Supply chain Management in Hospitality

Industry

Chapter 6
Distribution Channels

17-1
 The chapter objective
After learning this chapter, you will be able to understand:
1. The basic concepts of distribution channels and why
they are necessary.
2. The main functions of tourism intermediaries.
3. The structure of tourism distribution channels.
4. How to create new channels and rebuild existing ones.
5. The factors that influence the development of tourism
distribution channels.
6. The roles of tour operators and travel agents in
distribution channels.
The basic concept of distribution channels

• The main objectives of TSCM is to coordinate

and integrate all functions & activities performed
by the SC members.
• The duty of the tourism product/service
suppliers is:
to reduce production costs,
to maximize operational efficiency and
to enhance tourist service quality
 should build the upstream & downstream partner
Upstream – downstream
 Upstream – downstream partner

o Upstream partners: set of firms supply the raw

material, components, parts, information,
finances and expertise needed to create the
products or services

o Downstream partners: The marketing channels

such as wholesalers, retailers that look toward
the customers
Upstream – downstream
 Upstream / downstream partners
• The term of supplied chain and tourism
distribution in some case are interchangeable
 both of them are understood as the link
between the tourism suppliers and their
customers  This link is so-called
intermediaries
• The intermediaries can be can be individuals
or organizations, such as tour operators or
travel agents, operating between the tourism
suppliers and their customers
6.2 The channel intermediaries
6.2 Channel intermediaries
 6.2 Channel intermediaries
• Channel intermediaries work as a bridge between tourism
suppliers and their customers.
• A tourism supplier can also sell prices directly to its customers
without channel intermediaries.
• But in practice, the majority of tourism suppliers (hotel) utilize
channel intermediaries (T.A) to sell their products/ services.
• E.g: around 70% international travelers in Europe employ
intermediaries to arrange long-haul travel.
• Why do both tourism suppliers and tourists use channel
intermediaries?
We need to understand the main functions of these
intermediaries and the benefits that tourism suppliers derive from
employing them  Match the Supply & the Demand
 6.2.1 Matching supply and demand
• Demand for tourism products/services rarely matches supply in terms
of other quantity or type  The channel intermediaries can eliminate
the gap between the two.
• Quantity discrepancy (khách biệt) occurs in two cases:
1. Supply > Demand: Tourism suppliers offer a large number of
tourism products/services to achieve economies of scale.
• In this case, the channel intermediary can play an important role in
closing the gap between the demand for - and supply of the tourism
product services by purchasing them from the supplier and selling
them to their customer base
• E.g: Pullman has a capacity of 600 rooms, but actual demand for these
rooms by park visitors is limited, as more than 50% of these visitors
are local residents. To increase the hotel's occupancy rate, Pullman
offers a significant percentage of the rooms to contracted operator to
travel agents, which then sell them to a much wider customer base
 6.2.1 Matching supply and demand
2. Demand> Supply: There are situations in which demand for certain
tourism good services is high, but the supply of these goods/services is
limited due to capacities constrains (hạn chế về năng lực)
• Intermediaries can buy the same tourism goods/services from
different suppliers and sell them in the market to meet the strong
demand.
• The product/ service-type discrepancy exists when the customer
demand a wide range of tourism products/ service. But the tourism
suppliers provide only the limited range.  In this case, the tourism
intermediaries can combine the various tourism products to meet the
demand of more diverse range
E.g: the demand for accommodation in the holiday is high. The hotel
just supply the certain percentage, the tourist intermediaries will sign
the contracts with service apartments or they will reserve the amounts
of rooms, then they sell out with high price
 Four main distribution channels
1. Direct selling
2. Brokers
3. Wholesalers
4. Retailers
 Four main distribution channels
The supply chain consists of four main distribution channels,
each suitable for this type of business rather than other types
1. Direct selling involves distributing products directly from the
manufacturer to customers.
2. Brokers act as intermediaries between manufacturers and
retailers and are often used in the food industry to sell
products to grocery stores. They do not directly transport
products but handle purchase contracts.
 Four main distribution channels
3. Wholesalers purchase products in large quantities from
manufacturers to resell at higher prices. As intermediaries,
wholesale companies face more risks if the products don't sell
because buyers may purchase directly from the manufacturer.
4. Dual distribution (phân phối kép) involves using multiple
strategies to get products to customers, such as direct selling
and wholesaling.
E.g: A beverage company can sell its products directly through
supermarkets and the company's own stores, while also
collaborating with restaurants and cafes to sell their products.
Four main distribution channels
Four main distribution channels
How to build an effective distribution strategy for a hotel

1.Identify the target market clearly.

