C H A P T E R
• • • • 7
Distribution channels
and e-commerce
Peter O’Connor
Distribution channels and e-commerce
Introduction
Information technology can ful?ll various roles in tourism, acting as
‘a creator, protector, enhancer, focal point and/or destroyer of the
tourism experience’ (Stipanuk, 1993, p. 267). However, many people
believe that its greatest impact has been the change it has caused in how
tourism products and services are marketed and sold. Developments in
technology have driven a revolution in tourism distribution channels,
totally changing relationships between suppliers and intermediaries,
and even the very structure of the distribution network itself. Suppliers,
intermediaries, and consumers have all embraced the electronic world,
with the result that tourism, in common with many other aspects of
society, increasingly operates in a digital world (Buhalis, 1998).
Avariety of different electronic systems have been developed to facil-
itate tourism distribution and these have dramatically affected the way
in which tourism products are marketed, sold, and delivered (Connell
and Reynolds, 1999). Before examining these effects, this chapter out-
lines how electronic distribution has developed within tourism to
explain where we ?nd ourselves today. The evolutionary path from
manual systems to the closed Global Distribution Systems (GDS)-based
systems to the open distribution network enabled by the Internet is
explored. Current challenges, such as managing multiple simultaneous
distribution channels, working with online intermediaries, and react-
ing to rapidly changing technology are also examined to help readers
understand this highly complex environment. The absence of quality
academic research on tourism distribution is highlighted, and sugges-
tions are made as to why and how this de?ciency should be addressed.
The importance of information
Information has been described as the lifeblood of the tourism industry,
as, without it, the potential customer’s incentive and ability to travel
is severely limited (Wagner, 1991). In few other activities are the gen-
eration, collection, processing, communication, and use of information
as important for day-to-day operations as in the tourism sector (Poon,
1993). Potential travelers need appropriate information before depart-
ing on a trip to help with planning and help them choose between
different options, and also need access to accurate and detailed infor-
mation during their visit, as the trend toward more independent travel
increases (Preston and Trunk?eld, 2006).
Certain characteristics of tourism heighten this dependence on infor-
mation. Foremost among these is the intangibility of the tourism
product; unlike manufactured goods, a travel experience cannot be
inspected prior to purchase and therefore consumers are almost com-
pletely dependent on descriptions or representations when making
a purchase decision (Middleton, 1994). Tourism’s diversity is also
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important, as in many cases it is this heterogeneity that makes such
a product attractive in the ?rst place. Tourism products are also ?xed
geographically, meaning that the customer cannot pre-test the product
and must travel – in effect, consume the product – in order to expe-
rience what they are buying (Lewis et al., 1995). These characteristics
combine to make consumers highly dependent upon accurate infor-
mation to gain an indirect sense of a tourism product’s qualities and
to help differentiate between competing products (Go and Pine, 1995).
In addition, tourism products are rarely bought in isolation, and ‘the
endless combinations and permutations of alternative travel routes,
transportation modes, time and lodging accommodation make travel
decisions dif?cult even for the initiated’, further increasing the need for
appropriate information to aid in the decision-making process (Kaven,
1994, p.116).
Recent changes in social life heightened the need for information
(Vaughan et al., 1999). In today’s world, time has become a scarce
commodity and thus leisure travel represents an important emotional
investment that cannot be easily replaced if something goes wrong.
As a result, annual holidays or even weekend breaks have become
increasingly associated with risk. Planning the simplest trip means
choosing among a bewildering array of options and running a risk
of making an inappropriate choice. As Buhalis (1997) points out ‘the
greater the degree of perceived risk in a pre-purchase context, the greater
the consumer propensity to seek information about the product.’. Therefore,
to minimize such risk, consumers seek out appropriate information
to minimize the gap between their expectations and their subsequent
experience.
Consumers have also become more knowledgeable and demanding.
Having grown up comfortably with foreign travel through package
holidays in their formative years, and with exposure to broader hori-
zons as a result of television and increased education, many want more
than the sun, sea, and sangria experience, and are increasingly com-
fortable organizing it for themselves (Poon, 1994). Travel frequency has
increased, and instead of (or frequently in addition to) an annual sum-
mer vacation, these ‘new leisure travellers’ take multiple short breaks
throughout the year, often organized independently and at short lead-
times (Preston and Trunk?eld, 2006). To facilitate such customers, the
fast, ef?cient exchange of information between the supplier and the
customer (or their agent) is essential.
