Adversarial power relationships work only if you never have to see or work with the other party agai

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(No Transcript)
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Adversarial power relationships work onlyif you
never have to see or work with the otherparty
again. PETER DRUCKER
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OBJECTIVES
After reading this chapter, you should be able to

• Describe the nature of distributionchannels, 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.
• Discuss channel behavior andorganization,
  explaining corporate, contractual, and vertical
  marketing systems, including franchising.

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OBJECTIVES
After reading this chapter, you should be able to

• Identify factors to consider when choosing a
  business location.

• Illustrate the channel management decisions of
  selecting, motivating, and evaluating channel
  members.

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Distribution Channels
Sunflower Travel

• Sunflower Travel of Wichita, and Belair/Empress
  Travel in Bowie, Maryland, typify the kind of
  business most threatened by new
  marketingchannels, particularly the surge in
  Internet selling.
• they face some scary new-age competitors
• In recent years, they have seen online
  competitors, ranging from Expedia, Travelocity,
  Priceline, and Orbitz to newcomers like Trip.com.
• To make matters worse, airlines now sell more
  than half of their own tickets online and no
  longer pay travel agencies commissions on ticket
  sales.

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Distribution Channels
Sunflower Travel

• Hotels are also aggressively promoting booking on
  their Web sites to avoid paying 10 commissions
  to travel agents.
• Travel ranks as the number-one product sold
  overthe Internet.
• these new channels give customers more choices,
  and threaten the very existence of many travel
  agencies
• During the 1990s, the number of US travel agents
  dropped by 18, and some studies suggest another
  25 will go out of business in the next few
  years.
• this is a worldwide trend

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Distribution Channels
Sunflower Travel

• In the UK, leisure travelers booking through
  travel agents has dropped by 12 over the last
  three years.
• the number of travel agent members of the
  Associationof British Travel Agents (ABTA)
  dropped 14
• There is a fancy word to describe this
  phenomenon disintermediation, the elimination of
  a layer of intermediaries from a marketing
  channel.
• Disintermediation includes not only elimination
  of channel levels through direct marketing but
  also the displacement of traditional sellers by
  radically new types of intermediaries.

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Distribution Channels
Sunflower Travel

• Disintermediation works only when a new channel
  form brings greater value to consumers.
• success of Internet-based travel distributors
  suggeststhey are bringing value to the customer
• To survive, travel agents will have to counter
  lower prices offered by Internet distribution
  with another form of value personal service.
• Sunflower Travel has added a number of
  value-added products, including adventure and
  active travel such as white-water rafting,
  safaris, houseboat rental, and trips to remote
  fishing lodges.

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Distribution Channels
Sunflower Travel

• Many consumers are likely to seek the advice of
  an expert when purchasing these travel products.
• Travel agents that add personalized service and
  unique or customized products will be able to
  survive disintermediation.

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Supply Chains and the Value Delivery Network
Introduction

• Producing a product or service making it
  available to buyers requires building
  relationships with key suppliers resellers in
  the companys supply chain.
• the upstream and downstream partners
• Upstream from the company are firms that supply
  raw materials, components, parts, information,
  finances, and expertise.
• Downstream marketing channel partners, such as
  wholesalers and retailers, form a vital
  connection between the firm and its customers.
• marketers have traditionally focused on the
  downstream

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Supply Chains and the Value Delivery Network
Description

• Both upstream downstream partners may also be
  part of other firms supply chains.
• it is the unique design of each companys supply
  chainthat enables it to deliver superior value
  to customers
• An individual firms success depends not only on
  how well it performs, but on how well supply
  chain marketing channels compete with
  competitors.
• The term supply chain may be too limited
• a better term is a value delivery network of the
  company, suppliers, distributors customers who
  partner with each other to improve performance
  of the entire system

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Nature and Importance of Distribution Systems
Description

• If properties are the heart of a hotel company,
  distribution systems are the circulatory system.
• distribution systems provide a steady flow of
  customers
• A well-managed distribution system can make the
  difference between a market-share leader and a
  company struggling for survival.
• Competition, a global marketplace, electronic
  distribution techniques, and a perishable product
  have increased the importance of distribution.
• it isn't enough to count on a central
  reservations system your own sales force

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Nature and Importance of Distribution Systems
Description

• Globalization has meant that many hotel companies
  must choose foreign partners to help them market
  or distribute their products.
• New electronic distribution methods have resulted
  in the growth of international reservation
  systems.
• The importance of distribution has increased
  because hospitality products are perishable.

