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Distribution Channels n A distribution channel - set of independent organizations involved in the Distribution Channels n A distribution channel - set of independent organizations involved in the process of making a product or service available to the consumer or business user n Used to move the customer towards the product or the product to the customer n Organic development of an industry

Place = Distribution n The 4 Ps q n Product, Price, Place, Promotion What Place = Distribution n The 4 Ps q n Product, Price, Place, Promotion What the “P” of Price is to Revenue Management, the “P” of Place is to Distribution

Distribution also describes n n Locations for hotel brand distribution q Franchising q Ownership Distribution also describes n n Locations for hotel brand distribution q Franchising q Ownership q Management contracts The sales staff and system q Group sales or volume accounts q Reservations and transient sales q National sales offices q Representation firms, consortia

Distribution Today “distribution” in the hospitality industry generally references transient sales today Revenue management 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 n n n Information: consumer behavior “search stage” Promotion: messaging Negotiation: Distribution Channel Functions n n n Information: consumer behavior “search stage” Promotion: messaging Negotiation: price and other terms q (how is this done online? Physical distribution: think e-tickets? Prospecting: finding, communicating, and tracking prospective buyers

Digitalization and Connectivity n Digitalization - converting text, data, sound, and image into a Digitalization and Connectivity n Digitalization - converting text, data, sound, and image into a stream of bits that can be dispatched at high speeds from one platform to another n Connectivity - building networks connecting people and companies; social and mobile convergence

Direct versus Indirect Channels n Direct Channels q q n Employed sales staff National Direct versus Indirect Channels n Direct Channels q q n Employed sales staff National sales staff Brand. com Voice/CRS/Mobile Indirect – Intermediaries q q Why use them? Why so many of them?

Getting the Customer to the Product n n n Reservation services Representation firms Consortia Getting the Customer to the Product n n n Reservation services Representation firms Consortia Incentive travel organizations Corporate travel management n n n Global distribution systems (GDS) Traditional off-line travel agents Central reservation systems (CRS) Internet channels Websites

Push vs. Pull strategies n Pushing the product “down” through the distribution channel TO Push vs. Pull strategies n Pushing the product “down” through the distribution channel TO the customer q n Incentives to travel agents and intermediaries Pulling the customer “up” through the distribution to the channel q Traditional media/private sales/CRM

Why Use Intermediaries? n History of travel n Selling through wholesalers and retailers usually Why Use Intermediaries? n History of travel n Selling through wholesalers and retailers usually is much more efficient and cost effective than direct sales n 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: Brokers & Junket Reps Concierges Hotel Representatives Marketing Intermediaries Travel Agents Tour Wholesalers Specialists: Brokers & Junket Reps Concierges 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 for Hospitality and Tourism, 4 th edition Kotler, Bowen, and Makens

E-Commerce & E-Marketing n E-commerce involves buying and selling processes supported by electronic means, E-Commerce & E-Marketing n E-commerce involves buying and selling processes supported by electronic means, primarily the Internet n E-marketing is company efforts to communicate about, promote, and sell products and other services over the Intranet; also web or Internet Marketing n Not easy to separate but different issues

E-Commerce Domains n n B 2 C (business to consumer) q Branded websites B E-Commerce Domains n n B 2 C (business to consumer) q Branded websites B 2 B (business to business) q Passkey C 2 B (consumer to business) q User groups C 2 C (consumer to consumer) q Blogs; review sites are blends of above

Internet Intermediaries n n History of the internet as a discount channel Price and Internet Intermediaries n n History of the internet as a discount channel Price and convenience key drivers still Dominance about inventory allocation Consistency of all 4 Ps by channel q How Product is described Pricing parity Channel profitability q Communication needs to vary by segment (channel) q q

THE GDS: 1970 s Look and Feel THE GDS: 1970 s Look and Feel

Complexities of Distribution Complexities of Distribution

Channels Brand. com Marriott. com, Starwood. com, hotel’s own web site CRS/Voice 1 -800 Channels Brand. com Marriott. com, Starwood. com, hotel’s own web site CRS/Voice 1 -800 -hiltons, 1 -800 ichotels, 3 rd parties GDS Travel agents (Sabre, Galilieo, Amadeus, Worldspan) OTA Online travel agents Property Direct/Other Copyright 2011 Smith Travel Research Walk-in, group/rooming list, employee/discount, contract, Passkey

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

Major OTAs and Default Business Models Bookings. com retail Expedia merchant Hotels. com merchant 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 Switch fees per transient reservation Brand. com $2 Estimated Cost per channel excluding Brand 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 n n Costs have risen as has competition Global differences in systems Major Issues/Challenges n n Costs have risen as has competition Global differences in systems q Technology also flattening this System hard to change and complex to manage q 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 n n n n Fragmented owner-manager relationships Capital costs for technology and Major Issues/Challenges n n n n 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 Mobile? Monetizing social media

Evaluation of Channels n n Control and cost of each channel Tracking of statistics Evaluation of Channels n n 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 n n Q: What is the definition of revenue Goal for hotels in distribution n n 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 n n n n Cullen, Kathleen and Caryl Helsel, Defining Revenue Management, Top References n n n n 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, 4 th Edition, Pearson, Upper Saddle River, NJ, 2006 Pricewaterhouse. Coopers, Hospitality Directions Europe Edition, Briefing Paper, November 2007 Electronic Design, The Cell Phone Simply Irresistible, January 12, 2006, p 90 -91. Pho. Cus. Wright, Inc, European Online Travel Overview, March 2006.