2.Choosing the right distribution channels.
3.Optimizing distribution channels/ tối ưu hóa
4.Pricing hotel rooms and promotional programs
5.Monitoring market prices closely.
6.Integrating revenue management tools
Tích hợp các công cụ quản lý doanh thu
 Identify the target market clearly
• While you should register room listings on various
distribution channels to maximize visibility, it doesn't mean
being present on as many channels as possible is better.
Instead, choose the most popular channels for your target
customers.
• First, identify the ideal customer group—the valuable and
potential customers who will generate the most profit. You
must ask questions like: What is their age? Where do they
live? Are they high-end or budget travelers?
• For example: While all travelers use popular OTAs like
Agoda, Expedia, and Booking.com, younger travelers are
more likely to book through search engines like Google, and
older travelers are more likely to book directly compared to
the younger group.
 Choosing the right distribution channels
After identifying the target market you want to focus on, the next step is to choose the appropriate
distribution channels. Here are some examples:
1. Direct Channels: These channels allow travelers to book directly with the hotel, such as the
hotel's website booking tool, at the front desk, and booking through phone, email, or messages.
Because there are no intermediaries, the hotel does not pay commissions fees, so these channels
generally have higher profits than indirect channels.
2. Online Travel Agents (OTA): OTAs are intermediary channels that allow travelers to browse
accommodation services at a destination and charge a commission for each booking, usually
ranging from 12% to 30% of the room rate. In addition to collaborating with major OTAs like
Expedia, Booking.com, etc., consider smaller units that are more suitable for your hotel type,
such as Airbnb.
3. Global Distribution Systems (GDS): Global distribution systems like Amadeus, Sabre,
Travelport are used by travel companies to view information and book hotels, flights, cruises,
etc..
4. Currently, ezCloud’s, ezCms software and connected to Sabre, a distribution channel that holds
up to 50% of the global market share. Partner hotels of ezCloud see this as a significant
opportunity to access the global market, especially the bulk room sales market.
 Choosing the right distribution channels
5. Metasearch platforms such as Google Hotels, Tripadvisor,
Trivago, and Kayak display hotel prices and room availability from
various booking sources, allowing travelers to easily compare services
on one page. To make a reservation, travelers need to click through to
the hotel's booking tool, turning these channels into valuable direct
booking sources. Hotels pay per click for these referrals.
6. Wholesalers: Wholesale distributors and bed banks like TUI
(Tourist Union International) and Hotelbeds pre-purchase blocks of
rooms from hotels and resell them through OTAs, travel agents, and
tour companies. Instead of paying fees or commissions for bookings,
hotels provide wholesale prices reflecting significant discounts from
the retail rates.
7. Other Channels: Other distribution channels for hotels include tour
companies, destination management organizations (DMOs), travel call
centers, social networks, and social media channels such as Google
Hotel Ads, and more.
 Optimizing distribution channels
• Optimizing distribution channels means ensuring that the hotel shares all
information that travelers are interested in to convince them to make a
booking. Such as high-quality images, compelling descriptions, and
comprehensive information about the location, services, and other features to
attract the target customers. Make sure to consistently update information on
all channels.
• Remember that traveler reviews and ratings can significantly impact visibility
and conversion on distribution channels. Ensure to monitor and respond to
reviews, address issues, and improve your ratings.
• To boost revenue from bookings, your website should be easily accessible,
fast, optimized for search engines and mobile devices, and integrate a booking
tool.
• Add the live chat functionality on your website to answer traveler questions
during the booking process and provide other relevant trip and destination
information.
• For guests booking at the front desk or via phone, email, and messages—don't
turn them away! Make sure that staff promptly and adequately respond to them
with the necessary information.
 Pricing hotel rooms and promotional programs
• Instead of selling rooms at different prices on each channel, you
should maintain consistent pricing to ensure uniformity across all
distribution channels.
• Your prices should be set high enough to cover commissions and
fees while still generating a profit.
• Rather than listing only the cheapest rooms, showcase product and
price diversity to attract a wide range of travelers. This could
include various room types such as suites, singles, doubles, special
packages, pricing policies, and cancellation policies.
• Consult your OTA account manager to determine which room
types and packages generate the most hotel bookings.
• To maximize revenue, implement a flexible pricing strategy,
adjusting rates and stay policies based on occupancy, market
conditions, and competitive analysis.
 Monitoring market prices closely
• After activating your online booking channels, you must closely monitor
the performance of these channels. To understand which booking channels
are the most profitable, calculate the costs associated with each channel,
including commissions, cost per click, transaction fees, and other related
expenses. For direct channels, estimate marketing costs, technology costs,
loyalty programs, and booking tool fees.
• To track the overall profitability of your distribution mix, a relevant metric
to use is NetRevPAR (Net Revenue per Available Room Chỉ số doanh thu
tính trên phòng hiện có).
• This value is calculated by taking the total room revenue minus
distribution costs and dividing it by the total available rooms for sale.
• For example, if you have 30 rooms and generated $5,500 in room revenue
last night, with estimated distribution costs of $1,350, then your
NetRevPAR is $138.33.
• NetRevPAR = ($5,500 - $1,350) / 30 = $138.33
 Integrating revenue management tools