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Nature of Distribution Channels
Introduction

• A distribution channel is a set of independent
  organizations involved in making a product or
  service available to the consumer or business
  user.
• development of a distribution system starts with
  the selection of channel members
• Distribution networks in the hospitality industry
  consist of contractual agreements alliances
  between independent organizations.
• In the hospitality travel industries,
  distribution systems move the customer to the
  product
• the hotel, restaurant, cruise ship, or airplane

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Nature of Distribution Channels
Why Are Marketing Intermediaries Used?

• Why does Shenago China sell its chinaware to
  restaurants through an intermediary?
• While doing so means giving up control over
  pricing the products, Shenago does gain
  advantages from selling through an intermediary.
• the company does not have to maintain several
  display rooms and a large sales force in every
  major city
• Selling through wholesalers and retailers usually
  is much more efficient than direct sales.
• figure 121 shows one way that intermediaries can
  provide economies

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Nature of Distribution Channels
Why Are Marketing Intermediaries Used?
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Nature of Distribution Channels
Distribution Channel Functions

• A distribution channel moves goods from producers
  to consumers.
• overcoming time, place possession gaps
  separating goods and services from those who
  would use them
• Members of the marketing channel perform many key
  functions
• Information - gathering distributing marketing
  research and intelligence information about the
  marketing environment.
• Promotion - developing and spreading persuasive
  communications about an offer.

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Nature of Distribution Channels
Distribution Channel Functions

• Contact - finding communicating with buyers.
• Matching -shaping fitting the offer, including
  manufacturing, grading, assembling packaging.
• Negotiation - agreeing on price other terms so
  that ownership or possession can be transferred.
• Physical distribution - transporting storing
  goods.
• Financing - acquiring using funds to cover the
  costs of channel work.
• Risk taking - assuming financial risks such as
  the inability to sell inventory at full margin.

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Nature of Distribution Channels
Distribution Channel Functions

• The first five functions help complete
  transactions, the last three help fulfill the
  completed transactions.
• All these functions have three things in common
• they use scarce resources
• they can often be performed better through
  specialization
• they can be shifted among channel members
• 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.
• functions should be assigned to channel members
  who can perform them most efficiently

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Nature of Distribution Channels
Number of Channel Levels

• Distribution channels can be described by the
  number of channel levels.
• each layer that performs some work in bringing
  the product closer to the final buyer is a
  channel level
• Because the producer and the final consumer both
  perform some work, they are part of every
  channel.
• the number of intermediary levels show the length
  of a channel
• Fig. 122 shows several consumer distribution
  channels.

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Nature of Distribution Channels
Number of Channel Levels
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Nature of Distribution Channels
Number of Channel Levels

• Channel 1 - called a direct marketing channel,
  has no intermediary level.
• it consists of a manufacturer selling directly to
  consumers
• Channel 2 - contains one level, in
  consumermarkets, this level is typically a
  retailer.
• Channel 3 - contains two levels, typically a
  wholesaler a retailer.
• this type of channel is used by smaller
  manufacturers
• Channel 4 - three levels.
• the jobber buys from wholesalers and sells to
  smallerfirms that are not served by larger
  wholesalers

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Nature of Distribution Channels
Number of Channel Levels

• A greater number of intermediaries in the channel
  means less control, more complexity, and more
  cost.
• All institutions in the channel are connected by
  several types of flows

• physical flow of products
• flow of ownership
• payment flow
• information flow
• promotion flow

• These flows can make channels with only one or a
  few channels very complex.

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Nature of Distribution Channels
Number of Channel Levels

• Many specialized channels are available to
  hospitality and travel organizations.

