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Chapter 8 Identifying the seller.

OBJECTIVES

When you have completed this chapter, you should be able to:

* Identify the special characteristics of the travel product.

* Identify and explain the differences between the two basic categories of travel sellers.

* Give examples of the roles of different types of intermediaries.

* Explain the difference between direct and indirect distribution systems.

* Discuss the advantages to customers and suppliers of the two distribution systems.

* Describe how computer technology has increased access to travel products.

This chapter begins by examining the operation of various travel distribution systems. These systems are responsible for making the travel products offered by the suppliers more accessible to the customers. Some travel suppliers sell their products directly to their customers; others distribute their products indirectly through intermediaries; but most use a combination of these distribution methods.

SPECIAL CHARACTERISTICS OF THE TRAVEL PRODUCT

When considering travel distribution systems, you should keep in mind the special characteristics of the travel product. Travel sales distribution systems have developed as they have because of the nature of travel products. This is true of the sales distribution systems of all products and services, because the way products are sold is directly related to the particular characteristics of what is being sold. For example, new cars are sold primarily through dealerships, because of the characteristics of cars-their size, their expense, their need for ongoing service, the relatively low number of automobile manufacturers, and so on.

In a similar way, the nature of travel products determines the ways that they are sold. For that reason, it will be useful to review a few of the concepts related to the nature of travel products that were presented in Chapter 2, including the characteristics of intangibility, perishability, and complementarity.

Intangibility

Most companies in the travel industry sell more than products. They sell a mix of products and services. This interaction of product and service is one of the main reasons travel products are basically intangible. Buyers can't hold them in their hands to inspect them or "kick the tires." Customers may be able to inspect the tangible components of travel products, such as a hotel room and its furnishings, but the fact that they are going to pay to spend time in that room means that the hotel's services are going to be a large part of the bill. Beyond the hotel's services, customers are also concerned about other intangible aspects of travel products, such as ambience, entertainment, or luxury.

The intangible nature of travel products means that they can't be sold like tangible products, on shelves or in showrooms. It also means that sellers must be able to describe and categorize the products accurately and to emphasize their service components.

Perishability

Automobile dealers can leave cars on the lot until they sell. It costs money to keep them in inventory, but the opportunity to sell them doesn't disappear daily, since the products aren't perishable. Most travel products are perishable. Airlines with unsold seats and hotels with unsold rooms, for example, lose the opportunity to sell the seat on a particular flight once it takes off or the room on a given night once the next morning arrives.

The perishability of travel products creates a need to develop effective, convenient, and widespread sales distribution systems. It also creates an incentive to find different ways to sell those products if they remain unsold close to the time of their availability. Like seafood stores who lower their prices toward the end of the day because they know the fish won't be fresh enough to sell the next day, travel companies must consider unusual and creative measures in order to sell their products before they perish.

Complementarity

In Chapter 2, you learned about the complementarity of travel products, the notion that travel products are rarely purchased in isolation. Instead, most travel involves a combination of travel products that together constitute a trip. An airline flight, with car rental, resort accommodations, and sightseeing tour are examples of separate but complementary products that together create a vacation experience.

Travel industry suppliers tend to specialize in one general area. That is because there are only a few suppliers from whom you could purchase all of the complementary products that make up a normal vacation trip. If customers with several different travel requirements were forced to purchase travel products only from each of the suppliers that provide or control them, they would face a complex task. The travel industry has, therefore, developed sales distribution systems that allow customers to purchase the numerous and separately provided travel products from a single sales source.

TYPES OF SELLERS

Imagine that you have been asked to organize a spring study trip to New Mexico for a group of college students. You will need to purchase airline tickets and reserve hotel rooms in Albuquerque. You will also need to arrange for transfer of the group and their luggage from the airport to the hotel and back. Then you will have to arrange sightseeing tours or visits to local attractions. Before you begin to make these arrangements, you need to know where you can go to buy the various travel products.

Like other industries, the travel industry has various ways of distributing its products and services. Sellers are those people from whom you can purchase the travel products necessary for the study trip. Travel customers can choose between two basic types of travel sellers: suppliers and intermediaries.

Suppliers

Suppliers own or operate the company or organization that produces the travel product that they are selling. Airlines, railroads, motor coach companies, cruise lines, car rental firms, hotels, restaurants, resorts, attractions, and sightseeing companies all control the products they make available to the customer. Suppliers want to distribute their products as widely as possible. Some suppliers only sell their products directly to customers. For example, many independently owned bed-and-breakfast establishments choose to sell their own rooms on an exclusive basis. But most suppliers sell indirectly as well, by using intermediaries. And a few suppliers, such as cruise lines, sell their products almost exclusively through intermediaries.

Intermediaries

An intermediary is a seller of travel products who acts as a link between a supplier and a customer. The travel industry intermediaries are divided into three general groups: travel agents, tour operators, and specialized distributors. All three sell travel products to customers on behalf of the suppliers who produce the travel product, but each type operates in a different way.

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Travel Agents. Travel agents function as retail outlets for travel products. They provide a wide range of suppliers with a direct link to potential customers. Because they sell more airline seats, cruise reservations, hotel accommodations, and package tours than any other type of intermediary, travel agents represent the most important distribution system group for all travel suppliers.

An important difference between travel agents and most retailers (and from most other intermediaries) is that they are compensated differently. Traditional retailers buy goods or services from suppliers, then resell them to their customers at a higher price. Travel agents instead transfer products from suppliers to buyers; they neither buy the travel products they sell nor mark up the price. Instead, they act as transfer agents on behalf of suppliers who pay them a commission, which is either a fixed fee or a percentage of the selling price. Most other intermediaries, on the other hand, receive discounts for buying in bulk from suppliers and make their profits by reselling the products at a higher price--like traditional retailers.

