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 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 Agents Tour Wholesalers Concierges Specialists: Brokers & Junket Reps Internet Hotel Representatives Global Distribution Systems National, State, 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 Branded websites Passkey User groups 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 Brand.com Marriott.com, Starwood.com, hotel’s 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 Walk-in, group/rooming list, employee/discount, contract, Passkey Channels Copyright 2011 Smith Travel Research

OTA Business Models OTA Business Models Merchant Net rate, excludes commission Retail Includes commission, backed out afterwards Opaque Bidding method, brand not disclosed until after sale OTA Business Models Copyright 2011 Smith Travel Research

Major OTAs and Default Business Models Bookings.com retail Expedia merchant Hotels.com Hotwire opaque Orbitz Priceline Travelocity Travelweb 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 brands—brand 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.