• travel agents tour wholesalers specialists
• hotel representatives concierges
• national, state, and local tourist agencies
• consortia and reservation systems
• global distribution systems
• the Internet

• A manager must choose the intermediaries that
  will make up the distribution system.
• and the number of levels the distribution system
  will have

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Marketing Intermediaries
Travel Agents

• One way of reaching a geographically diverse
  marketplace is through travel agents.
• In addition to selling airline tickets, travel
  agents book hotel sales, and nearly all cruise
  travel.
• hotels typically pay 10 commission to travel
  agents
• cruise lines can pay up to 15
• Hotels seeking travel agent business must make it
  easy for agents to make reservations.
• a toll-free reservation numbers is essential
• hotels generating many bookings from travel
  agentshave a separate number dedicated to
  business travel

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Marketing Intermediaries
Travel Agents

• Hospitality providers who serve travel agents
  must remember that agents entrust the hotel with
  their customers.
• they must do everything possible to make a
  favorable impression to ensure future business
  from that agent
• When business is obtained through an
  intermediary, the hospitality provider has two
  customers
• the guest and the intermediary
• The majority of cruise lines do not sell directly
  to the ultimate consumer but insist that bookings
  be made through travel agents or tour operators.

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Marketing Intermediaries
Travel Agents

• Corporate travel agents are one of the strongest
  areas of the travel agency business.
• US corporations spend over 150 billion on travel
• Many organizations sign an exclusive agreement
  with one travel agency, and employees are
  required to book through this firm.
• The travel agency assumes responsibility for
  locating the least expensive travel
  alternativesfor the company.

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Marketing Intermediaries
Tour Wholesalers

• Tour wholesalers assemble travel packages usually
  targeted at the leisure market.
• In developing a package, a tour wholesaler
  contracts with airlines and hotels for a
  specified number of seats and rooms, receiving a
  quantity discount.
• retail travel agents sell these packages
• The wholesaler has to provide a commission for
  the travel agent give consumers a package
  perceived as a better value than they could
  arrange themselves.
• plus make a profit for themselves, and the margin
  on each package is small

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Marketing Intermediaries
Tour Wholesalers

• Generally, wholesalers must sell 85 of packages
  available to break even.
• this high break-even point leaves little room for
  error, it is not uncommon for a tour
  wholesaler to go broke
• It is important to check the history of the tour
  operator, receive a deposit get paid promptly.
• additional security is provided by dealing with
  membersof the U.S. Tour Operators Association
  (USTOA)
• With the increased number of international
  resorts, tour wholesalers are becoming a powerful
  member of the distribution channel.

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Marketing Intermediaries
Tour Brokers, Motivational Houses Junket Reps

• Tour brokers sell motor coach tours, which are
  attractive to a variety of markets.
• Some motor coach tours are seasonal, some
  arebased on one event, and others are year
  round.
• for hotels on their routes, motor coach tours can
  providean important source of income
• Motivational houses provide incentive travel
  offered to employees or distributors as a reward.
  
• the incentive trip is usually to a resort area
  and includes first-class or luxury properties

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Marketing Intermediaries
Tour Brokers, Motivational Houses Junket Reps

• Junket reps serve the casinos as intermediaries
  for premium players.
• They are paid a commission on the amount the
  casino earns from the players or in some cases on
  a per player basis.
• Members of a junket receive complimentary or
  low-cost hospitality services, including air
  transportation, ground transportation, hotel
  lodging, food and beverage, and entertainment.
• the amount of complimentary services received
  dependson the amount players gamble in the casino

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Marketing Intermediaries
Hotel Representatives

• Hotel representatives sell hotel rooms and hotel
  services in a given market area.
• they receive straight commission, a commission
  plusa salary, or a combination of both
• It is often more effective for hotels to hire a
  hotel representative than to use their own
  salesperson.
• true when the market is distant one cultural
  differences may make it hard for an outsider to
  penetrate the market
• The choice of a hotel rep should not be taken
  lightly.
• frequent changes in hotel representatives are not
  cost efficient or cost effective

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Marketing Intermediaries
National, State and Local Tourist Agencies

• National, state local agencies are a great way
  to get information to the market and gain room
  bookings.
• National associations promote tourism within
  their own countries.
• State agencies promote the state resources and
  attractions overseas, nationally in the state
  itself.
• state agencies usually have visitor information
  centers located throughout the state, often at
  entrance points
• Regional associations can also help the
  independent and chain operators.