However, recent decisions by airlines to limit the commission paid to travel agents to a flat fee instead of a percentage of the price of tickets sold may force travel agencies to begin charging customers (buyers) for their services. It may also encourage them to reserve more travel packages on behalf of their customers through tour operators, who continue to pay travel agents a higher percentage commission than airlines or hotels do.

Tour Operators. Tour operators act as intermediaries by offering package tours for sale to the travel customer. A standard package tour includes some or all of the following individual travel products:

* Air and/or surface transportation.

* Hotel or other accommodations.

* Sightseeing tours.

* Services of a tour guide.

* Meals.

* Entertainment.

* Use of a rental car.

To create tour packages, a tour operator either buys travel products in quantity from a number of different travel suppliers (usually at a significant discount) or supplies them itself. It assembles those various products into a tour package that it offers to customers at a single, all-inclusive price. Since the tour operator has purchased cheaply in bulk quantities, it can usually afford to offer its customers good values for their money and still make a profit for itself. Customers who purchase tours consequently benefit not only from the convenience of purchasing the single, all-inclusive vacation but also from the relatively low price made possible by the tour operator's purchasing power. Tour operators may also sell packages created by other tour operators directly to consumers.

Specialized Distributors. In addition to travel agents and tour operators, several specialized distributors channel travel products from suppliers to customers. Each of these specialized distributors focuses on a particular type of travel customer.

* Incentive travel planners assemble or organize the trips offered by companies to their employees as rewards for achieving corporate goals.

* Meeting, convention, and event planners arrange travel, accommodations, and tours for people attending conventions, trade shows, or conferences.

* Ticket consolidators buy excess inventory of unsold travel products and sell them directly to individual travel customers and retail travel agents at discounted prices.

It is important to note that rapidly changing technology will create more opportunities for the distribution of travel products. Currently, both suppliers (airlines and hotels) and intermediaries (large travel agencies) use online Internet systems to sell travel directly to consumers, by providing user-friendly Web sites and sophisticated browsing software for those who visit their sites. They also conduct transactions (selling tickets or reserving rooms) with credit cards on secure networks.

DIRECT DISTRIBUTION

Travel products reach customers through travel distribution systems. These systems are organized and maintained in order to provide products to customers through convenient points of sale. Their primary function is to give travel suppliers access to potential travel customers and to increase their sale of travel products.

The travel industry employs two basic systems for distributing travel products to the consumer. The first, direct distribution, involves the direct sale of travel products and services by the supplier to the customer. In the second system, called indirect distribution, one or more intermediaries provide a link between the supplier and the customer. In this system, the customers make their purchases from one of the intermediaries discussed previously.

The direct distribution system is the simpler of the two, since it involves only the supplier and the customer. Many rail passengers, for example, buy rail tickets at the station just before boarding. In this situation, the railroad supplies a product--transport by train over a specified distance--directly to its traveling customers. No intermediaries operate between the supplier and the customer.

Suppliers may have more than one way to offer their products for sale directly. One of the simplest direct distribution systems enables customers to make reservations and purchase products over the telephone. Most major airlines, hotels, rail companies, and car rental agencies have toll-free telephone numbers that their customers can call for service, often twenty-four hours a day. Another simple means of direct sale is using sales agents to sell to customers in person. Many suppliers, especially airlines and car rental companies, do this by selling their products over the counter at major airports. They may also lease space at other locations visited often by potential customers, such as hotels, convention centers, shopping malls, major railway stations, and anywhere businesses are concentrated. Some suppliers also sell directly to customers by allowing them to make reservations and payment by mail. More recently, suppliers are also making their products available through Web sites on the Internet.

Supplier Advantages of Direct Distribution

Some industries have no direct distribution systems for sales. You can't buy an automobile from the manufacturer, for example; you have to buy it from a dealer. But the particular characteristics of travel products and customers combine to make direct distribution advantageous to travel suppliers in some significant ways.

Simplicity. Direct distribution cuts down on the number of steps involved in a transaction, so the sale is less complicated. The supplier receives payment from the customer and provides the product or service purchased. No payments need to be made to intermediaries, which cuts down on the amount of clerical work and administrative time involved in the transaction. Direct distribution is simpler, too, because it reduces risk. Only two parties--the supplier and the customer--are involved in the transaction. This is an advantage because, generally, the more people involved in a transaction, the greater the risk of miscommunication or complications.

Additional Sales Opportunities. Many customers prefer to buy their travel products directly from the supplier, so suppliers who want to reach such customers must maintain direct distribution systems. For example, many business travelers who plan to pick up a rental car when they arrive at an airport do not arrange the rental in advance. They expect to be able to walk up to a rental desk and do the transaction there and then. Obviously, only those rental agencies that maintain a direct sales outlet at the airport would be able to sell to such customers.

Direct distribution also provides suppliers with opportunities to make additional sales over and above a customer's original purchase. Suppose, for example, that Jane Smith calls United Airlines to book a seat on a flight from Denver to Chicago. The reservation agent may be able to persuade her to buy additional products, such as a rental car. The representative could ask if Mrs. Smith has plans for another business trip or a vacation trip in the near future as well. If she does, he could suggest she purchase her tickets early to obtain a lower fare.

Other types of travel suppliers can benefit from direct distribution in similar ways. When customers reserve a hotel room for a business trip, the hotel representative can inform them about the hotel's "Stay Three Nights, Get a Weekend Free" offer. They may then opt to extend their stay to take advantage of the special offer. Direct distribution enables suppliers to speak with their customers about promotions, current rates, and special services, which increases the possibility of additional sales.

Responsiveness. The more control a supplier has over its distribution system, the more responsive the system can be. If market conditions or customers' needs change, the supplier can react quickly to those changes. A price change, for example, can usually be implemented more quickly in a direct distribution system. Or consider how a hotel could temporarily increase the size of its own reservations staff to handle an increased demand for rooms resulting from a large convention.

Increased Profit. Suppliers that make direct sales to customers do not have to pay commissions or give discounts to intermediaries. Of course, the supplier must bear the full cost of maintaining the direct distribution system. Even so, the cost trade-offs may mean that a supplier can increase its revenue by selling travel products directly. Suppliers must determine whether the costs incurred in selling directly exceed the commissions to be paid to intermediaries.

