Marketing for Hospitality and Tourism

Kotler, Bowen and Makens

Distribution Channels
Chapter 12

Learning Objectives
1. 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.
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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
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Kotler, Bowen and Makens

2014 by Pearson Higher Education, Inc

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Distribution Channel Functions

Information

Promotion

Negotiation

Physical
Distribution

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Contact

Matching

Financing

Risk Taking

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W
ho
OTAs
le
sa
le
rs

Major Hospitality Distribution

Channels

To
ur

Tra
Hospitality
ng
ve
i
k
l A oo
Distribution
Bge
t
c
nts
re
i
D
Channels

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2014 by Pearson Higher Education, Inc

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Vertical Marketing Systems

Corporate
VMS

Contractual
VMS

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Administered
VMS

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Contractual VMS

Franchise
s

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Contractu
al VMS

Alliances

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Advantages and Disadvantages

of Franchises
Advantages

Disadvantages

Brand recognition

Fees and royalties are required

Less chance of failure

Limits the products and recipes

Premade ads and marketing plans

Requirements for operating hours

Faster business growth

Required to offer certain products

Help with site selection

Architectural plans
Support for operational systems
National contracts with suppliers
Product development
Consulting
Help with financing
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A poorly operated company can

negatively affect the reputation of the
entire chain
Franchisors performance affects
franchisees
Some franchisees may benefit more
than others

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Other Management Systems

Horizontal
Marketing
Systems

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Other
Manageme
nt Systems

Multichann
el
Marketing
Systems

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Evaluating Channel Alternatives

Economic
Feasibility of
the Channel
Member

Levels of
Sales

Costs

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Control
Criteria

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Business Location
Understanding
Understanding
the
the Marketing
Marketing
Strategy
Strategy &
&
Target
Target Market
Market

Selecting
Selecting an
an
Area
Area Within
Within
that
that Region
Region

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Conducting
Conducting aa
Regional
Regional
Analysis
Analysis

Choosing
Choosing
Individual
Individual Sites
Sites

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Key Terms
Administered VMS A vertical

Broker A wholesaler who does not

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.

take title to goods and whose function

is to bring buyers and sellers together
and assist in negotiations.

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 others strengths.

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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 (cont.)

Contractual VMS A vertical

Franchise A contractual 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.

marketing system in which a channel

member called a franchiser links
several stages in the production
distribution process.

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.

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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.

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Key Terms (cont.)

Multichannel marketing

Supply Chain Upstream and

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.

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.

Retailer Business whose sales come

primarily from retailing.

Vertical conflict Conflict between

different levels of the same channel.

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2014 by Pearson Higher Education, Inc

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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.

Marketing for Hospitality and Tourism, 6e

Kotler, Bowen and Makens

2014 by Pearson Higher Education, Inc

Upper Saddle River, New Jersey 07458 All Rights Reserved