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Marketing Intermediaries
Consortia and Reservation Systems

• Reservation systems provide a central reservation
  system for hotels, and usually provide the
  systemfor small chains or provide an overseas
  reservation service, allowing international
  guests to call a local number to contact the
  hotel.
• A consortium is a group of hospitality
  organizations that is allied for the mutual
  benefit of the members.
• the consortium allows a property to be
  independent in ownership management while
  gaining the advantagesof group marketing
• Marketing is often the reason consortia are
  formed.

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Marketing Intermediaries
Global Distribution Systems

• Global distribution systems (GDSs) are
  computerized reservation systems serving as a
  product catalog for travel agents other
  hospitality product distributors.
• Originally developed by the airlines to promote
  sales, before the Internet, GDSs offered a way
  for suppliers and end users to connect globally.
• A distribution service provider provides the
  connection between a hotels CRS and the GDS.
• There are four main GDSs
• Amadeus, Galileo, Sabre, and Worldspan

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Marketing Intermediaries
Internet

• Major hotel chains such as Hilton and Marriott
  book millions of dollars worth of rooms over the
  Web.
• Hilton books over 3.5 billion in hotel rooms per
  year, 80 through its own web sites
• Internet reservations account for almost 40 of
  leisure a business travel bookings.
• group meeting planning revenue booked over the
  Internet has already exceeded 40
• Almost all hotel brand web sites offer a low
  price guarantee, encouraging guests to book
  directly.
• rather than through an intermediary

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Marketing Intermediaries
Internet

• One model of distribution on the Internet is
  called the merchant model, where distributors
  mark up discounted net-rate hotel rooms.
• the distributor makes the difference between the
  net rate and the selling price of the room
• Initially, managers saw this model as a channel
  that would sell off their extra rooms
• performing a function similar to wholesalers
• Internet distributors simply sold the rooms
  online in direct competition and often cheaper
  than rooms for sale on the hotels web site.

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Marketing Intermediaries
Internet

• Hotel companies have now taken action to gain
  pricing control over their products.
• many now guarantee the lowest prices for their
  roomswill be available on their Web sites
• Priceline Hotwire use an opaque system
  wherethe buyer cannot specify a particular hotel
  or airline.
• those with a brand preference cannot compare
  priceswith specific hotels
• Persons who purchase from a third party on the
  Internet pay the third party.

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Marketing Intermediaries
Internet

• Merchant model, opaque sites, as well as online
  travel agents all offer alternatives for sellers.
  
• The least costly channel for the distribution of
  hotel rooms is the direct channel over the
  Internet
• that is why hotel brands have placed emphasis on
  their own Web sites, offering low-price
  guarantees
• Restaurant companies are also using the Internet
  as a distribution channel. Pizza Hut and Dominos
  have online ordering systems.
• Olive Garden has its menu online and encourages
  the customer to call the restaurant and preorder
  the food

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Marketing Intermediaries
Internet

• Technology is changing how we order in casual and
  quick-service restaurants.
• 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.
• based on how busy the restaurant is, the POS will
  time the placing of the order so it is ready when
  the guest arrives
• Some of the advantages of the Internet are that
  it never closes, it is open twenty-four hours a
  day, seven days a week, has worldwide coverage,
  andcan transmit color pictures.

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Marketing Intermediaries
Internet

• By using a menu, web sites can provide a lot of
  information while enabling users to quickly
  access information of interest.
• Visitors to an Internet site have the ability to
  print hard copies of information provided on the
  site.
• A 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
• When making reservations or purchasing products
  online, the customer is acting as a reservation
  agent.

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Marketing Intermediaries
All-Inclusive Resorts

• A growing number of vacationers wish to simplify
  their vacation travel and to receive excellent
  value.
• usually they use a independent Internet brokers
• Many of these are highly reputable and may be
  tour operators or travel agents, but a few have
  shownthat the buyer must exercise extreme
  caution.
• promises dont always materialize, overbookings
  or cancellations occur, and the property itself
  may attemptto bait and switch unwary buyers
• Still, the Internet all-inclusive resorts
  appear to be a great partnership with a bright
  future.

