Designing a distribution strategy - A report

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Designing a distribution strategy - A report




Designing a distribution strategy - A report





Introduction

A distribution channel can be defined as a business chain through which a particular good or a service is passed before reaching the final customer. With advancements in technology and communication, multiple distribution channels have emerged, that has an impact on the business operations of the hotel industry. This report will be discussing the relationship between the distribution channels on the marketing mix of the hotels in this industry. Moreover, it will also be incorporating the key trends and issues in the industry and the respective opportunities and challenges. In the case, a consultancy firm, Horwath HTL in the UK has acquired a hotel and they want to develop an effective distribution strategy to maximise the occupancy and performance in the market and enhance the brand image. Lastly, the influence of e-commerce and digital platform on the business operations of this hospitality industry will be examined and the opportunities and the challenge on the implementation of digital tools will be identified.



Activity A

1. Explore the role of distribution channels and their relationship with marketing mix

A distribution channel is one of the primary factors on which the sustainability of the business operations of the hospitality industry depends. It is an important approach adopted by hotels to enhance its sales operation aggressive and serve the purpose of distribution. In a hotel, there are multiple distribution channels like the online travel agents, whole-sellers', hotel website, and global distribution system.

Online travel agents

With technological advancements, online travel agencies are platforms that have emerged to ease the process of booking of flights, hotels, cars, entertainment, and more. Presently, the majority of travellers use these online travel agencies to book hotels and flights (siteminder.com, 2021). It plays a huge role in the promotion of the essentials of travel like flights, hotels, activities, and other bookings. It also offers great deals that include flight bookings, car bookings, and hotels at a cost-effective price.

Wholesalers

Wholesalers are one of the most important distribution channels of the hotels (revfine.com, 2021). These third parties buy the hotel rooms at a great deal and a discounted rate. Further, they sell it to the travel agents and the online travel agencies at a higher rate. During the process, they promote the services and another exclusivity of the hotels and develop strategies to attract customers. This is a very effective strategy since wholesalers can reach a large range of customers internationally and this may increase the business operations and pricing strategy of the hotels. Thus, this distribution channel plays a major role in the place strategy of the marketing of the hotels.

Tour operators

Tour operators are primarily focused on providing the customers with an end to end experience. They can offer the customers with the services of flights, trains, hotels, meals, guides and other activities at a higher discounted rate. Thus this distribution channel has an impact on the pricing strategy of the hotels since they aim at offering customers at discounted rates. Alternately, it increases the rate of the customer visit to a hotel.

2. Assess the key trends and issues that are driving the hospitality distribution landscape while evaluating their opportunities and challenges

With technological advancements, a large number of individuals got connected over an online platform and due to this a large number of distribution landscape and different distribution channels in this hospitality industry evolved like the online travel agencies, tour operators, company websites and global distribution systems. Multiple trends have emerged in the hospitality industry that has an impact on the distribution channel and are:

Trends

Focus on reduction of distribution cost

The online travel agent charges around 15 to 20 per cent of the overall charge as a commission (Dewi et al., 2018). Thus, it has an impact on the decrease in the profitability of the hotels. But with advancements of communi9cation technology, different social media platforms and metasearch engines has emerged that are driving the customers to their website

Opportunities

It is increasing the profitability of the hotel organisations since the customers are directly booking through hotel sites instead of using online travel agencies. Moreover, a specific discount can be offered since they do not have the bear the charges of any third party.

Challenges

Online travel agencies have an increased reach to a large number of customers internationally. However, these hotel websites cannot reach internationally. Moreover, these online platforms also offer package rates, which are cost-effective, and the deals are attractable, whereas the deals offered by the hotels are limited.

Issues in the hospitality industry

With increasing distribution channel and popularity of these distribution channels, multiple issues have also emerged which may have an impact on business operations of the hotels in this industry. The primary issues that the distribution channel in this hospitality industry is facing are:

Change and rise of online travel agents

Several online travel agents have emerged and it has been difficult for the hotels to recognise the one that is sustainable for their business. Booking through these online platforms decreases the profitability of the hotels.

Opportunities

Due to the emergence of multiple online travel agents, competition has increased in the market. Proper identification of the perfect distribution channel can be profitable for the organisation.

Challenges

The business operations of the hotels may get freeze out without using these online platforms.

Meta searches and Google pushing instant bookings

A metasearch site is one that helps customers to compare the rates of the hotel offered by different online travel agencies and the rates can be viewed in one place (hsb.shr.global, 2021). It has multiple benefits as well as challenges.