Consumers have traditionally sourced travel information in a vari-
ety of ways. These include either directly from tourism suppliers such
as hotels, airlines and car hire companies, or through intermediaries
such as travel agents and tour operators, who act as information bro-
kers making the connection between customer and supplier (Kotler
et al., 1996). The latter have traditionally serviced traveler’s infor-
mation needs in one of two ways: either by distributing print-based
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Distribution channels and e-commerce
promotional materials or through personal contact (Dube and
Renaghan, 2000). Print-based materials, such as brochures, catalogues,
and travel trade manuals, suffer from several limitations. Print is a
static, one-dimensional medium that is limited in its capacity to ade-
quately communicate the intricacies of the multi-sensory tourism expe-
rience (Middleton, 1994). In addition, developing print-based media is
costly and time consuming, with the resulting material becoming out-
dated quickly. Space limitations also mean that choices must be made
in terms of content, potentially limiting the effectiveness of the selling
message.
Communicating information personally is more effective, as the
information provided to potential customers can be more closely
matched to their needs. However, this approach is also problematic.
Tourism is the ultimate dispersed industry, with potential clients com-
ing from everywhere and wanting to go everywhere. Each has very
different information needs. With millions of individualistic purchasers
and thousands of heterogeneous tourism experiences, the permuta-
tions of information expand to a fearsome level – far above the level
with which a typical travel advisor could be expected to be familiar,
irrespective of their level of training or expertise. Developments in
information technology have provided a solution to this ‘knowledge
gap’ (Buhalis, 2000).
The origins of travel e-commerce
Go and Pine (1995, p.307) de?ne a channel of distribution as one that
provides ‘suf?cient information to the right people at the right time and
in the right place to allow a purchase decision to be made, and provides
a mechanism where the consumer can purchase the required product.’
This viewpoint is supported by a variety of authors (e.g. Bitner and
Blooms 1982; Middleton 1994; Buhalis 2000; O’Connor and Frew, 2003)
who support the argument that the primary purposes of distribution
channels within tourism are to provide information for prospective
purchasers (be they end consumers or intermediaries) as well as to
establish some mechanism to enable consumers to make, con?rm, and
pay for reservations.
The highly perishable nature of the tourism product makes ef?cient
and effective distribution particularly important, as any unsold item
cannot be stored and subsequently consumed at a later date. Thus,
selling every airline seat, hotel room, cruise-berth, or excursion seat
every night at an optimum price is key to pro?tability. As was dis-
cussed above, most tourism suppliers make use of intermediaries such
as travel agents and tour operators, but increased emphasis is being
placed on direct sales using electronic channels (Tse, 2003). Electronic
systems have many advantages over their traditional, labor-intensive
counterparts. They have few capacity limitations, offer in?nitely more
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geographical reach, have a low marginal cost, and are more easily able
to incorporate dynamic data such as room inventory/rates (O’Connor,
1999). Furthermore, while traditional distribution channels have to be
used in pairs – i.e., combining an advertising medium (e.g., brochures
or guidebooks) with an interactive medium (e.g., a telesales agent
or a travel agent) – to complete the transaction, electronic systems
can potentially ful?ll both roles and allow travelers to make reserva-
tions for themselves in a fraction of the time, cost, and inconvenience
involved in traditional methods (Chung and Law, 2003). These bene?ts
prompted widespread adoption of electronic systems throughout the
tourism value chain, and thus have changed the way in which travel
goods and services are sold forever!
Electronic distribution in tourism has its origins in the travel-agent-
focused GDSs. Originally conceived by the airlines as internal inventory
control systems in the late 1960s, the GDSs subsequently broadened
their scope by incorporating travel products, in addition to airline
seats, and by providing direct access to travel agents to their systems
(Karcher, 1995). From a travel agent perspective, processing reserva-
tions manually is a time-consuming, labour-intensive, and, therefore,
costly process. Using a computerized system allow them to see real-
time availability and pricing information, and to make instant book-
ings, making the entire searching/booking process faster, cheaper, and
more ef?cient. De-regulation of the airline sector in the United States in
the 1970s accelerated GDS adoption, as a computerized system became,
to a large extent, essential to help untangle the vastly increased num-
ber of ?ight and fare options (Hitchins, 1991). At the same time, most
airline reservation systems began cross-selling complementary travel
products, including hotel accommodation, car hire, cruises, rail tickets
and virtually every other travel product, both to increase service levels
to their travel-agent customers and to help offset the high costs of run-
ning the system. This ultimately resulted in the one-stop-travel-shops
that we know today as Global Distribution Systems or GDSs (Knowles
and Garland, 1994). Subsequent mergers and acquisition have resulted
in four main companies (Amadeus, Galileo, WorldSpan, and Sabre)
dominating the sector. GDSs today are used by approximately 95% of
travel agencies worldwide, and many of the major travel agency chains
will no longer make a booking for a client unless it can be processed
electronically (HEDNA, 1997). This makes representation on the major
GDSs essential for any tourism company wishing to sell through the
travel-agent community (Bennett, 1993).