For example, a customer might pay $250 for a ticket on a Southwest Airlines flight from Atlanta to Dallas. If the customer makes the purchase directly from the airline, the airline receives revenue of $250 from the sale. If, on the other hand, the customer buys the ticket from a travel agent, the agent receives a commission of 10 percent on the sale, or $25. The airline then receives only $225 in revenue for the same seat. But if it costs Southwest more than $25 to sell the ticket directly (e.g., in labor, overhead), it makes economic sense for the airline to sell through intermediaries.

Greater Control. In direct distribution, the supplier retains full control of the manner in which the product and supplier are represented to the customer. The supplier does not need to depend on the actions of an agent, who may or may not adequately represent the best interests of the supplier. Travel agents, after all, represent more than one competing supplier and sell thousands of different travel products. They can't reasonably be expected to have as thorough a knowledge of any single supplier's product as that supplier's own sales staff would. Nor can they be expected to sell it as forcefully against the products of competing suppliers.

Direct distribution also allows suppliers to monitor the way their products are being sold to a greater degree than they can with intermediaries. It gives suppliers direct contact with customers, which allows them to have more control over the quality with which their products are delivered to their customers.

The choice to use a direct distribution system rather than an indirect system, however, also reduces the number of potential sales outlets for products and services and results in higher fixed costs of distribution for the supplier. Consequently, suppliers must carefully examine cost, availability, and quality-control factors in relation to the characteristics of the products they are selling when making decisions about which sales distribution system to use.

Customer Advantages of Direct Distribution

Direct distribution systems offer certain advantages to customers as well. As a result, some customers, particularly those who travel frequently, prefer to make their travel purchases directly from suppliers. They have several reasons for doing so.

Control. Many travel customers believe that buying travel products directly gives them more control over their travel plans. They do not need to depend on third parties to make their arrangements for them.

Time Savings. Purchasing travel products directly from the suppliers can be faster than going through intermediaries, especially when travel plans are simple and options in prices and fares are limited. Many suppliers provide toll-free telephone numbers for prospective customers. When customers speak directly to sales representatives, they can decide among various options on the spot. If an intermediary is involved, extra time may be required for an agent to relay travel options and decisions back and forth between the customer and the supplier.

Greater Accuracy. The more people involved in a transaction, the greater the chance for errors or misunderstandings. When travel customers use intermediaries, they have to depend on the accuracy of both the intermediary and the supplier. Some customers believe that purchasing travel products directly minimizes mistakes.

INDIRECT DISTRIBUTION

An indirect distribution system operates when one or more intermediaries provide a channel for the flow of travel products from the supplier to the customer. The supplier still sells travel products to customers, but does so indirectly through a third party acting on the supplier's behalf. Indirect distribution systems are the mainstay of the travel industry. According to the American Society of Travel Agents (ASTA), travel agents in the United States sell 95 percent of all cruises, 90 percent of all package tours, 80 percent of all domestic airline tickets, 50 percent of all car rentals, and 25 percent of all domestic hotel rooms.

The most common and straightforward example of an indirect distribution system is the use of a travel agent by a customer purchasing an airline ticket. The airline supplies the product: travel by air between specified points for a set fee. The customer purchases the product supplied by the airline but does not make the purchase directly from the airline. Instead, the travel agent acts as an agent for the airline by selling the product to the customer on the airline's behalf. The travel agent receives a commission from the supplier, in this case the airline, for acting as its agent.

Intermediaries in indirect distribution systems have access to a vast number of different travel products, offered by a variety of suppliers. Theoretically, all intermediaries have access to the same huge pool of travel products. With few exceptions, intermediaries do not offer unique travel products to their customers on an exclusive basis. They do, however, combine travel products in such a way that they can offer unique combinations of products to fill the needs of their travel customers.

Because of the variety and number of travel products, intermediaries often specialize according to the products they handle, the type of customers they serve, or their method of packaging combinations of travel products. As a result, travel intermediaries can be divided into four broad categories: travel agents, corporate travel departments, tour operators, and specialized travel distributors.

Travel Agents

Travel agents, for the most part, sell all types of travel products to anyone who wishes to use their services. Most travel agencies sell both leisure travel and business travel. However, different agencies may emphasize one area more than the other. Some may specialize in a particular type of travel, such as cruises, or a particular group of customers, such as college students.

Travel agencies operate much like any other retail outlet. They are usually located in areas where they are visible and accessible to the public, so they benefit from locations such as downtown areas and shopping malls. Agents who emphasize business travel may be located in office complexes or technology parks where they are close to their customers. The exceptions to this location issue are the online agencies with Web sites or those who use toll-free numbers for consumer access. Regardless, business travel agents often make leisure travel arrangements for the customers whose business needs they serve.

In their capacity as intermediaries, travel agents have relationships with both suppliers and customers, to whom they offer professional advice on the selection of travel products. When they sell travel products, they earn commissions from the suppliers of those travel products. If customers come to a travel agent to inquire about a cruise, first the agent finds out their specific requirements. What part of the world do they want to cruise? What ports of call do they wish to visit? What shipboard activities do they expect the cruise line to supply? How much money do they wish to spend?

After obtaining this detailed information, the agent selects several cruises that fit the criteria given by the customers. The travel agent gives the customers brochures, videotapes, and other pertinent information on each cruise. The agent may be able to advise the customer on the basis of personal experience or the reports of other customers or travel agents. The more information the customers receive, the more knowledgeable their decision will be, and the more satisfied they are likely to be with the travel purchase.

When the customers have chosen a cruise and decided to make a purchase, then the role of the travel agent changes. Now they become an agent for the cruise line selected by the customer. The agent takes the reservation and collects the deposit on behalf of the cruise line. The agent gives the customer information and advice free of charge; but the customer pays only for the cruise. The agent receives compensation in the form of commission from the supplier only when a sale is made.