Opportunities

It is one of the most effective forms of marketing, also helps to maximise business operations, and returns a good return on investment depending on the pricing strategy

Challenges

However, if the pricing strategy is bad the hotels may have to incur a large amount, which can be calculated by the number of times a user clicks on the ad whether or not the customer is booking.

3. Examine the development and influence of e-commerce and digital platforms in Hospitality distribution channels.

The hospitality industry is not only one of the fastest-growing industry in the world but the most profitable industry (Jones et al., 2017). However, different e-commerce and digital platforms have emerged which has a strong influence on the business operations of this industry. The primary advantages of using the digital platform and e-commerce sites are revenue generation, reduction in costs and integration of business to the latest innovations. Further, the basic purpose of these enhancements is to personalise the experience so the customers and to digitalise the services been offered (Sheresheva et al., 2019). With the introduction of e-commerce and digital platforms, the impact on the hospitality business has both positive as well as a negative aspect.

Positive influence

Positively, these digital platforms have increased sales operation through multiple channels. Secondly, they helped the hotels to understand the demand of the customer and it could provide exclusivity in the experience of the guests and would help to satisfy and retain customers. Additionally, it also helps the hotels and brands to find new markets and enhance global trade with a small amount of investment (nibusinessinfo.co.uk, 2021). Moreover, it has also increased the openness of business operations since maintaining an effective database can help to build customer loyalty.

Negative influence

However, with an introduction, digital platform vulnerability of receiving negative feedback has increased (Lee and Tandoc Jr, 2017). Any negative feedback or false information can damage the reputation or the brand image of the hotel. Moreover, the competition has also increased through the digital platform and profit margin has reduced considerably.

4. Assess the key digital tools available, critically evaluating the opportunities and challenges faced by the new hotel in London and how they can address the challenges inherent in the technology.

Digital tools


Opportunities they provide to hotels in Europe

Challenges they might face in European Markets.

Impact of this digital technology on channel management of hotels

Website and booking engine and SEO

Firstly, integrating the business with online travel agencies has increased the demand for hotels (medium.com, 2021).

It helps smaller hotels to compete in this industry with the reputed international hotel's chains.

In Europe, the growth in online travel has slowed which implies a reduction in profitability of the online travel agents (travelweekly.co.uk, 2021).

Secondly, with a large number of platforms, it will get difficult to differentiate.

Thirdly, the most important challenge is to gain equity of the brands


Search engine optimisation would drive traffic to the website of the concerned and that will enhance the bookings of the hotel

SiteMinder tool

It can maximise the profitability of the hotels by increasing the capacity of the hotel to attract more bookings. Moreover, a channel manager can increase business operations by connecting multiple online travel agencies and distribution channels (medium.com, 2021).


Technological issues can arise and due to that a confusion may arise if a single room gets sold on two different booking sites


A channel manager helps in increasing the distribution channel of the hotels. Further, it helps to develop a business relationship with travel agents and OTAs.

Table 1: Digital tools





Activity B

a. What is your target market and the business mix? What are your business objectives and the profit expected from this new hotel?

Target market

Hotel market segmentation is a systematic way of dividing potential tourists into groups, based on their common characteristics (KOTLER et al., 2010). A target market is a group of customers sharing similar interests and needs (KOTLER et al., 2010). Apart from needs and interests, the target market even shares similar demographic features such as gender, age, income level, product/service price and others. Hotels must enhance its marketing and sales efforts if it wants to attract more guests. The London Hotel must target the market in the range of 25-45 years of age. This target group is enthusiastic about travelling and desire high-class hotels such as the London Hotel.

Business mix for the hotel services is given below in the tabular form:

Marketing mix

Description

Service/ product

The London hotel should provide excellent lodging and dining services to the tourists. The hotel will hold a 5-star rating hence; it must provide best amenities to its tourists. Due to delicious food and fascinating architecture, the hotel would gain fame increasing the number of travellers.

Place

The hotel is designed to have lavish rooms and decorated lobbies. This would give a high definition look to the London Hotel. The hotel is planned to be in the main city hence people will have to travel a large distance to visit national parks and amusement parks.

Price

It would use premium-pricing strategy to attract customers. This will allow people to perceive excellent value of its services.

Promotion

The hotel is planning to promote itself through television advertisements, billboards, magazines and also through social media. It is expected that the promotion techniques that are planned to be implied will attract many tourists during the launching of the hotel.