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Marketing Intermediaries
Concierges

• Concierges, bell staff desk employees can be
  good sources of business for local hospitality
  products.
• Restaurants wishing to cultivate a relationship
  with concierges usually invite them to experience
  the restaurant firsthand.
• The restaurant should also supply the hotel with
  menus to show guests asking about the restaurant
• and instruct staff on how to handle calls from a
  concierge
• When such requests do come, the person answering
  the phone at the restaurant should be courteous
  and understand the situation.

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Channel Behavior and the Organization
Channel Behavior

• Distribution channels are complex behavioral
  systems in which people and companies interactto
  accomplish goals.
• Some channel systems consist of formal
  interactions among loosely organized firms.
• others consist of formal interactions guided by
  strong organizational structures
• Channel systems do not stand still, and new types
  surface and new channel systems evolve.

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Channel Behavior and the Organization
Channel Behavior

• A distribution system consists of dissimilar
  firms that have banded together for their common
  good.
• each member is dependent on the others,
  specializingin performing one or more functions
• Because the success of individual channel members
  depends on general channel success, all channel
  firms should work together.
• Individual channel members rarely take such a
  broad view, and are usually more concerned with
  their own short-run goals and dealings with the
  firms operating closest to them in the channel.

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Channel Behavior and the Organization
Channel Behavior

• Horizontal conflict is conflict between firms at
  the same level of the channel.
• Vertical conflict, more common, refers to
  conflicts between different levels of the same
  channel.
• Managers must give careful thought to the choice
  of distribution channels as it can have long-term
  effects.
• and must work to resolve conflicts within the
  distribution channel when they do occur
• Some conflict in the channel is healthy
  competition.
• without it, the channel could become passive
  noninnovative

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Channel Behavior and the Organization
Channel Behavior

• In a large company, formal organizational
  structure assigns roles and provides needed
  leadership.
• in a distribution channel made up of independent
  firms, leadership and power are not formally set
• Traditionally, distribution channels have lacked
  the leadership needed to assign roles manage
  conflict.
• Historically, distribution channels have been
  loose collections of independent companies, each
  showing little concern for overall channel
  performance.
• in recent years, new types of organizations have
  appeared to provide stronger leadership and
  improved performance

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Channel Behavior and the Organization
Channel Organization - Conventional

• A conventional distribution channel consists of
  one or more independent producers, wholesalers,
  and retailers.
• Each is a separate business seeking to maximize
  its profits, even at the expense of profits for
  the system as a whole.
• No channel member has much control over the other
  members, and no formal means exist for assigning
  roles and resolving channel conflict.

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Channel Behavior and the Organization
Growth of Vertical Marketing Systems

• One of the biggest recent channel
  developmentshas been the vertical marketing
  systems thathave emerged to challenge
  conventional marketing systems.
• contrasted here arethe two types ofchannel
  arrangements

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Channel Behavior and the Organization
Channel Organization - Vertical

• A vertical marketing system (VMS) is producers,
  wholesalers, and retailers acting as a unified
  system.
• one channel member owns the others, has contracts
  with them, or wields so much power they cooperate
• The VMS can be dominated by the producer,
  wholesaler, or retailer, and were originally
  developed to control channel behavior manage
  conflict.
• a major benefit is economies through size,
  bargaining power elimination of duplicated
  services
• VMSs have become dominant in consumer marketing,
  serving as much as 64 of the market.

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Channel Behavior and the Organization
Channel Organization - Vertical

• A corporate VMS combines successive stages of
  production and distribution under single
  ownership
• coordination conflict management are attained
  through common ownership at different levels in
  the channel
• In an administered VMS, leadership is assumed by
  one or a few dominant channel members.
• airlines have been affected by administered
  VMSssince the birth of the industry
• A contractual VMS joins independent firms through
  contracts to obtain economies or sales impact.
• an important form of contractual VMS is
  franchising

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Channel Behavior and the Organization
Franchising

• 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 designed by the
  franchisor.
• Franchising has been the fastest growing
  retailing form in recent years.
• franchised hotels account for more than 65 of
  the existing US hotel-room supply
• A reason for the popularity of franchising is
  that it is the safest way to start a new business.

