Distribution Channels in the Hotel Industry - Coursework Example

Running Header: Distribution channel management Student’s Name: Instructor’s Name: Course Name & Code: Date of Submission: Table of Contents Table of Contents 2 Distribution channels in the hotel industry 5 Importance of distribution channel management 8 Conclusion 9 References 11 Introduction Distribution involves the delivery of products and services to the end user or to the clients. This is as a result of most businesses using intermediaries in bringing products to the market. The main function of a distribution channel involves providing a link between production and consumption. Ann (2001) describes that major functions are therefore performed in businesses that use distribution channels. These involve information which is necessary in marketing planning as it enables businesses to gather and distribute market research and intelligence. The other function of the distribution channel is promotion which is involved in developing and spreading communication about products and services offered by the organization. The above study explains what distribution channels are and their importance. The study also shows the different types of distribution channels used in the hotel industry and how they are effective in generating revenue. According to Best (2009) in order for distribution channels to be effective matching should be properly effected as it enables a business in adjusting the offer in a way that it fits the customers’ needs for example by use of packaging, assembling or grading. In the hotel industry the whole package which includes room service, food and other services should be appealing to the customer. Negotiation is another major function of distribution channels as it helps in helping management to come up with a particular price to charge as well as other terms being offered by the industry. It also necessary to contact various people as it facilitates communicating with prospective buyers. Physical distribution is a major function which helps in transporting and storing of goods. Financing on the other hand helps in acquiring and using funds to cover the costs of the distribution channel. Risk taking is a major function as it enables a firm to assume various commercial risks for example by operating a channel and holding stock. For the above function to be cost effective various levels need to be incorporated and every market intermediary performs some work of bringing the product to its end user. The first channel level is from the manufactures to the customer. The other level is from the manufacturer to the retailer and finally to the customers as shown in the diagram below. The above diagram represents the number of distribution channels where each layer of the marketing intermediaries has a duty of bringing the product closer to the final consumer. Channel one is the direct marketing where the manufacturer directly sells to the consumer while the other channels represent indirect marketing. Direct marketing is where there are no intermediaries as the manufactures sells directly to the customers and this kind of distribution is used mostly in holiday companies (James, 2010). Channel two has one intermediary which is mostly the retailer. This method is mostly used in distributing consumer electrical goods in the UK where producers of Sony, Panasonic etc sell their goods to the retailers who later sells the goods to the end user. Channel three has two intermediaries who are the wholesaler and the retailer. The wholesaler buys goods in bulk from various producers and later breaks the products to supply to retailers in small quantities. This method is effective to use in small businesses and works best where the retail channel is fragmented for example is it used in the distribution of drugs. Distribution channels in the hotel industry Before the improvement of transport and communication, little pressure was exerted on the hospitality industry for effective distribution channel. The poor roads and sail powered ships could not allow distributors to go for long distances. There was therefore less luxury hotels existing to cater for the needs of their customers and therefore hospitality was confined to small hotels which were mostly located along the main roads. Bovee et al. (1995) explains that the evolution of the modern hospitality has therefore seen the development of various distribution channels for example the reduction of transport costs and the availability of charter flights has improved affordability of package holidays. Though safety concerns had reduced the number of travelers for example after the 9/11 attack, the development of sales through the internet and telegram has improves international communications and made it quick and effective. These developments have significantly developed the hotel industry and marketing and advertising strategies. The use of information technology has helped to improve distribution channels as individual travelers in hotels can use computer systems and databases to make accommodation arrangements with ease. James (2010) shows there is also the use of automated booking and payment where customers do not have to make arrangements in person or through correspondences. The other factor that has improved distribution channels in the hotel industry is the expansion of automated payment systems. This has had a greater impact on hotel reservations. Findings on the hotel distribution channel analysis shows that distribution channels are effective in developing tools and metrics of helping the hotel determine their optimal channel mix. It also explains the impact of every channel on hotel demand and revenue. Distribution channels in hotels are also effective as they help in exploring economic factors for example elasticity of demand through chain scale and also consumer shopping patterns according to the channel selection. It is also shown that the average daily rate that is realized by individual hotels depends on the distribution channel used. This is explained by showing that without a comprehensive approach of the costs associated with various distribution channels; the hotel industry is then ion the losing side. Chekitan and Don (2005) show the hotel industry should also be capable of understanding the costs and benefits of the respective primary distribution channels. It is also necessary to analyse customer behaviour relative to online buying and the relative costs of marketing channels such as use of search engines. The main role of distribution is implications of profitability in the industry as it is becoming the attraction of many hotels in the industry and this will be successful through the understanding of the dynamic. Distribution channels in hotel have a great impact on the hotel’s bottom line for example how a customer books a room. Intermediaries therefore take a good portion of the gross amount a guest pays overnight. Macy (2004) for example a room booked through a travel agent and through the global distribution system costs a hotel about 15 percent of the total amount of reservation. Third party websites also act as intermediaries