Corporate Travel Departments

In today's travel-intensive business environment, an increasing number of large companies have found it beneficial to develop their own travel departments rather than use the services of an outside travel agency. Since they are salaried employees of travel buyers, corporate travel representatives aren't always considered to be intermediaries. But the people who work in corporate travel departments provide the same services as retail travel agents, except that they specialize in meeting the travel needs of their own companies. They are responsible for ensuring that the company's travel dollars are spent in the most efficient way possible. Often, corporate travel departments must work within the confines of a set travel budget.

Unlike travel agents, corporate travel representatives are compensated by the companies for which they work. Corporate travel departments do not receive commissions from suppliers. Their companies defray the cost of maintaining the travel departments by negotiating discounts and rebates directly with their suppliers, including airlines, hotels, etc.

In recent years, large corporations have begun hiring large travel agencies to handle all of their travel needs. Because of the large volume of business, these travel agencies are often located in the corporation's offices, and are viewed by their employees as the corporate travel department (because of their location). They are, however, a separate, private company (or satellite office) conveniently located in their customer's offices.

Tour Operators

Tour operators can be divided into two groups: outbound and inbound. The former group is the larger and more traditional tour operator who is located in the market (a city for example) and is selling tours that will take local citizens to far-off destinations. These tour operators often have staffed offices in the most popular destinations to coordinate activities and assure that customers (tour takers) enjoy their tour experience.

Increasingly, these outbound tour operators are opting to buy packages or services from a rapidly expanding group of inbound or receptive tour operators. These companies are located in popular destinations (Paris, Rome, Disney World, Colorado, etc.) and handle all of the needs of customers of outbound tour companies once they arrive in the destination. The advantage to this arrangement for the outbound tour operator is that the receptive operator can negotiate better prices (they are buying on behalf of many tour operators coming to their destination), is well known by destination businesses, and provides all the coordination and customer care so that the outbound tour operator does not need to staff and pay for an office in the destination.

Many of these receptive operators have expanded the size and scope of their services and have begun to call themselves destination management companies (DMCs). These tour companies play an important role in international tourism, where customers from Asia, Europe, and Africa fly to North American destinations, tour the area in DMC motor coach equipment, and are assisted by DMC staff. These receptive tour operators also are essential to small independent tour operators who are not large enough to own and operate motor coaches and support an office with staff in the destination.

Like travel agents and corporate travel departments, tour operators function as intermediaries in a system of indirect distribution. Their primary business is the creation and sale of package tours (see Figure 8-1). These tours may range from a two-day motor coach tour of a nearby city to an extended round-the-world tour. Tour operators assemble several discrete travel products into combinations that will be attractive to vacation and leisure travelers. These packages are then sold by various means to travel customers.

Some tour operators sell their packages directly to customers by using descriptive brochures or print (newspaper/magazine) advertising. Customers can then make their reservations directly with the tour operator. In many cases, however, package tours are sold through travel agents on a standard commission basis.

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In most cases, tour operators create their products by negotiating block bookings for space on airline flights to a particular destination or by organizing charter flights. They also buy blocks of rooms or tickets from hotels and sightseeing tour companies. They then sell the entire travel package at one set price, often including optional extras for an additional charge. The exception to this approach is the few very large tour operators who own their own motor coaches, airplanes, and hotels and thus are able to supply the travel products directly to the customer.

Because of the variety of ways that these travel products can be packaged, tour operators tend to specialize. Types of specialization include:

* Destinations--the United States, the Far East.

* Type of customers--singles, retired people.

* Purpose of trip--nature study, history tour.

* Mode of travel--cruise, motor coach tour.

Specialized Travel Distributors

Specialized distributors may work on behalf of either the customers or the suppliers of travel products. In either case, they distribute travel products to a particular type or group of customers. Many specialized distributors are salaried employees of the group for which they make travel arrangements. Thus, like corporate travel department employees (but unlike travel agents), they do not receive a commission from the travel suppliers. As mentioned previously, specialized travel distributors are of three basic types: incentive travel planners; meeting, convention, and event planners; and ticket consolidators.

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Incentive Travel Planners. These intermediaries organize the incentive travel programs offered by corporations to their employees as rewards for meeting or exceeding corporate objectives. Often these are salespeople and distributors who, because of the nature of their work, are the kinds of employees most likely to be offered incentive travel awards.

When incentive travel became popular some years ago, the purpose of the travel was strictly leisure. The employee enjoyed a week at a Caribbean resort, for instance, as a reward for achieving a sales goal. More recently, incentive travel planners have begun to create programs that mix business and pleasure. Business meetings held as part of a vacation allow a corporation to conduct training or strategy planning with its top employees at an exotic location.

Some of the largest companies that offer travel as a reward or incentive actually employ their own incentive travel planners. They may also spend some of their time on other tasks, such as convention planning or public relations.

Businesses that do not have in-house incentive travel planners often use companies that plan incentive travel programs exclusively. They may also use local travel agencies with special expertise in incentive trips or group travel.

Because incentive travel trips are used to reward employee performance, they are usually of high quality, including first-class transportation and deluxe, all-inclusive accommodations. Often, employees are accompanied on the trip by their spouses, whose expenses are also paid by the company.

If the company specifies that meetings will be part of the trip, the planner must make arrangements for suitable meeting space. In some cases, the planners also organize special activities for spouses while the employees attend meetings.

Meeting, Convention, and Event Planners. Constant changes in technology, increasing competition between companies, and rapid technological advances have fueled the growth of the meeting and convention industry. The current business climate places a high priority on the acquisition and dissemination of new information and the celebration of significant achievements. Meetings, conventions, and special events have proved an effective way to achieve these goals. As a result, the need for professional meeting and event planners has grown correspondingly.