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Channel Behavior and the Organization
Franchising

• For the right to use the name, methods of
  operation, and other benefits that come with a
  franchise, the franchisee pays an initial fee, a
  royalty, and a marketing fee to the franchise
  organization.
• in the case of hotels, a fee for use of the
  central reservation system is also charged
• Initial fee royalty depend on the brand equity
  of the franchise, and the stronger the market
  position, the more valuable the brand name.
• a McDonalds franchise offers more value than a
  Mr. Quick franchise

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Channel Behavior and the Organization
Franchising

• Advantages of the franchise to the franchisee

• recognition of brand less chance of a business
  failure
• national advertising, premade advertisements, and
  marketing plans
• faster business growth
• help with site selection architectural plans
• operational systems, software manual to support
  the systems
• national contracts with suppliers
• product development consulting
• help with financing

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Channel Behavior and the Organization
Franchising

• Disadvantages of purchasing a franchise

• fees and royalties are required
• it limits the products sold and the recipes used
• the franchisee is often required to be open a
  minimum number of hours and offer certain
  products
• a poorly operated company can affect the
  reputation of the entire chain
• the franchisors performance affects the
  profitability of franchisees
• some franchisees may not benefit from
  nationaladvertising as much as other
  franchiseesoften asource of conflict

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Channel Behavior and the Organization
Franchising

• A reason companies decide to franchise is that it
  allows for increased distribution of their
  products.
• the franchisees money expands the business while
  the franchisor collects an initial fee and
  royalties
• Franchising is not effective for all companies.
• the company must be able to offer operational
  systems, management support, and a good business
  concept
• For new businesses it requires time and money to
  provide a good franchisee package.
• smaller chains often franchise to people who are
  close to the business

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Channel Behavior and the Organization
Franchising

• Advantages of franchising for the franchisor are

• receives a percentage of gross sales
• expands brand
• gets support for national advertising campaign
• is able to negotiate support for national
  contracts with suppliers

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Channel Behavior and the Organization
Franchising

• Disadvantages of a franchise for a franchisor are

• limits on other options of expanding distribution
• franchisees must be monitored to ensure product
  consistency
• limited ability to require franchisees to change
  operations
• franchisees want and need to have an active role
  in decision making

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Channel Behavior and the Organization
Subfranchising

• A variation of the traditional form is
  subfranchising.
• the franchisor sells the right to distribute a
  franchise to a third party, and this agent then
  sells to the franchisees
• The subfranchisor receives payment from
  franchises it has sold and passes a portion of
  these fees to the franchisor and retains the
  rest.
• the subfranchisor also provides management
  support for their franchisees
• One researcher estimates 31 of quick-service
  restaurants 37 of family restaurants use
  subfranchise contracts.

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See this feature on page 346 of your textbook.
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Channel Behavior and the Organization
Alliances

• Alliances, another form of contractual agreement,
  are developed to allow two organizations to
  benefit from each others strengths.
• Restaurants are expanding their locations through
  alliances with hotel chains, providing the
  restaurant with a good location and access to the
  hotels guests
• the hotel gains the value of the restaurant brand
  name
• Many resorts have food courts similar to those in
  the malls, featuring branded fast-food outlets.
• use of branded restaurants is creating
  opportunities for restaurants to expand their
  distribution

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Channel Behavior and the Organization
Alliances

• Alliances by two or more noncompeting firms are a
  popular and effective way of expanding markets.
• restaurants are developing alliances with
  convenience stores and hotel properties to
  distribute their products
• Airlines are developing alliances to access
  customers in other parts of the world and to
  provide their customers with new destination
  opportunities.
• The National Motor Coach Network, a marketing
  consortium of motor coach operators, has
  developed a partner program to bring charter
  business to preferred hotels.

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Channel Behavior and the Organization
Growth of Horizontal Marketing Systems

• In horizontal marketing systems (HMS), two
  ormore companies at one level join to follow a
  new marketing opportunity.
• Working together, companies can combine capital,
  production capabilities, or marketing resources
  to accomplish more than one company can alone
• such symbiotic marketing arrangements have
  increased in number in recent years, and the end
  is nowhere in sight

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Channel Behavior and the Organization
Growth of Multichannel Marketing Systems

• Today, with the proliferation of customer
  segments and channel possibilities, more
  companies have adopted multichannel marketing
  distribution.
• this occurs when a single firm sets up two or
  more channels to reach one or more customer
  segments
• The multichannel marketer gains sales with each
  new channel but also risks offending existing
  channels.
• existing channels can threaten to drop the
  marketerunless it limits competition or repays
  them some way
• Franchisees have brought suit against franchisors
  that developed competing operations in their
  market area.