Table 2: Business mix for London hotel

Business objectives and profits expected

Business objectives of the London hotel management are described below:

  • To maximise sales operations of the hotel

  • To attract more customers with great deals and customer loyalty programs

  • To increase employee satisfaction

The hotel will try to achieve an increase in profit percentage of 20% by next year. The London hotel is planned to be launched after Covid-19 pandemic so expecting large profits is not a great idea. The hotel must focus on the smooth functioning of the hotel for time being.



b. What are the distribution channels that you would be using for this new hotel?

Hotel distribution strategy

A hotel distribution strategy is a systematic plan for sharing hotel rooms by gaining profits (PALMATIER et al., 2016). Direct channels, such as a hotel’s website, and indirect channels such as online travel agents (OTAs), Global Distribution Systems (GDS), offline travel agents and wholesalers are used by hotels for marketing purpose. The hotel distribution strategy aims at segmenting and targeting the appropriate market to enhance the performance and services of the hotel. It aims to increase gross operating profit per available room (GOPPAR) to ensure financial conditions.

Distribution channels definition

Distribution channels are the medium through which consumers get informed about the hotel and its related information. There are two types of channels direct and indirect. Direct channels include hotel website, hotel to customer advertisement (amadeus-hospitality.com, 2021). Travel agents, wholesalers and others are a part of indirect channels. Following are various channels described in detail that the London Hotel would use in marketing:

  • Hotel Website: Consumers prefer visual content to normally printed advertisements. A hotel needs to create an attractive website that proves irresistible to the customers. The hotel can advertise attractive deals and offers on the website (Hudson and Hudson, 2017). Websites are globally accessible hence, the advertisement reaches to all the customers worldwide.

  • Online travel agencies (OTAs): An online travel agency (OTA) is an online service that sells the travel-related company's products to the customers. The products and services can be flight tickets, activity tickets, hotels and others (Wisker, 2020).

  • Metasearch: Google Travel Ads and Tripadvisor are the metasearch engines that fetch the data from OTA's and provide it to the users in a more user-friendly manner. The consumer can compare various hotels based on the options provided by these engines. Additionally, the comparison between different hotel amenities, rates, the distance of the hotel from famous visiting spots can be searched through this technology.

  • Wholesalers: Wholesalers form a level between the hotel and the customers. These wholesalers demand a commission for this purpose. The interference of the intermediaries causes less profit to the hotels.

London Hotel must use OTA as their distribution strategy because of its skill of attracting people towards the hotel as and because of its continuous and consistent process. Online travel agencies(OTA) such as Orbitz.com, Expedia, Airbnb, Booking.com and Priceline typically are various online travel agencies that publicise the advertisements though investing million dollars. These are easy to handle, clears the doubts from the customers' mind, and provide greater options to the customers. An OTA offers various offline travel benefits and encourages self-service. Online travel agents have become an important part for the travellers as it provides all the travelling details to the consumers, they are user friendly and they offer great deals to the consumers.

c. Analyse the key factors required in choosing, developing and managing a specific distribution channel.

Factors that must be considered while selecting a distribution channel are as follows:

  • Easily accessible: The OTA must be easily accessible to all the customers worldwide. The content management systems use specific Meta tags relative to the hotel amenities and specifications so that the hotel is visible to the consumers easily (Raab et al., 2018). The Meta tags are advantageous as the tags are fed to the search engine that results in optimum output to the consumers. It can have a disadvantage such as the distribution channel may sign a contract with other hotels and focus on their search optimisation.

  • Content: The content about the hotel must be frequently updated so that new arrivals reach the customers and they get attracted to the hotel. Hence, a proactive OTA must be selected by the hotel. A proactive OTA is always ready to tackle any problems related to the Hotel London and hence is beneficial. The customer expectation might increase regarding the London Hotel, which can lead to high disappointment.

  • Target Audience: The hotel must analyse its target audience so that it can invest in that type of OTA. For example, there are international and national OTA. Those hotels having domestic target tourist must invest in their national agencies, which will cost them less. Whereas, hotels that target foreign tourists should invest in international OTA’s like Booking.com (Martin-Fuentes and Mellinas, 2018). This factor is advantageous as the London hotel can plan the offers and vacation deals according to the customers' interest. However, if the wrong target market is selected, there could cause huge losses.

d. Critically analyse the ways the channel performance will be measured and determine what will be the implications for the London hotel.

