Chapter 12

Distribution Channels

Chapter 12

Kotler, Bowen and Makens

Marketing for Hospitality and Tourism

Marketing for Hospitality and Tourism, 6eKotler, Bowen and Makens

© 2014 by Pearson Higher Education, IncUpper Saddle River, New Jersey 07458 • All Rights Reserved

Learning Objectives1. Describe the nature of distribution channels, and tell

why marketing intermediaries are used.

2. Understand the different marketing intermediaries available to the hospitality industry and the benefits each of these intermediaries’ offers.

3. Discuss channel behavior and organization, explaining corporate, contractual, and vertical marketing systems, including franchising.

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

5. Identify factors to consider when choosing a business location.



Supply Chain

• The Supply Chain consists of Upstream and Downstream partners– Upstream partners are firms that supply what is

needed to create a product or service– Downstream partners connect the firm with its

customers

• A better approach is to think of the supply chain as a Value Delivery Network where all parties partner with each to improve the performance of the entire system



Distribution Channel Functions

Negotiation PhysicalDistribution Risk TakingFinancing

MatchingPromotionInformation Contact



Major Hospitality Distribution Channels

HospitalityDistribution

Channels



Vertical Marketing Systems

CorporateVMS

AdministeredVMS

ContractualVMS



Contractual VMS

Franchises

AlliancesContractu

al VMS



Advantages and Disadvantagesof Franchises

Advantages

Brand recognition

Less chance of failure

Premade ads and marketing plans

Faster business growth

Help with site selection

Architectural plans

Support for operational systems

National contracts with suppliers

Product development

Consulting

Help with financing

Disadvantages

Fees and royalties are required

Limits the products and recipes

Requirements for operating hours

Required to offer certain products

A poorly operated company can negatively affect the reputation of the

entire chain

Franchisor’s performance affects franchisees

Some franchisees may benefit more than others



Other Management Systems

Horizontal Marketing Systems

Multichannel

Marketing Systems

Other Management Systems



Evaluating Channel Alternatives

Economic Feasibility of the Channel

Member

Control Criteria

Levels of Sales

Costs



Business Location

Choosing Individual Sites

Selecting an Area Within that Region

Conducting a Regional Analysis

Understanding the Marketing

Strategy & Target Market



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 power of one of the parties.

Agent A wholesaler who represents buyers or sellers on a more permanent basis, performs only a few functions, and does not take title to goods.

Alliances Alliances are developed to allow two organizations to benefit from each other’s strengths.

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 roles—who 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.



Key Terms (cont.)

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.

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.

Horizontal marketing systems (HMS) Two or more companies at one level join to follow new marketing opportunities. Companies can combine their capital, production capabilities, or marketing resources to accomplish more than one company working alone.



Key Terms (cont.)

Multichannel marketing Multichannel distribution, as when a single firm sets up two or more marketing channels to reach one or more customer segments.

Online Travel Agent (OTA) A travel agency that conducts business through the Internet with no physical locations or stores.

Retailer Business whose sales come primarily from retailing.

Supply Chain Upstream and downstream partners. Upstream from the company is a set of firms that supply raw materials, components, parts, information, finances, and expertise needed to create a product. Downstream marketing channel partners, such as wholesalers and retailers form a vital connection between the firm and its customers.

Vertical conflict Conflict between different levels of the same channel.



Key Terms (cont.)

Vertical marketing system (VMS) A distribution channel structure in which producers, wholesalers, and retailers act as a unified system: Either one channel member owns the others, or has contracts with them, or has so much power that they all cooperate.

Wholesaler Firms engaged primarily in wholesaling activity.

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Chapter 12