Chapter 12: Distribution Channels

1. Producing a product or service and making it available to buyers requires

building relationships not just with customers, but also with key suppliers and
resellers in the companys supply chain.
2. Upstream from the company is the set of firms that supply the raw materials,
components, parts, information, finances, and expertise needed to create a
product or service.
3. Downstream marketing channel partners, such as wholesalers and retailers,
form a vital connection between the firm and its customers.
4. A well-managed distribution system can make the difference between a
market-share leader and a company struggling for survival.
5. Competition, a global marketplace, electronic distribution techniques, and a
perishable product have increased the importance of distribution.
6. Globalization has meant that many hotel companies must choose foreign
partners to help them market or distribute their products.
7. 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.
8. Distribution networks in the hospitality industry consist of contractual
agreements and loosely organized alliances between independent
organizations.
9. In the hospitality and travel industries, distribution systems are used to move
the customer to the product: the hotel, restaurant, cruise ship, or airplane.
10.Selling through wholesalers and retailers usually is much more efficient than
direct sales.
11.A distribution channel moves goods from producers to consumers. It
overcomes the major time, place, and possession gaps that separate goods
and services from those who would use them.
12.Information: Gathering and distributing marketing research and intelligence
information about the marketing environment
13.Promotion: Developing and spreading persuasive communications about an
offer

14.Negotiation: Agreeing on price and other terms of the offer so that ownership
or possession can be transferred
15.Risk taking: Assuming financial risks such as the inability to sell inventory at
full margin
16.Shifting functions to the intermediary may keep producer costs and prices
low, but intermediaries must add a charge to cover the cost of their work. To
keep costs low, functions should be assigned to channel members who can
perform them most efficiently.
17.Each layer that performs some work in bringing the product and its ownership
closer to the final buyer is a channel level.
18.From the producers point of view, a greater number of intermediaries in the
channel means less control, more complexity, and more cost.
19.A manager must choose the intermediaries that will make up the distribution
system and the number of levels that the distribution system will have.
20.One way of reaching a geographically diverse marketplace is through travel
agents.
21.Hotels seeking travel agent business must make it easy for agents to make
reservations. Providing toll-free reservation numbers is essential.
22.Hotels must do everything possible to make a favorable impression on guests
booked through travel agents to ensure future business from that agent.
23.Corporate travel agents are one of the strongest areas of the travel agency
business.
24.In developing a package, a tour wholesaler contracts with airlines and hotels
for a specified number of seats and rooms, receiving a quantity discount.
25.The tour wholesaler has to provide a commission for the travel agent and
give consumers a package that is perceived to be a better value than what
they could arrange on their own.
26.With the increased number of international resorts, tour wholesalers are
becoming a powerful member of the distribution channel.
27.Tour brokers sell motor coach tours, which are attractive to a variety of
markets.
28.Motivational houses provide incentive travel offered to employees or
distributors as a reward for their efforts.

29.Junket reps serve the casino industry as intermediaries for premium players.
Junket reps maintain lists of gamblers who like to visit certain gaming areas,
such as Reno, Las Vegas, or Atlantic City, and they work with one or a few
casinos rather than the entire industry.
30.It is often more effective for hotels to hire a hotel representative than to use
their own salesperson. This is true when the market is a distant one and when
cultural differences may make it hard for an outsider to penetrate the market.
31.Frequent changes in hotel representatives are not cost efficient or cost
effective.
32.National, state, and local tourist agencies are an excellent way to get
information to the market and gain room bookings.
33.State agencies promote the state resources and attractions overseas,
nationally, and in the state itself.
34.Reservation systems provide a central reservation system for hotels. They
usually provide the system for small chains or provide an overseas
reservation service, allowing international guests to call a local number to
contact the hotel.
35.A consortium is a group of hospitality organizations that is allied for the
mutual benefit of the members.
36.The consortium allows a property to be independent in ownership and
management while gaining the advantages of group marketing.
37.The difference between a consortium and reservation company is that the
consortium provides a more comprehensive range of marketing services and
its members pay for these services with initial joining fees and annual fees.
38.Global distribution systems (GDSs) are computerized reservation systems
that serve as a product catalog for travel agents and other distributors of
hospitality products.
39.Internet reservations account for almost 40 percent of leisure and business
travel bookings.
40.Almost all hotel brand Web sites offer a low price guarantee. This encourages
guests to book directly with the hotel company, rather than through an
intermediary.

41.One model of distribution on the Internet is called the merchant model. In this
model distributors mark up discounted net-rate hotel rooms.
42.Priceline and Hotwire use an opaque system where the buyer cannot specify
any particular hotel or airline; thus, someone with a brand preference cannot
compare prices with specific hotels.
43.Persons who purchase from a third party on the Internet pay the third party.
44.Point of sale (POS) systems are now available that allow guests to make
reservations over the Internet and include when they want to pick up the
order.
45.One of the major advantages of the Internet is it saves labor. The Internet is
an excellent example of how service companies can get the customer to be
their employee.
46.Each channel member is dependent on the others, playing a role in the
channel and specializing in performing one or more functions.
47.Although channel members depend on each other, they often act alone in
their own short-run best interests. They frequently disagree on the roles each
should play or who should do what for which rewards. Such disagreements
over goals and roles generate channel conflict.
48.Horizontal conflict is conflict between firms at the same level of the channel.
49.Vertical conflict, which is more common, refers to conflicts between different
levels of the same channel.
50.Some conflict in the channel takes the form of healthy competition. Without
it, the channel could become passive and noninnovative.
51.Figure 12.3

52.By contrast, a vertical marketing system (VMS) consists of producers,

wholesalers, and retailers acting as a unified system. One channel member
owns the others, has contracts with them, or wields so much power that they
all cooperate.
53.In a corporate VMS, coordination and conflict management are attained
through common ownership at different levels in the channel.
54.A contractual VMS consists of independent firms at different levels of
production and distribution who join through contracts to obtain economies or
sales impact.
55.Franchising is a method of doing business by which a franchisee is granted
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.
56.One of the reasons for the popularity of franchising is that it is the safest way
to start a new business.
57.One of the reasons that companies decide to franchise is that it allows for
increased distribution of their products.
58.A variation of the traditional form of franchising is subfranchising. In this form
of franchising, the franchisor sells the right to distribute a franchise to a third
party, and this agent then sells to the franchisees.

59.Alliances, another form of contractual agreement, are developed to allow two

organizations to benefit from each others strengths.
60.Another channel development is horizontal marketing systems (HMS), in
which two or more companies at one level join to follow a new marketing
opportunity.
61.Today, with the proliferation of customer segments and channel possibilities,
more companies have adopted multichannel marketing distribution.
62.To design an effective channel, the company must understand the services its
customers require and then balance the needs of those customers against
the feasibility and costs of meeting them.
63.Just as a company carefully chooses its employees, it should carefully choose
channel members. These firms will represent the company and will be
partially responsible for the companys image.
64.Opportunity costs are created when we discount products, only to find out
that we could sell them for a higher price.
65.Using sales representatives offers less control than building your own sales
force.
66.One of the most important aspects of distribution for hospitality organizations
is location.