Channel performance measurement is a process where a sales organisation employs different types of channel partners. More number of channel partners increases the number of people in the network (HAYES and MILLER, 2011).

  • Determination of Performance Metrics: The sales and marketing teams determine the metrics for measuring the performance. Type and number of metrics define the hotel’s performance. In measuring the hotel the metrics would be the number of rooms rented annually, number of days customers spent in the hotel and others. Determining the metrics and its types is an advantageous process as it confirms the performance base of the channels leading to better performance of the London hotel. However, its disadvantage is that different employees have different opinions regarding the selection of channel partners hence conflicts may arise.

  • Managing Channel Performance: It is the final stage of the measurement process. It uses predetermined goals, assigned performance benchmarks, and the pre-decided performance metrics to manage channel performance to analyse channel partners performance (Goyal and Mishra, 2019). During this stage, the hotel can evaluate the strengths and weakness of different channels so that necessary actions can be taken. The process can be beneficial, as channels are judged based on their overall performance. Parameters such as how many guests have visited the London Hotel through which channel, what were the efforts taken by different channels and others. The process is extremely time-consuming and the channel partners might lose interest from the process.

The distribution channels can use optimisation strategy to enhance its productivity. Optimisation strategy can be defined as a systematic process depending on customer feedback used for enhancing the performance of an organisation.

Screenshot 2021-02-02 125649.png

Figure1: Channel optimisation framework

(Source: Hanifan 2009)

The London hotel’s sales and management team understand the customer needs and then tries to develop advertisements accordingly. This is done by considering the cost determined for the service. The market segments are formed and their needs are determined (Hanifan et al., 2009). The customer needs form optimisation parameters for the hotel. Trading terms and optimisation strategies are compared further so that channel optimisation can be obtained.



6. Identify and critically evaluate the key behavioural and other emerging concerns that will impact on your proposed distribution strategy for the new company, offering feasible solutions using the following table:

Key behavioural and other emerging concern

Opportunities for the London hotel

challenges they offer to London hotel

A feasible solution to emerging concern.

High commission charges of the online travel agents and minimisation of the profitability of the hotel. It may also lead to a conflict between bookings through online travel agents and direct hotel bookings. Further, with the emergence of multiple new online travel agents, there are also several fraud agents, that can have a negative impact on customer loyalty and raise security issues.

Using the online travel agent distribution channel in the business operation of the new hotel will lower the cost of digital marketing.

Online travel agent sites are one of the most popular sources of booking where the customers can compare the prices of accommodation and services (Talwar et al., 2020).

They can charge high rates of commission for every sale. This rate can go up to 15 to 20 per cent (Dewi et al., 2018).

Secondly, it will decrease the profitability of the hotel.

Besides operating through online platforms, the company should also focus on its website to attract more customer bookings through and to maintain the sustainability of the business in the end.

Table 3: Evaluation

7. Make justified recommendations on how to develop profitable channels to maximise revenue and successfully meet business and financial objectives of the London hotel

Every business sector is aligned to some specific business objectives and the functioning of the businesses is aligned to those objectives. Apart from collaborating with online travel agents, the London hotel can also focus on online marketing strategies. With the development in the communication technology and the emergence of advanced social media platforms like Facebook, Twitter, Instagram, YouTube and others, has eased the process of marketing. They are one of the most effective means of marketing. The hotel can advertise its services on these social media platforms to attract customers. Moreover, they can also develop their pricing strategies in order to provide customers with loyalty programs and rewards on their bookings in the hotel. The customer loyalty program has a huge impact on the attraction and retention of the customers. Additionally, attractive great deals without compromisation in the quality of the service tend to satisfy them and develop brand loyalty.

Moreover, business operations and bookings of the hotel through online travel may decrease the profitability of the hotel since the online agents charge as high as 25 per cent of the booking amount as a commission. Thus, operating through their website and focusing on marketing through online media like Facebook, Instagram, Twitter and others can attract a large range of customers and increase the profit on sales. Moreover, it also reduces the dependency of the business operations on the online travel agents.

Conclusion

It can be concluded from the report that technological advancements have played a substantial role in the integration of digital platform and e-commerce sites with the business operations of the hotel industry. The key trends and the issue with the distribution channel in this industry have been identified and it has been observed that the competition has increased with its implementation and the business operations are highly dependent on it. Moreover, it also increases global opportunities to reach out to a large number of individuals. However, the profitability and the margins of profit have reduced with the implementation of the digital platform and other distribution channels.

Reference list

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