Managing multiple distribution channels can be time-consuming and complex, but

fortunately, there are several property management software tools that help hotel
owners save time and improve results by automating many tasks.
 ezCms: is the system that helps to manage and distribute the hotel room in a
special way. It is both suitable for the mini hotel to the 5* hotel. It helps you
efficiently manage multiple channels, connecting with over 200 global OTAs,
making it easy to manage sales channels from one screen. Additionally, ezCms
is integrated with the Sabre GDS global distribution system, which holds up to
50% of the global market share in distributing flights, cruises, hotel rooms, etc.,
on a wholesale basis.
 ezBe: is the online hotel booking tool. Integrated directly into the hotel website.
ezBe is also directly connected to Google Hotels, tapping into billions of daily
searches on the Google platform.
6 steps to build an effective distribution
strategy for a hotel
 Popular hotel booking channels and services

1. OTA
2. Airlines
3. TA/ TO
4. Corporation/ Mice
5. Hotel booking channels
6. Government
7. Hoteliers
8. Walk-in
 OTA (Online Travel Agency)
- Online Travel Agencies: are intermediary e-commerce platforms that
sell hotel rooms online through their own websites.
- These OTA channels earn commissions based on the number of
successful bookings.
- The commission is from 12% to
- OTA is considered one of the most effective hotel booking channels
today.
- Representative names include:
 TripAdvisor
 Agoda
 Expedia
 Booking
 Traveloka
 ivivu
 Abay
 GDS (Global Distribution System)

• GDS (Global Distribution System) is a global room

distribution system. Selling rooms through GDS is
referred to as the B2B (Business to Business) method.
• When collaborating with GDS, travel companies
within this system obtain booking information from
hotels to sell to their own travelers.
• Among the hotel booking channels on the internet,
GDS often brings in a good source of customers,
primarily from tours or large group travelers.
 Airlines

• When selling rooms through this channel, airlines will

integrate hotel booking information into their airline
booking websites.
• When customers book flights, they can choose to
combine hotel room reservations through suggestions
on the website.
 Hotel Website

• If the traveler already knows the name of the

hotel, they will go directly to the hotel's
website to make a reservation.
• This is one of the hotel booking channels that
needs to be promoted heavily. Hotels benefit
by increasing their credibility and avoiding
commission fees to third parties.
 TA/TO (Travel Agency/ Travel Operation)

• This is an important distribution channel, and most

hotels have and pay attention to it. Some hotels
source more than 50% of their room capacity from
travel companies.
• With this distribution channel, hotels will offer
reasonable room rates and accompanying services.
Travel companies will resell to customers and take
a commission percentage on the price difference.
• Similar to the GDS channel, Travel Operators and
Travel Agencies primarily attract group travelers.
 Hotel booking channels: Corporations

• Not only tourists, but nowadays the customer base also

includes business travelers and corporate clients, which
is gradually increasing.
• Corporations bring hotel customers from commercial
companies. The hotel's job is to provide a reasonable
price and deliver the best services to meet their needs.
 MICE

MICE is an acronym for the following words:

• MEETING
• INCENTIVE
• CONVENTIONS
• EXHIBITION
 MICE

• This is a type of tourism that many countries are vigorously

promoting as its value far exceeds that of individual or group
tourism.

• MICE is a market evaluated to generate significant revenue for

a country's tourism industry due to its large, concentrated, and
high-spending customer base.

• Compared to individual or group travelers, MICE tourists are

considered high-end customers, primarily businesspeople,
politicians, etc., willing to spend to enjoy high-quality services,
good amenities, and expensive products.
 Government

Customers from Government agencies such as:

• Government agencies
• Ministry of Foreign Affairs
• Ministry of Public Security
• Ministry of National Defense
• Ministry of Health
• Ministry of Internal Affairs
 Walk-in
• "Walk-in" is not considered an official channel for
hotel room sales. Any customer who comes and stays at
the hotel without making a reservation in advance is
referred to as a walk-in.

• This is a customer segment where hotels can sell at

higher prices and apply the best up-selling techniques.
However, this customer segment is considered the last
option for hotels because it cannot be estimated in the
business plan.