Chapter 13 Distribution Channels What is a Distribution

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, 3 e 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, 3 e 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, 3 e 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 Assuming financial risks such as the inability to sell inventory at full margin Risk Taking Marketing for Hospitality and Tourism, 3 e 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 2 -level channel Producer Wholesaler 3 -level channel Producer Wholesaler Jobber Marketing for Hospitality and Tourism, 3 e Philip Kotler, John Bowen, James Makens © 2003 Pearson Education, Inc. Upper Saddle River, NJ 07458 5

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, 3 e 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, 3 e 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, 3 e Philip Kotler, John Bowen, James Makens © 2003 Pearson Education, Inc. Upper Saddle River, NJ 07458 8

POWER-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, 3 e 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, 3 e 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 Conventional marketing channel Retailer Consumer Marketing for Hospitality and Tourism, 3 e 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 Agreements Among Channel Members Administered Leadership is Assumed by One or a Few Dominant Members Marketing for Hospitality and Tourism, 3 e Philip Kotler, John Bowen, James Makens © 2003 Pearson Education, Inc. Upper Saddle River, NJ 07458 12

Franchising - Part of Vertical Marketing System Advantages-Franchiser n n % 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, 3 e Philip Kotler, John Bowen, James Makens © 2003 Pearson Education, Inc. Upper Saddle River, NJ 07458 13

Disadvantages-Franchiser n n 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, 3 e 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, 3 e Philip Kotler, John Bowen, James Makens Reservation systems. Customers © 2003 Pearson Education, Inc. Upper Saddle River, NJ 07458 15

Franchisee Disadvantages Value of brand name determined by franchiser n Introduction of new products determined by franchiser n Your reliability tied to the rest of the system n Marketing for Hospitality and Tourism, 3 e 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, 3 e 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, 3 e 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, 3 e 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, 3 e Philip Kotler, John Bowen, James Makens © 2003 Pearson Education, Inc. Upper Saddle River, NJ 07458 20