Meeting, convention, and event planners are responsible for all the logistics of a meeting or special event. They decide on the best format and location for the meeting (or event), taking into account the budget available and the number of people attending. They negotiate with suppliers for meeting and display space, transportation, side trips, meals, and accommodations. They schedule the meeting agenda (event program) and provide technical support, such as technology and audiovisual equipment, where needed.

Many organizations, associations, and corporations schedule events (receptions, entertainment, golf tournaments, galas, etc.) as part of their meetings or as freestanding activities that meet sponsorship, public relations, and employee morale goals. In many cases, event management professionals plan, design, and implement these important programs, either as employees of the organization or as consulting companies.

Meeting-, convention-, and event-planning jobs fall into three categories:

* Association executives--full-time professionals employed by business, professional, or nonprofit associations.

* Corporate employees--coordinators of all major meetings and events for the corporation that employs them.

* Consultants--freelance planners hired by corporations or associations that do not have in-house planners; work on a fee basis.

Ticket Consolidators. One of the distribution channels developed by the travel industry to deal with the perishability of its products is the ticket consolidator. The consolidator acts as an intermediary when a supplier has unsold products that it cannot sell through normal channels of distribution. Consolidators usually buy travel products in bulk and sell them directly to customers, or less often, through retailers for resale to the public. This process requires them to purchase travel products in advance (versus retailers who act as transfer agents) and to sell a large volume, because the profit margin is smaller than for suppliers or other intermediaries. The largest group of ticket consolidators sell unsold airline tickets at a steep discount. They sell these seats through newspaper, telephone, and internet advertising.

Other ticket consolidators sell products such as tours and cruises at a substantial discount, most often through travel clubs. For a small membership fee, travel clubs offer their members access to a variety of travel products. Because suppliers make these discounted products available to the consolidator only when the departure date is close, club members must be willing to choose from a limited selection of products and be able and willing to travel on short notice. Some travel clubs publish catalogs for distribution to all club members. Other clubs only give information and take reservations through a telephone number known only by members.

Unlike some intermediaries, notably travel agents, travel clubs do not give out information on their products to prospective customers free of charge. Only those who pay the membership fee have access to their specialized information and products. This limited publicity is meant to avoid offending customers who have paid full price for the same product.

Supplier Advantages of Indirect Distribution

Indirect distribution systems offer significant advantages to suppliers. Most of these advantages stem from the special characteristics of the intermediaries involved in indirect distribution.

Expanded Sales Outlets. By using intermediaries for indirect distribution, suppliers vastly increase the number of outlets in which their products are sold. A hotel, for instance, may have its own sales office in the hotel as well as at a desk at a nearby airport, along with a toll-free phone number and even its own Web page. But by making its rooms available to travel agents nationwide, the hotel has over thirty thousand sales outlets, each of which employs a number of agents. This principle of expanded sales opportunity applies to all the major types of suppliers in the travel industry.

No-Overhead Sales Force. Although an indirect distribution system expands a supplier's sales force, it does not add to the supplier's overhead expenses. For many suppliers, paying a commission to intermediaries makes more sense than maintaining a network of sales offices or reservation centers with full-time staffs. Small suppliers who do not have a sufficient product base to support a large sales staff can avoid the cost of additional salaries, benefits, and office space by using intermediaries. They also know for certain that they will incur sales expenses (in the form of commissions) only if the product is actually sold.

Customer Advantages of Indirect Distribution

If the advantages of indirect distribution mechanisms were confined to suppliers, customers might well opt to make their travel purchases solely through direct means. But indirect distribution offers customers a set of distinct advantages that increase its importance to the travel industry.

Choice. Customers who purchase travel products from intermediaries have more choices than they would if they were buying directly from a supplier (see Figure 8-2). The number of available choices is greater for two reasons. First, intermediaries offer the products of many competing suppliers, unlike individual suppliers, who generally offer only their own products. When purchasing through an intermediary, a customer can effectively choose from all the available flights to a destination or from all the hotels at that destination without making numerous phone calls. Second, intermediaries offer combinations of travel products that individuals would find difficult or impossible to assemble themselves.

Price. "Buy direct from the factory and save money" may be good advice for some types of products, but it is generally not true for travel products. In fact, the opposite is often the case. Customers who purchase products through intermediaries can take advantage of block purchases and bulk discounts. Tour operators, for example, can usually put together a package tour that costs the customer less than the sum of its individual product costs. Ticket consolidators also offer products at prices well below those usually charged by the supplier. In addition, travel agents use their knowledge of competing travel suppliers to identify the lowest price for a particular travel product.

Service. Intermediaries are especially efficient at narrowing down the number of possible travel products available to consumers. They play a key role in what is called "the double search process": customers looking for products and suppliers looking for customers. Intermediaries are ideally qualified to identify and recommend the few travel products that will best meet their customers' needs, out of the enormous array of possibilities. Intermediaries offer both informed advice and special personal services. Local travel agents, for example, offer not only convenience but also a chance for customers to establish rapport through face-to-face conversations. Agents often take time to ascertain the travel needs and preferences of their customers. With this knowledge, they can select and recommend options that are best suited to their customers' needs and budgets. Since the deregulation of the airline industry, for example, the number of fares and restrictions on airline tickets has increased dramatically. In addition, there can be millions of price changes in a week. Travel agents are familiar with these special fares and restrictions and can advise their customers accordingly. Internet Web sites developed by large travel agencies allow customers to access fares and prices, which are continuously revised electronically and therefore always up-to-date. When customers have decided to buy a travel product, the agents can make the necessary arrangements for them or they can do so themselves electronically. These services, unlike many other professional services, are usually free of charge.

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DISTRIBUTION MODELS

The direct and indirect distribution systems discussed previously are the basic types found throughout the travel industry. The following examples illustrate typical ways in which these systems operate. The one-stage model illustrates the direct distribution system. The two-stage model illustrates the simplest type of indirect distribution. The three-stage model shows how an indirect distribution system can become more complex.

