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
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 firms  Traditional off-line
 Consortia travel agents
 Incentive travel  Central reservation
organizations systems (CRS)
 Corporate travel  Internet channels
management  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.
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)
 Channels
Channels
Marriott.com, Starwood.com, hotel’s
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 Business
OTA 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 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