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

Copyright 2011 Smith Travel Research

 Estimated Cost per channel excluding Brand
and Switch fees per transient reservation
Brand.com $2 - $5
$2-4/inquiry plus
CRS/Voice
$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, 4th 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.