One-Stage Direct Distribution

Dr. Michael Smith, a professor of philosophy at the University of Chicago, is attending a conference at Stanford University. His flight from O'Hare to San Francisco lands on time at 2:45 P.M. Dr. Smith needs a rental car to get from the airport to his hotel and to travel to various meetings over the next two days. He goes to a rental counter in the baggage claim area and orders a car for two days. Dr. Smith presents his credit card, signs the agreement, and walks outside to the company's shuttle van. A few minutes later, he is on his way.

This example illustrates the direct distribution of a single travel product (see Figure 8-3): the use of a rental car for a specified period of time. The transaction between the supplier and the customer is simple and direct. Dr. Smith benefits from the simplicity, speed, and convenience of the transaction. Without a direct distribution system at the airport, the car rental company would not have been able to make this sale.

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Two-Stage Indirect Distribution

Sean and Helen LaRoche will soon celebrate their tenth wedding anniversary. To celebrate the occasion, they plan to spend a long weekend in Philadelphia. They have already purchased tickets to a Saturday evening performance of the opera by calling the box office directly. For their hotel reservations, however, they decide to use the services of their travel agent.

They explain their requirements to the agent. They want to stay at a luxury hotel in the center of Philadelphia. Mr. LaRoche specifies a room on the first or second floor since he does not like heights. Mrs. LaRoche insists that the hotel have excellent room service, available twenty-four hours a day. Since they will be staying for a few days, they prefer a suite with separate sleeping and living room areas. Their budget for the hotel is generous.

Their travel agent has visited Philadelphia often and has inspected most of the downtown hotels. She describes three hotels that fit the requirements set by Mr. and Mrs. LaRoche. She also gives them brochures that describe the hotels in more detail. While the LaRoches look over the brochures, she checks the availability and the rates of suitable rooms in each of the three hotels. She discovers that each hotel offers a special weekend rate. After a brief consultation, Mr. and Mrs. LaRoche select the hotel of their choice. The agent makes their reservation, giving their credit card number to guarantee the room and the weekend rate.

This example illustrates the two-stage indirect distribution of travel products (see Figure 8-4), highlighting the benefits that customers receive from a travel agent. Mr. and Mrs. LaRoche benefitted from their travel agent's personal knowledge of the hotels. In addition, the travel agent was quickly able to tell them which of the hotels fit their requirements. They were able to look at the options and to compare rates and services. All of these services were provided free of charge, and the rate they paid at the hotel was not any greater as a result of using the services of the travel agent. In fact, the LaRoches probably saved money, thanks to their travel agent advising them of the reduced weekend rates.

[FIGURE 8-4 OMITTED]

The travel agent received her compensation in the form of a commission on the sale of the hotel space. She probably also earned opportunities to sell additional travel products to her satisfied customers, Mr. and Mrs. LaRoche, in the future. This is critical, since most intermediaries have access to the same pool of travel products and must, therefore, distinguish themselves by their superior knowledge and service. The hotel, as a supplier, benefitted from this transaction because it sold a hotel room and their only direct cost of the sale was the agent's commission.

Three-Stage Indirect Distribution

The Chesapeake Nature Society has decided to organize a group bird-watching expedition to Greece. Fifteen members of the society indicate their interest in participating in the tour. Sarah Williams, the president of the society, has the responsibility of making all the necessary arrangements.

Ms. Williams goes to a travel agency in nearby Fredericksburg, Virginia. She describes the type of bird-watching expedition that the group is interested in to an agent from whom she has purchased travel products in the past. The agent then contacts Seagull Tours, a tour operator specializing in nature tours. He knows that this particular operator offers several tours to Greece every year.

Seagull Tours does have a tour that fits the needs of the Chesapeake Nature Society. It includes a chartered flight from Washington, D.C.'s Dulles Airport to Athens, a passenger ferry to the island of Santorini, hotel accommodations, breakfast and dinner each day, use of a van on the island, and guided tours by a local naturalist who speaks English.

The travel agent describes this package to Ms. Williams and gives her the inclusive cost per person. He indicates that there are optional extras, such as side trips to areas of historical interest and the chance to extend the trip by two days in order to explore Athens, then returning to Washington on another of Seagull Tours's chartered flights. These options can be purchased for an additional charge. After discussing the package with her group, Ms. Williams forwards a deposit to her agent to secure the reservations. Having made the sale, the travel agent will receive a commission from the tour operator.

This example illustrates a three-stage distribution process, including a specialized distributor (see Figure 8-5). Some of the products purchased by the Chesapeake Nature Society would have been difficult to purchase directly. The members also paid less for the tour than they would have if they had made their own arrangements. In this example, the travel agent acted as a sales agent for the tour operator, which in turn had purchased travel products from suppliers.

Even more complex distribution models are possible, although not that common. Multistage models involve more levels of intermediaries in the travel distribution system, as products pass indirectly from suppliers to customers.

AUTOMATION AND TRAVEL SALES DISTRIBUTION

The use of automation has increased tremendously in the travel industry in the last two decades. Automation began when airlines developed computer systems to handle reservations. Since then, the capability of these systems has expanded. Today, travel agents can use these enhanced systems for:

* Reservations and ticketing (front-office).

* Accounting and management (back-office).

Today, nearly 100 percent of travel agencies in the United States use automated computer reservations systems, and over 70 percent have automated their accounting systems.

Computer Reservations Systems

A computer reservations system (CRS), also referred to as a global distribution system (GDS), performs two principal functions. It gives the agent instant access to information on schedules, fares, and seat availability, replacing old printed references that quickly become outdated. CRSs also allow the agent to use this information to book reservations, print tickets and itineraries, and generate invoices (see Figure 8-6). The entire process takes a fraction of the time it would take in a nonautomated office.

Several airlines have developed CRSs. Travel agents would have preferred that all airlines use one integrated reservation system, but that did not prove viable. Instead, several large airlines have developed CRSs that are managed by subsidiaries, known as host vendors. They have developed their own systems that give agents access to their products, as well as to those of most other airline and many non-airline suppliers. Today, most agencies in the United States subscribe to one or more of the major airline computer reservations systems.