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Selecting Channel Members
Introduction

• Selecting channel members involves a number of
  factors

• customer needs
• the companys ability to attract channel members
• the economic feasibility of the channel member
• control that might be given up to gain a channel
  member

• Food service distributors used to be confined to
  selling to all types of sit-down restaurants.
• from college cafeterias fast-food to exquisite
  dining
• Today, these companies serve a relatively new
  food service outlet known as convenience stores.

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Selecting Channel Members
Customer Needs

• Selecting channel members starts with determining
  services consumers in various target segments
  want.
• To design an effective channel, the company must
  understand the services its customers require
• and then balance the needs of those customers
  againstthe feasibility and costs of meeting them

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Selecting Channel Members
Attracting Channel Members

• Companies vary in their ability to attract
  qualified intermediaries.
• Well-known hotel companies with a reputation for
  paying commissions promptly and honoring the
  reservations of travel agents have no trouble
  gaining the support of intermediaries.
• A new hotel chain with only a few hotels will
  have difficulty getting most of the countrys
  travel intermediaries firm to sell its chain.
• it would be wiser for the new chain to choose one
  to work with in key cities that are likely to
  generate business

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Selecting Channel Members
Attracting Channel Members

• When contracting with a hotel sales
  representative, the hotel company should
  investigate the number and type of other hotels
  that the firm represents.
• It will also want to investigate the size and
  quality of its workforce.
• 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.

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Selecting Channel Members
Evaluating Major Channel Alternatives

• The business that channel members bring must
  offset costs of paying and supporting the channel
  member.
• Each channel produces different levels of sales
  costs, measured two ways
• directly by opportunity costs
• Another direct cost of working with
  intermediariesis the support they will need from
  the company.
• brochures other collateral material, training,
  familiarization trips regular communication
• A company should limit the size of their
  distribution system to one that they are able to
  support.

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Selecting Channel Members
Evaluating Major Channel Alternatives

• An opportunity cost is created when we sell a
  product for a lower price than its market value.
• as when we discount products, only to find out
  that we could sell them for a higher price
• A company must regularly evaluate the performance
  of its intermediaries, for as business changes,
  the value of an intermediary may change.
• The intermediary may not perform as expected, in
  which case the company must work to try to bring
  about the desired performance or eliminate the
  intermediary if it becomes unprofitable.

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Selecting Channel Members
Control Criteria

• Using sales representatives offers less control
  than building your own sales force.
• Sales representatives may prefer to sell rooms in
  other hotels because it requires less effort.
• They may avoid smaller customers, preferring to
  call on larger companies who can use most of the
  hotels they represent.
• This points out the importance of having data
  that show the degree of profit or loss from
  different customer groups and from all
  intermediaries.

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Selecting Channel Members
Control Criteria

• In the absence of the information,
  marketing/sales managers are forced to make
  decisions based on the assumptions or guesses or
  personal preferences.
• it may be necessary for the marketing department
  tohire its own analyst to provide this vital
  information
• Control is also an important consideration in
  franchising and choosing multiple channel
  members.
• a problem with franchising is that a company
  sacrifices some control to gain wider
  distribution
• some companies have problems getting franchisees
  tomeet quality control standards

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Responsibilities of Channel Members and Suppliers
Introduction

• The company and its intermediaries must agree on
  the terms responsibilities of each channel
  member.
• Hotels make it clear to travel agents which rates
  are commissionable, the amount of commission, and
  often guarantee to pay in a certain number of
  days.
• to avoid disputes, it is important to have an
  explicit arrangement in writing with channel
  members
• After the selection of the channel members, a
  company must continuously motivate its members.
• just as a firm must market to its employees, it
  must also market to its intermediaries

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Business Location
Introduction

• Many retailers say the three secrets of
  successful retailing are location, location, and
  location.
• One of the most important aspects of distribution
  for hospitality organizations is location.
• for businesses whose customers come to them, the
  business must be conveniently located
• Hotel sites are evaluated on attractiveness of
  their location to persons coming to that
  destination.
• each firm has its own set of location evaluation
  characteristics
• In general, there are four steps in choosing a
  location.

