Tour operator as intermediary

Report
Chapter 8
Distributing the offer
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Define the role of distribution in the hospitality and tourism
industries
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Explain the functions of travel and tourism intermediaries
from a hospitality perspective
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Understand the role of traditional distribution channels in
hospitality markets
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Understand the role of online distribution channels in
hospitality markets
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Explain how Internet technology, computer reservation
systems (CRS), global distribution systems (GDS) and mobile
technology impact on hospitality distribution
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Evaluate channel relationships between principals and
intermediaries
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The concept of distribution is simple; management of
distribution is complex
Hospitality products are perishable; it is crucial to generate
advance bookings
Major hotel companies use distribution channels to reach
target customers
Distribution provides two benefits to customers: hospitality
products are made available when and where customers want
them
Online and traditional intermediaries (travel agents and tour
operators) help customers to find and choose hospitality and
travel products
These intermediaries (also called channel partners) are paid
by commission or merchant model
Relationships between hospitality organizations and channel
partners are complex
The Internet has enabled organizations to perform both
distribution and marketing communication activities online
Distribution channels link customers, tourism intermediaries and
hospitality principals (see figure)
Channel 1: Direct-to-customer
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Direct marketing – hospitality organizations and customers
communicate directly with no intermediaries
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No intermediaries – no commission = most cost-effective and
profitable distribution strategy
Channel 2: Referral network
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Hospitality chains market other properties in the network
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No intermediaries so ‘referral network’ cost-effective
distribution channel
Channel 3: Travel agent as intermediary
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Travel agents stock range hospitality products online and
brochures
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Travel agent makes bookings, collects payment, provide
tickets and are paid by commission
Channel 4: Tour operator as intermediary
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Tour operators are wholesalers. Tour operator buys allocation
accommodation from hotels, develop packaged products and
sell to consumers
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Tour operator agrees discounted prices with hotels and makes
profit by charging the customer an inclusive price
Channel 5: Tour operator and travel agent as intermediaries
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Similar Channel 4, with one major exception: tour operators
also use travel agents to promote and sell their all-inclusive
products
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Tour operator pays travel agent commission for booking
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More intermediaries in the distribution channel; each
intermediary needs profit so greater pressure on hotels to
keep prices low and less profit for hotel
Figure 8.1 Traditional hospitality and tourism distribution channels
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Benefits of distribution channels:
 convenient global/local access points for customers away from
hospitality location
 provision of relevant information to customers by knowledgeable
travel experts
 bundling of hospitality products into combined travel packages
 advance reservation and payments system
 opportunity to work with specialist intermediaries who understand
markets
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Disadvantages of distribution channels:
 loss of margin paid to agents through commission
 loss of margin caused by adopting the merchant model of distribution
 losing control of inventory at low rates
 losing control of a key element in the marketing mix (distribution)
 unhealthy dependence on intermediaries
 lack of trust between hospitality units and distributors
 intermediaries taking ‘ownership of the customer’ away from
hospitality organization
Intermediaries can be categorized under the following
broad headings:
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search engine
travel agent
tour operator
conference and meeting planner
corporate business travel agent
incentive travel house
representative agent
specialist online travel retailer
affiliate marketing agency
tourist board
airline
Distinct categories of tourism intermediaries help define
roles of different of distributors, but boundaries between the
categories are not precise
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Origins of electronic distribution airlines’ inventory systems
developed in the 1950s and 1960s
1970s airlines developed Global Distribution System (GDS) for
travel agents to book travel products
Hospitality and tourism GDS network large computer
reservation systems (CRS), linking hotels and travel agents
GDS is a ‘global travel supermarket’ with closed networks;
information only available to airlines, hotels and travel agents
Extranets use Internet technology to communicate between
suppliers and customers
Hotel chains provide corporate customers access to website via
extranet links
Allows hotel group to give key account clients the opportunity to
book online using privately negotiated, confidential prices
Increasingly, hospitality distribution is conducted via mobile
networks and applications that do not use GDS
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Consumers have access to information 24 hours a day, 7 days a week
and every week of the year
Consumers have fast, mobile interconnectivity to access online data
either at home, in the office or on the move
Speed of search and multiple sources of hospitality and tourism
information from principals and intermediaries give consumers
instantaneous choices
Real-time product/price transparency between competing hospitality
offers
Transparency of prices and comparative shopping sites makes the
online competitive environment more intense
Potential to create confusion for consumers when same hospitality
offer has different prices on hotel’s site and distributors’ websites
From hospitality perspective, the online environment creates
difficulties in maintaining product/rate hurdles to protect margins and
yield
Fast, relatively safe booking and payment transactions facilitate online
channel bookings
Hospitality operators sell distressed inventory quickly via specialist
online distributors
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Proliferation online travel channels
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Multiple online networks linking customers,
intermediaries and principals in distribution system is
complex
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Figure captures picture of fragmented online
distribution system in hospitality and tourism using
well-known brands
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Most cost-effective distribution channel is always direct
from the customer to the hotel
Figure 8.2 Selected online hospitality distribution channels
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Originally, hospitality companies thought emergence of
Internet would eliminate intermediaries – end-user customers
would book directly with hotels via their websites
This process is called disintermediation and eliminates high
commissions paid to intermediaries and other distribution
costs
Internet created opportunities for new travel e-intermediaries
to emerge (Expedia and Lastminute.com ) and existing players
(Thomas Cook and TUI) adopted new technologies
Process intermediaries re-establishing influence in the online
environment is called reintermediation
Intermediaries dominate hospitality and tourism distribution
channels
Both principals and distributors continually manage their cost
structures better
Process of disintermediation and reintermediation is
constantly evolving
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Effective online marketing based on understanding how
search engines work – specialist marketing subject: search
engine marketing
Important factors include destination links, accessible easy-touse websites and mobile applications, effective booking
engines, controlling BAR
Consumers depend on search engines when looking for
information on the Internet
To capture online audience, a site needs to ensure domain
name, destination, text copy, page titles, description tag and
Meta tags are designed to ensure search engines find web
pages
Location is a primary search item for potential customers,
links to destination sites, local and national tourist
organizations, and local attractions are important
Search engine optimization (SEO) helps website to achieve
higher rankings on search engines
Typical distribution channel for hotel includes one or more:
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search engine
affiliate
booking agent
travel agent
tour operator
travel search site
GDS
switch company
hotel chain CRS
credit card company (reservations are confirmed using credit
cards)
Hotels strive to drive down distribution costs
Online distribution system is evolving and hotels must constantly
monitor the costs, volume and effectiveness of bookings generated
through each channel
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ICT Innovations continue to drive the development of
distribution channels in hospitality and tourism
Continual evolution in the online world – including social
networking sites – creates new distribution channels
Accommodation providers need to use intermediaries to
obtain advance bookings to generate occupancy
High cost of distribution forces hospitality companies to look
for alternatives
Online environment is an important facilitator of hospitality
distribution; can help hotels reduce distribution costs via
direct booking
Online search engines and intermediaries, well-known travel
agents, and popular tour operators are key intermediaries for
most hotel brands
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