Chapter 13 Distribution Channels

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing for Hospitality and Tourism, 4th edition Kotler, Bowen, and Makens

Adversarial power relationships work only if you never have to see or work with the other party again.
-Peter Drucker

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

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
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

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
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

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 or business user
Used to move the customer towards the product

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Why Use Marketing Intermediaries?

Selling through wholesalers and retailers usually is much more efficient and cost effective than direct sales

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Distribution Channel Functions

Information: gathering and distributing marketing research and intelligence information about the marketing environment
Promotion: developing and spreading persuasive communications about an offer
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Distribution Channel Functions

Contact: finding and communicating with prospective buyers Matching: shaping and fitting the offer to the buyers needs, including such activities as manufacturing, grading, assembling, and packaging
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Distribution Channel Functions

Negotiation: agreeing on price and other terms of the offer so that ownership or possession can be transferred
Physical distribution: transporting and storing goods

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Distribution Channel Functions

Financing: acquiring and using funds to cover the costs of channel work
Risk taking: assuming financial risks such as the inability to sell inventory at full margin

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Number of Channel Levels

Channel level can be described as distribution channels
Direct marketing channel Retailer

Wholesaler

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Customer Marketing Channels

Customer Marketing Channels

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Marketing Intermediaries
Travel Agents Tour Wholesalers Specialists Hotel Reps Concierges
National, State, and Local Agencies Consortia and Reservation Systems Global Distribution Systems Internet
Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Intermediaries
Travel Agents Tour Wholesalers

Concierges

Specialists: Brokers & Junket Reps Hotel Representatives

Internet

Global Distribution Systems

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

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

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
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Channel Conflict
Horizontal conflict is conflict between firms at the same level of the channel
i.e. retailer to retailer

Vertical conflict, which is more common, refers to conflicts between different levels of the same channel
i.e. retailer to wholesaler
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Channel Organization
A vertical marketing system (VMS) consists of producers, wholesalers, and retailers acting as a unified system
One channel member either owns the others, has contracts with them, or wields so much power that they all cooperate
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Conventional vs. Vertical Marketing Channels

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Vertical Marketing Systems

Corporate VMS combines successive stages of production and distribution under single ownership Administered VMS coordinates successive stages of production and distribution through the size and power of the parties Contractual VMS consists of independent firms at different levels of production and distribution who join through contracts to obtain economies or sales impact
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

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 Higher survival rates
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Disadvantages Franchiser

Distribution system other systems can add conflict, Little Caesars going into K-marts cases conflict with other Little Caesars in the area. Consistency Changing operation Pizza Hut adding delivery Advertising expenditures

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Franchisee Advantages
Brand Name Contracts Plans and Systems
Reservation systemsCustomers

Marketing Support

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

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

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

A Franchise is Only as Strong as

Brand Name

Market demand for the product

Competitive Advantage system

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Channel Organization
Alliances are developed to allow two organizations to benefit from each others strengths Horizontal marketing systems are two or more companies at one level that join to follow a new marketing opportunity Multichannel marketing occurs when a single firm sets up two or more marketing channels to reach one or more customer segments

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Selecting Channel Members

Customer Needs
Attracting Channel Members Evaluating Major Channel Alternatives
Economic Feasibility of the Channel Member Control Criteria
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

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
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Best Practices
Expedia Orbitz Priceline Travelocity Trip

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Key Terms
Administrative VMS
Agent Alliances Broker
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Key Terms
Channel conflict
Channel level Contractual VMS Corporate VMS
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

Key Terms
Direct marketing channel
Franchise organization Horizontal conflict Horizontal marketing systems (HMS)
2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens

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

2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Marketing Marketing for Hospitality for Hospitality and Tourism, and Tourism, 4th edition 4th edition Kotler, Kotler,Bowen, Bowen,and andMakens Makens