[FIGURE 8-5 OMITTED]

[FIGURE 8-6 OMITTED]

The SABRE (Semi-Automated Business Research Environment) Group's computer system has the most subscribers of any of the systems. It is one of the world's largest nonmilitary computer networks. Travel agents using the SABRE system can provide the following services:

* Check airline schedules worldwide.

* Make reservations on over three hundred airlines.

* Book rooms at more than twenty thousand hotels.

* Reserve vehicles at over fifty car rental agencies.

* Sell Amtrak and Eurail tickets.

* Book tours.

* Book cruises.

* Sell tickets to Broadway shows.

Some hotel chains, car rental agencies, and other travel suppliers have developed their own systems. Unlike the airline systems, however, these systems are usually supplier-specific. They contain information and accept reservations only for one supplier's products and are rarely found in travel agencies.

In association with the reservation and ticketing systems, the airline CRSs and other software suppliers offer accounting and management packages designed for use by travel agencies and tour operators. Most of these back-office systems are linked directly to the CRS. Thus, when an agent makes a reservation and a ticket is printed, the information is automatically relayed to the back-office system for accounting purposes. Automation of accounting functions also allows agencies that focus on corporate travel to more easily generate the detailed travel and expense reports required by many of their corporate customers.

Current Trends in Automation

A new generation of computer reservation systems is already giving travel agents greater direct access to the entire pool of travel products. This trend toward computerized access to all travel products is expected to continue.

Most new developments, however, are aimed toward increasing the customer's direct access to travel products. Three recent innovations illustrate this trend toward direct distribution through automation.

Satellite Ticket Printers (STPs). Satellite Ticket Printers (STPs) are becoming a common sight in corporate office parks and other locations easily accessible to business travelers (like airports). These printers electronically deliver tickets from a travel agency directly to a client. Today, STPs are the fastest-growing type of ticketing machine.

Automated Ticketing Machines (ATMs). Operated by individual airlines, Automated Ticketing Machines (ATMs) allow customers to access flight information, make reservations, and receive tickets and boarding passes. The customer need simply insert a credit card and make the appropriate selections from a menu of options displayed on a video terminal. Most ATMs are currently located in airports.

Personal Computers (PCs). As the number of homes with personal computers increases, so will the use of PCs with modems to gain access to travel information. Today, customers can retrieve airline, hotel, railroad, and attraction information from several online travel Web sites, most of which allow for reserving and purchasing tickets.

The implications of these developments for the sale and distribution of travel products is clear. Most travel experts agree that suppliers will begin to share ATMs, giving the customer direct access to the type of information now found only on CRSs. As these systems are developed and integrated, it will be possible for a customer to buy a complete travel package from an ATM in a hotel, bank, supermarket, or shopping center. Online travel sites will also increase access to all travel products and are available on a twenty-four-hour basis.

What is also clear, however, is that automation will not eliminate the need for intermediaries in the distribution of travel products. The very nature of those products ensures that customers will always need the informed and sometimes subjective advice that people, rather than machines, provide. The question for the future is not whether intermediaries will disappear, but how increased automation will change the existing functions of intermediaries within the travel sales distribution system.

CHAPTER SUMMARY

* The special characteristics of travel products--intangibility, perishability, and complementarity--affect the way the products are distributed.

* Travel products are sold by two basic categories of sellers: suppliers and intermediaries.

* Suppliers own or control the travel products they sell.

* Intermediaries sell travel products to customers on behalf of suppliers.

* Travel agents, tour operators, and specialized distributors all serve as intermediaries.

* Two basic distribution systems channel travel products to customers: direct and indirect.

* Direct distribution occurs when the customer buys directly from the supplier.

* Indirect distribution occurs when the customer buys products through one or more intermediaries.

* Indirect distribution includes travel agents; tour operators; meeting, convention, and event planners; ticket consolidators; and incentive travel planners.

* Both distribution systems offer advantages to suppliers and customers.

* A one-stage distribution model illustrates a direct distribution system.

* Two- and three-stage distribution models describe distribution of travel products where intermediaries play a key role.

* In an automated travel agency, travel agents have access to information through computer reservation systems, which can make reservations and print tickets.

* Airlines are the principal vendors of CRSs, but other suppliers also have their own systems.

* The trend in automation is toward direct customer access to travel products, particularly through online (Internet) travel Web sites.

KEY TERMS

distribution systems

suppliers

intermediary

commission

specialized distributors

incentive travel planners

meeting, convention, and

event planners

ticket consolidators

direct distribution

indirect distribution

receptive tour operators

destination management

companies (DMCs)

travel clubs

computer reservations

system (CRS)

host vendors

satellite ticket printers

(STPs)

automated ticketing

machines (ATMs)

DISCUSSION QUESTIONS

1. Describe the similarities and differences between the role of inbound and outbound tour operators.

2. Describe how intermediaries are important in the distribution of travel products.

3. Discuss how the various intermediaries differ in the way they distribute travel products.

4. Indicate how suppliers and customers benefit from an indirect distribution system.

5. Explain the difference between a two-stage and a three-stage distribution system, giving examples of each.

6. Suggest how automation will change customer access to travel products in the future.

STUDY GUIDE

Identifying the Seller

Name: -- Date: --

Directions: Answer these questions as you read the chapter. You will be able to use your answers to help you review the chapter.