and take about 13 percent of the total reservation. Merchant websites for example priceline.com of hotwire buy inventory from hotels and average about 33 percent mark-up of the booking price. Other bookings in the hotel industry are from the central reservation system of voluntary chains for example Minotel which takes up to 25 percent of the original payment made through travel agent, tour operator and chain fees. This is because tour operators pay about 50-60 percent of the normal booking price to the hotelier who is lodging their client. According to Macy (2004) the predominant distribution channels used in the hotel industry remains direct contact with the property for example through the telephone and a study conducted in 2002 showed that this accounts for 35 percent of all advance reservations. This proportion varies such that in Africa it accounts for 28 percent, 40 percent in the Middle East and 70 percent in US. Travel agents are said to be most important distribution channel in Africa, Middle East, Asia and Europe. Others include tour operators who grab the largest percent of reservation in Africa and Oceania. This is because they have a strong hold on many markets in mass tourism destinations for example in Tunisia, tour operators’ account for 95 percent of all hotel overnights (Macy, 2004). This therefore shows that through electronic means and internet distribution has rapidly grown, they account for less distribution which is half the total as about 25 percent. Internet bookings have however risen form 7 percent in 2002 to 18 percent in 2008 where own website has more bookings followed by third party bookings (Macy, 2004). This shows that the hotel industry has an interest in promoting internet channel since it is cheaper for example through the hotel’s own site. Reservations from traditional means for example through the telephone, mail and fax cost much higher about 300 percent more than it costs while using the internet or processing through GDS. The global distribution systems (GDS) therefore dominate the electronic distribution of hotel rooms. Importance of distribution channel management The importance of management of distribution channel is that it enables a company to be able to meet the needs of their customers through effective distribution of goods. Management of distribution channels also show marketing strategies of an organisation for example by complementing direct sales. Distribution channel management helps managers in decision making. This is because one is able to examine the right path and one that yields maximum benefits (Chekitan and Don, 2005). It is necessary to analyse the benefits of channel members before choosing a distribution strategy. This is because customers assess the value of a product by looking at various factors and one of these factors is how the distribution strategy adds to the products value. There are also other surrounding features for example customer service, delivery and availability. Marketers therefore have to make a decision while choosing a channel partner and assess the benefits received by using a particular partner. Marketers also analyse the costs involves in using the services. The benefits of a distribution channel are that the system is cost saving in specialization. This is because distributors specialise in what they do and can perform their work better and a lower cost than when a company decides to distribute itself. It also enables the company to focus on other aspects of the business rather than exhausting company’s resources. Distribution channels reduce exchange time. This is because channel members do not only reduce costs by being experienced but are also able to work more rapidly thus improving product delivery for example the internet is faster in providing booking services in the hotel industry. Michael and Thomas (2009) puts it that distribution channels also enables customers to conveniently purchase varieties. It is necessary for marketers to understand that what customers really need in their shopping experience. Distribution channel management also creates sales. This is because resellers create demand of products for example by performing active selling role or by use of persuasive techniques of encouraging customers to buy their products. This is by encouraging sale of products through their advertising effort for example by use of special product display. Distribution channels also offer financial support to their customers for example by introducing ways that will encourage customers to purchase. Some of these methods include selling by credit, using a payment plan and allowing trade-in and exchange options. Distributors also provide necessary information to the buyer. Suppliers are offered real time access to sales information for example about the geographical location of the product. Marketers also enquire about customers’ response on various products which helps them improve and develop new strategies (Arikan, 2008). Conclusion Management of the hotel industry should therefore be careful to avoid channel gaps. Some of the sources of gaps include environmental bounds and managerial bounds. Managerial bounds include constraints caused as a result of lack of knowledge and optimization of an increased level. The types of gaps include demand-side gaps or supply side gaps. Closing these gaps means the company should expand the provision of service outputs and change the segment targeted in the market. To close the supply side gaps, the company should change flow responsibilities of channel members and should also invest in low cost distribution technologies which will make the flow effective. The company should consider bringing new channel members who will be responsible in reaching the end user and increasing the volume of sales. To meet the above service output demands, it is necessary to consider the cost of the product, competition in the market for example the existing competitors who are able to beat the channel’ service provision. Companies should also aim at selling at low end of the market and should have a well rounded business perspective in order to face the customers. Distribution channel dynamics have to be managed effectively by putting up supply chain processes. References Anne, F. (2001). Marketing channels. Sydney: Springer. Arikan, A. (2008). Multichannel marketing: Metrics and methods for on and offline success. Indianapolis, Ind.: Wiley Technology Pub. Best, R. (2009). Market-based management: Strategies for growing customer value and Profitability. Upper Saddle River, N.J.: Pearson/Prentice Hall. Bovee, C. Houston, M. & Thill, J. (1995). Marketing. 2nd ed., Australia. Chekitan, S. & Don, S. (2005). In the mix, A customer-focused approach can bring the current marketing mix into the 21st Century, Marketing management. New York: Macmillan. James, L. (2010). Distribution channel management, Bridging the sales and marketing divide, Kellogg School of management. Macy, M. (2004). Trends in hotel distribution channels, viewed 12 July 2011, Michael, D. & Thomas, W. (2009). Business marketing management: B2B, 10th ed., London: Cengage Learning. Read More