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Chapter 13
Distribution Channels
What is a Distribution Channel?
A set of interdependent organizations
(intermediaries) involved in the process of
making a product or service available for
use or consumption by the consumer or
business user.
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
1
Why are Marketing
Intermediaries Used?
• The use of intermediaries results from their greater
efficiency in making goods available to target markets.
• Offer the firm more than it can achieve on it’s own through
the intermediaries:
– Contacts,
– Experience,
– Specialization,
– Scale of operation.
• Purpose: match supply from producers to demand from
consumers.
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
2
Distribution Options
• Move customers to the service
• Move service to delivery system to customers
– Catering cooked on location
• Deliver tangible element of service to customers
– Pizza delivery
• Pick-up things on which service is to be performed
– Valet service in hotels
• Operate at arm’s length
– mail, telephone, computer, often use multiple
approaches
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
3
Distribution Channel Functions
Distribution
Channel
Key Function
Information
Gathering and distributing marketing
research about the environment
Promotion
Developing and spreading persuasive
communications about an offer
Contact
Finding and communicating with prospective
buyers
Matching
Shaping and fitting the offer to the buyer’s
need
Negotiation
Agreeing on price and terms of the offer so
ownership or possesion can be transfered
Physical
Distribution: transporting and storing goods
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
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
4
Number of Channel Levels
Channel Level - Each Layer of Marketing Intermediaries that Perform
Some Work in Bringing the Product and its Ownership Closer to the Final
Buyer.
0-level channel – Direct
Producer
Consumer
1-level channel
Producer
Retailer

Consumer
Retailer

Consumer
Retailer

Consumer
2-level channel
Producer
 Wholesaler
3-level channel
Producer
 Wholesaler
Jobber
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens

©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
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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
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
6
Internet
• The Internet is quickly becoming an
effective distribution channel.
– It never closes.
– It allows companies to tangibilize their
products and services.
– It reaches a broad geographic areas.
– It allows interaction with the guests.
– It saves labor.
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
7
Channel Behavior & Conflict
• The channel will be most effective when:
– each member is assigned tasks it can do best.
– all members cooperate to attain overall channel goals
and satisfy the target market.
• When this doesn’t happen, conflict occurs:
– Horizontal Conflict occurs among firms at the same
level of the channel, i.e retailer to retailer.
– Vertical Conflict occurs between different levels of the
same channel, i.e. wholesaler to retailer.
• For the channel to perform well, each channel member’s
role must be specified and conflict must be managed.
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
8
POWER-CONFLICT
CONFLICT-CAUSES
Giving a special deal to a larger channel member
Direct selling
Not servicing your products
-parts and technical advice
Adding new channels may cause conflict with existing channels
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
9
Causes of Channel Conflict
• Incompatibility
• Difference in
Perception
• Dependence
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
10
Conventional Distribution Channel vs.
Vertical Marketing Systems
Manufacturer
Vertical
marketing
channel
Manufacturer
Wholesaler
Wholesaler
Conventional
marketing
channel
Retailer
Retailer
Consumer
Consumer
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
11
Channel Organization
Types of Vertical Marketing Systems
Corporate
Common Ownership at Different
Levels of the Channel
Degree of
Direct
Control
Contractual
Contractual Agreements Among
Channel Members
Administered
Leadership is Assumed by One or
a Few Dominant Members
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
12
Franchising - Part of Vertical Marketing
System
Advantages-Franchiser




% of gross sales
Assume 15% net return on sale and 4% franchise fee
Four franchises return the same as one company
owned store
2% of gross sales for advertising, may be charges for
reservation system
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
13
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
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
14
Franchisee-Advantages
Marketing
Support
Brand Name
Contracts
Plans and
Systems
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
Reservation systemsCustomers
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
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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

Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
16
Franchise is Only as Strong
as-Brand Name
Market demand for
the product
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
Competitive Advantage
system
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
17
Channel Organization (cont’d)
• Horizontal Marketing Systems: two or
more companies at one level who join to
follow a new marketing opportunity.
• Multi-channel Systems: single firms that
set up two or more marketing channels
to reach one or more customer
segments.
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
18
Selecting Channel Members
• Customer needs
• Attracting channel members
• Evaluating major channel alternatives
1. Economic criteria
2. Control criteria
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
19
The Business Location
There are four steps in choosing a location.
A. Understanding the marketing strategy and target market of
the company.
B. Regional analysis involves the selection of geographic
market areas. A firm needs to make sure that a region has
sufficient and stable demand to support this firm.
C. Choosing the area within the region: Demographic,
psychographic characteristics and competition are factors
to consider.
D. In choosing the individual site, business will consider
several factors: Compatible businesses, Competition, and
Checklist, Statistical Analysis, or a combination of both.
Marketing for Hospitality and Tourism, 3e
Philip Kotler, John Bowen, James Makens
©2003 Pearson Education, Inc.
Upper Saddle River, NJ 07458
20