Direct and Indirect Distribution Channels

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					                     Chapter      7


          DISTRIBUTION


                                    Prepared by
      Simon Hudson, Haskayne School of Business
                            University of Calgary



7-1
Distribution
                                                Chapter   7
           Topics
           • two main types of distribution channels used in
             tourism and hospitality
           • key intermediaries involved in the tourism and
             hospitality distribution system
           • main forms of channel conflict and two main types of
             channel organization
           • the two major forms of vertically integrated
             marketing system—alliances and franchises
           • designing a distribution system and ensuring the
             effective execution of the distribution strategy
     7-2
Pricing
                                Chapter   6
          Opening Vignette: Canadian
          Mountain Holidays




    6-3
Distribution
                                          Chapter   7
           The Distribution System
           • Distribution system
             – the “place” aspect of a company’s
               marketing mix

             – its purpose is to provide an adequate
               framework for making a company’s
               product or service available to the
               consumer

     7-4
Distribution
               Chapter   7
Needs
and
Wants of
Channel
Members




     7-5
Distribution
                                            Chapter   7
           Nature and Types of Distribution
           Channels
           • Distribution channel
             – a direct or indirect delivery arrangement
               used by a supplier, carrier, or destination
               marketing organization




     7-6
Distribution
                                           Chapter   7
           Direct and Indirect Distribution
           Channels
           • Direct distribution channel
             – a channel through which a company
               delivers its product to the consumer
               without the outside assistance of any
               independent intermediaries
           • Indirect distribution channel
             – a channel through which a company
               distributes its product with the assistance
               of independent intermediaries
     7-7
Distribution
               Chapter   7
Types of
Distribution
Channels




     7-8
Distribution
                                       Chapter   7
           Functions of the Distribution
           System
           •   Acquiring information
           •   Promotion
           •   Contact
           •   Matching
           •   Negotiation
           •   Physical distribution
           •   Financing
           •   Risk-taking
     7-9
Distribution
                                            Chapter   7
           Marketing Intermediaries
           • Travel agents
             – see profile on Jeannie Henke
             – distribution and sales network
             – reservations and ticketing
             – information provision and travel
               counselling
             – design of individual itineraries
                                                continued...
    7-10
Distribution
                                       Chapter   7
           Marketing Intermediaries
           • Tour operators
           • Convention/meeting planners and
             corporate travel managers
           • Travel specialists
           • The Internet
             – see www.destina.ca Snapshot


    7-11
Distribution
                  Chapter   7
Intermediaries
Involved in
Online
Distribution of
Destination
Tourism
Products and
Services




    7-12
Distribution
                                         Chapter   7
           Channel Conflict and Organization
           • Channel conflict
             – conflict that occurs when one member of a
               distribution channel perceives another to
               be engaged in behaviour that prevents or
               hinders the first member from achieving
               its goals



    7-13
Distribution
                                             Chapter   7
           Forms of Channel Conflict
           • Horizontal conflict
             – conflict between organizations at the
               same level of the distribution channel
               • Example: two Tim Hortons franchises
           • Vertical conflict
             – occurs at different levels of the same
               channel and is more common
               • Example: argument between travel agents and
                 airlines over the cutting of base commissions
    7-14
Distribution
                                          Chapter   7
           Channel Organization
           • Two main types:
             – The conventional marketing system
             – The vertically integrated marketing system




    7-15
Distribution
                                           Chapter   7
           Channel Organization
           • Conventional Marketing System
             – a distribution system that consists of a
               loose collection of independent
               organizations, each of which tries to
               maximize its own success




    7-16
Distribution
                                 Chapter   7
           Convential Marketing System




    7-17
Distribution
                                          Chapter   7
           Channel Organization
           • Vertical marketing system
             – a system in which all members of the
               distribution channel work together as a
               unified whole




    7-18
Distribution
                                    Chapter   7
           Vertically Integrated Marketing
           System




    7-19
Distribution
                                            Chapter   7
           Advantages of VMS over CMS
           • Allows economies of scale
             – entire chain is able to produce goods or
               services less expensively than
               competitors due to economies of scale
           • Makes managing conflict easier
             – just one member dominates the channel
             – leader has authority to punish channel
               members that are creating conflict and to
               resolve such situations        continued...
    7-20
Distribution
                                            Chapter   7
           Advantages of VMS over CMS
           • Eliminates duplication
             – allows all duplicated duties to be
               eliminated
           • Levers bargaining power
             – gives the system and its members more
               power to bargain than when channel
               members work individually
           • Creates shared goals
    7-21
Distribution
                                     Chapter   7
           Channel Organization
           • Two main forms of VMS
             – Alliance

             – Franchise




    7-22
Distribution
                                           Chapter   7
           Channel Organization
           • Alliance
             – formed when two or more organizations
               combine resources through a contractual
               agreement
             – allows them to overcome each other’s
               weaknesses by benefiting from one
               another’s strengths.
               • Examples: Tourism Vancouver and Visa,
                 Conquest alliance with Skyservice
    7-23
Distribution
                                           Chapter   7
           Channel Organization
           • Franchise
             – businesses that are established when a
               franchiser grants a franchisee the right to
               engage in offering, selling, or distributing
               its goods or services under its marketing
               format
             – franchisee will pay a fee to purchase a
               full-service franchise, as well as paying an
               annual percentage of sales
    7-24
Distribution
                                      Chapter   7
           Designing the Distribution System
           • Three distribution strategies
             – Intensive
             – Exclusive
             – Selective




    7-25
Distribution
                                          Chapter   7
           Designing the Distribution System
           • Intensive
             – strategy in which an organization
               maximizes the exposure of its travel
               services by distributing through all
               available outlets or intermediaries




    7-26
Distribution
                                          Chapter   7
           Designing the Distribution System
           • Exclusive
             – strategy in which an organization
               deliberately restricts the number of
               channels that it uses to distribute its
               product or service to its customers; an
               effective method for marketing prestige
               products


    7-27
Distribution
                                         Chapter   7
           Designing the Distribution System
           • Selective
             – strategy between intensive and exclusive
               distribution, in which a company uses
               more than one but less than all of the
               possible distribution channels




    7-28
Distribution
                                           Chapter   7
           Designing the Distribution System
           • Factors to Consider
             – Market coverage
             – Costs
             – Positioning and image
             – Motivation of intermediaries
             – Characteristics of the tourism organization


    7-29
Distribution
                                              Chapter   7
           Distribution Channel Management
           • Channel Management
             – Involves:
               • Selecting channel members
               • Motivating channel members
               • Evaluating channel members




    7-30

				
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posted:2/10/2012
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