1. What is the difference between a supplier and an intermediary? --

2. What is a commission? --

3. Discuss the differences between a travel agent and a tour operator. --

4. What are three types of specialized distributor? --

5. Describe direct distribution. --

6. Describe three advantages to the supplier of direct distribution. --

7. How can a consumer benefit from direct distribution? --

8. What are the major categories of travel intermediaries? --

9. What is the purpose of a corporate travel department? --

10. Describe four ways in which tour operators often specialize. --

11. What is the job of an incentive travel planner? --

12. Why has the demand for meeting and event planners grown so dramatically in recent years? --

13. How does a travel club act as a ticket consolidator? --

14. What is indirect distribution? What are its two main advantages to the supplier? --

15. How do consumers benefit from indirect distribution? --

16. What type of distribution is represented by the one-stage model? Why? --

17. Give one example of a two-stage model of distribution. --

18. How has automation increased direct public access to travel information? --

WORKSHEET

Identifying the Seller

Name: -- Date: --

WHO GETS THE SALE?

The travelers described below need to purchase specific products and services. For each example, determine whether it would be better to buy directly from a supplier or to deal with an intermediary such as a travel agent; tour operator; meeting, convention, and event planner; or travel club. Briefly explain three reasons for recommending each seller.

1. Members of the Siberion Iris Society of Santa Barbara, California, have decided that they would like to tour some of the famous gardens and great houses of England.

A. What seller should the club choose? --

B. Will this sale be:

direct, from a supplier? --

indirect, from an intermediary? --

C. Give two reasons for recommending this seller. --

2. Sales of Tech-O-Matic Industry's new laptop computer have far surpassed company goals for three quarters. The company's chief executive officer has decided that the top five district sales managers should be rewarded with a luxurious free trip.

A. What seller should the company choose? --

B. Will this sale be:

direct, from a supplier? --

indirect, from an intermediary --

C. Give two reasons for recommending this seller. --

3. Michele and Peter Russo are high school physical education teachers who are avid skiers. They want to go on ski trips to a variety of locations, but their funds are limited.

A. What seller should the couple choose? --

B. Will this sale be:

direct, from a supplier? --

indirect, from an intermediary? --

C. Give two reasons for recommending this seller. --

4. The Mendoza family--two parents and two school-age children--have decided on a cruise as this year's family vacation. They want relaxation, exercise, sightseeing, and activities for the children.

A. What seller should the family choose? --

B. Will this sale be:

direct, from a supplier? --

indirect, from an intermediary? --

C. Give two reasons for recommending this seller. --

5. The professional development committee of the American College of Orthopedic Surgeons has voted to hold its association's upcoming annual meeting in Orlando, Florida.

A. What seller should the association choose? --

B. Will this sale be:

direct, from a supplier? --

indirect, from an intermediary? --

C. Give two reasons for recommending this seller. --

6. Kay Gibson pays an annual fee of $50 to belong to AirAmerica's Golden Age Travel Plan. She lives in Arizona and is planning to visit her daughter in Connecticut and her sister in Alabama. Kay would like to take a sightseeing motor coach tour on each trip.

A. What seller should Kay choose? --

B. Will this sale be:

direct, from a supplier? --

indirect, from an intermediary? --

C. Give two reasons for recommending this seller. --

7. Justine Frazier, a buyer from Des Moines, Iowa, will be in New York City for business meetings Wednesday and Thursday. Her husband will join her there on Friday, and they will spend the weekend enjoying the city's restaurants, museums, theater, and other attractions.

A. What seller should the Fraziers choose? --

B. Will this sale be:

direct, from a supplier? --

indirect, from an intermediary? --

C. Give two reasons for recommending this seller. --

Marketing Impressions

MCCORD CONSUMER DIRECT

In a time of commission cuts, closing travel agencies, and crowded flights, McCord Consumer Direct (MCD) credits their success to marketing, training, service fees, and preferred vendor agreements.

McCord Consumer Direct, a division of McCord Travel Management, is one of the country's largest leisure travel management companies in the United States. They specialize in direct phone sales to consumers seeking airline reservations and other related services. These services are marketed through toll-free "phone words" such as 1-800-FLY ASAP, 1-800-SKIN DIVE, 1-800-SKI CHEAP and 1-800-BEST CRUISE, to name a few. Their customers are consumer based and respond to marketing programs nationwide, such as fax marketing, the Internet, flyers, press releases, radio spots and word of mouth.

Training is a major focus in the MCD call center and they provide unique specialty training as well as travel career training. MCD constantly strives to develop and improve the programs throughout the company in this ever changing travel industry.

McCord Consumer Direct is open 24 hours a day, 7 days a week, 365 days a year. They have an employee base of 250, which includes their discount sales specialists, executive staff, and support staff.

Motivation, creativity and determination are key words describing the MCD call center. They believe in promoting enthusiasm in their center through games, recognition, theme dress-up days, and special company events.

It's very important to have an atmosphere that is lively when your job consists of answering over twenty thousand phone calls per day. Sales are projected to exceed $82M in 1998.

MCD's slogan is "A World of Possibilities," and the possibility of starting an on-site childcare center became a reality with the opening of the McCord Learning Center. They wanted to do something to benefit their staff and the community and the Learning Center was the answer. It's more than childcare; it's a center that promotes knowledge and guidance in addition to playtime.

McCord Consumer Direct, like many other companies, has a mission statement that they truly believe in. "The mission of McCord Consumer Direct is dedication to offering the highest quality travel experience at the lowest possible price. Our focus is to provide our services with skill, precision, and accuracy, delivered with a sense of warmth, friendliness, individual pride, and company spirit. Our goal is to treat all customers like we would want to be treated."

It goes without saying that a company is built based on the leadership it receives. Because of the vision and support of MCD's leaders, they've been able to move ahead and pursue opportunities that others only dream of. McCord Consumer Direct is planning for the future. They anticipate building their center to 350 employees by the beginning of the new millennium and advancing their technology and services to new heights.

They believe that their spirit will drive them to reach their goals and they look forward to continued growth in this ever changing industry.
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Title Annotation:PART TWO Selling the Travel Product
Publication:Marketing and Selling the Travel Product, 2nd ed.
Article Type:Brief article
Geographic Code:1USA
Date:Jan 1, 2000
Words:9742
Previous Article:Chapter 7 Understanding the traveler's needs.
Next Article:Chapter 9 Evaluating the travel product.
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