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Business Location
Selection Steps

• The first step is understanding the marketing
  strategy and target market of the company.
• The second step is regional analysis, which
  involves the selection of geographic market
  areas.
• The next step is to select an area within that
  region.
• Finally, the firm will choose individual sites.
• A restaurant or hotel will look for potential
  demand generators, which vary depending on target
  markets.
• In addition, a firm also looks at competitors.
• Site evaluation also includes reviewing
  accessibility.

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Business Location
Selection Steps

• Site choice is often determined by a checklist,
  statistical analysis, or a combination of both.
• a checklist usually contains items such as those
  listed in the profile and specific building
  requirements
• A common type of statistical analysis used in
  site selection is regression analysis.
• the dependent variable in the equation is sales,
  and the independent variables are factors that
  contribute to sales
• The location must not only be favorable at the
  present time but also must continue to be good
  throughout the life of the business.

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KEY TERMS

• Administered VMS. A vertical marketing system
  that coordinates successive stages of production
  and distribution, not through common ownership or
  contractual ties, but through the size and
  powerof one of the parties.
• Agent. A wholesaler who represents buyers or
  sellers on a more permanent basis, performs
  onlya few functions, and does not take title to
  goods.
• Alliances. Alliances are developed to allow two
  organizations to benefit from each others
  strengths

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KEY TERMS

• Broker. A wholesaler who does not take title to
  goods and whose function is to bring buyers and
  sellers together and assist in negotiations.
• Channel conflict. Disagreement among marketing
  channel members on goals and roleswho should do
  what and for what rewards.
• Channel level. A level of middleman that performs
  some work in bringing the product and its
  ownership closer to the final buyer.

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KEY TERMS

• Contractual VMS. A vertical marketing system in
  which independent firms at different levels of
  production and distribution join together through
  contracts to obtain more economies or sales
  impact than they could achieve alone.
• Corporate VMS. A vertical marketing system that
  combines successive stages of production and
  distribution under single ownership. Channel
  leadership is established through common
  ownership.

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KEY TERMS

• Direct marketing channel. A marketing channel
  that has no intermediary levels.
• Franchise. A contractual vertical marketing
  system in which a channel member called a
  franchiser links several stages in the production
  distribution process
• Horizontal conflict. Conflict between firms at
  the same level.

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KEY TERMS

• Horizontal marketing systems (HMS). Two or more
  companies at one level join to follow new
  marketing opportunities.
• Multichannel marketing. Multichannel
  distribution, as when a single firm sets up two
  or more marketing channels to reach one or more
  customer segments.
• Retailer. Business whose sales come primarily
  from retailing.
• Vertical conflict. Conflict between different
  levels of the same channel.

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KEY TERMS

• Vertical marketing system (VMS). A distribution
  channel structure in which producers,
  wholesalers, and retailers act as a unified
  system.
• Wholesaler. Firms engaged primarily in
  wholesaling activity.

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EXPERIENTIAL EXERCISES
Try One !

• Visit a restaurant that offers takeout service.
  What have they done to facilitate takeout
  service?
• do they have a special order pickup area?
• do they accept phone, fax or Internet orders?
• paper menus to take home special packaging for
  takeout?
• Report on what you find and any suggestionsthat
  you might have.

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EXPERIENTIAL EXERCISES
Try One !

• Investigate franchises available in the
  hospitality or travel business.
• Select a franchise you feel would be a good
  business investment based on what the franchise
  offers and the fees the franchiser charges.
• support your findings in a two to three page
  report

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INTERNET EXERCISES
Try This !

• Support for this exercise can be found on the
  Web site for Marketing for Hospitality and
  Tourism, www.prenhall.com/kotler

• Find a hospitality or travel company that allows
  customers to make reservations directly
  throughtheir Web site.
• Who do you think will make reservations through
  this site, and do you think the design of the
  site is effective?
• explain your answer

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END
CHAPTER END