The GDSs are not without their limitations. First, they service a
small (although in?uential) user base – in effect, just travel agents.
Although consumers can now access the systems over the Internet,
their structure and methods of operations still focus primarily on the
needs of travel agents, resulting in complex procedures, cryptic codes,
and unintelligible data. A further problem is the lack of ?exibility in
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terms of the data displayed to the user. While less of a problem in the
United States where hospitality chains predominate, the majority of
tourism products are heterogeneous, not standardized, and relatively
complex. Indeed, in many cases it is these characteristics that make
them attractive to travelers, in the ?rst place (Bennett, 1996). However,
as the GDSs were designed to distribute the more homogeneous airline
product, the structure of their databases cannot cope with the depth
and diversity of data needed to effectively market such diverse tourism
products (Emmer et al., 1993). Given their size, complexity and the
fact that they rely on technology that is over 30 years old, changing
these databases to incorporate more complex requirements is a nearly
impossible task.
In response to this problem, many tourism companies have devel-
oped their own reservation systems (known as central reservation
systems (CRS)) with more appropriate database structures, and have
subsequently linked them electronically to the GDSs for access to the
travel agent market (McGuf?e, 1994). However, developing and main-
taining a reservation system is relatively expensive, with both high
upfront capital costs and substantial running and transaction costs.
As a result, many companies outsource their electronic distribution
to third-party providers. For example, in the hotel sector, represen-
tation companies have emerged to provide distribution services to
smaller non-chain hotels, providing them with CRS capabilities and
connecting them to the GDS market (Morrison et al., 1999). Destina-
tion Management Systems, which concentrate on distributing tourism
products of particularly smaller and independent tourism suppliers
from a distinct geographical region, could be regarded as providing
similar services (Pollock, 1995). However, with the exception in a small
number of European countries, the impact of destination management
systems has been relatively minimal, as most have failed to evolve
beyond the experimental stage into full commercial systems (Frew and
O’Connor, 1999).
The arrival of the e-commerce
Until the early 1990s, electronic channels of distribution in tourism
were as described above – a cozy status quo where the operators of
electronic systems cooperated, rather than competed, with each other.
Relationships were effectively linear and participants had a mutually
bene?cial role to play (Anderson Consulting, 1998). From the perspec-
tive of the supplier, electronic channels of distribution were effective in
that they generated business, but at the same time were unpopular in
that they were expensive to develop and use. Between 1993 and 1997,
commissions and other reservation costs increased by approximately
117%, prompting many suppliers to seek alternative ways of distribut-
ing their product (Waller, 1999). During this period, one of the most
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revolutionary technological developments of all time – the Internet –
became available for public and commercial use. The widespread con-
sumer adoption of the World Wide Web – one of the key services
enabled by the Internet – provided an outstanding opportunity for
suppliers to bypass the multiple intermediaries controlling electronic
distribution and reach out to transact business directly with the cus-
tomer (Smith and Jenner, 1998).
Tourism suppliers were quick to exploit the opportunity presented
by the Web, in part because of the existing high level of comput-
erization in airlines and travel agencies. As a commercial medium
the Web is ideal, facilitating direct access to customers with a high
propensity to travel, as well as potentially offering major savings, as
the cost of processing voice calls and intermediary commission can be
eliminated (Jeong and Lambert, 1999). These bene?ts prompted what
Buhalis (2000b) described as ‘a radical change in the operation, distri-
bution and structure of the tourism industry.’ The majority of tourism
suppliers began distributing over the medium (Pusateri and Manno,
1998) and it had a profound effect on the way in which travel products
were being marketed, distributed, sold, and delivered (Williams and
Palmer, 1999).
Perhaps the most signi?cant effect was the shake up that it prompted
in channel structure. While the previous GDS-based network had been
linear, closed, and cooperative, Web-based distribution was open, com-
petitive, and extremely confusing! In addition to cooperating with each
other as they did in the past, most participants in the travel distribu-
tion chain began directly competing with each other by developing
consumer-orientated websites with provision of information and book-
ing facilities (Connolly et al., 1998). The situation is well summarized
by Dombey (1998, p. 3) as ‘little short of a technological stampede.
Up and down the traditional distribution chain providers are work-
ing feverishly to re-engineer their travel systems to bypass both the
GDS and the travel agent and create a direct link with the customer.’
In essence, the level of mutual dependence between participants has
decreased as each tried to circumnavigate intermediaries lower down
on the distribution chain and transact business directly with the cus-
tomer (Jarvela and Loikkanen, 1999).
Paradoxically, in addition to more competition, there was also
more cooperation – a phenomenon which Werthner and Klein (1999)
dubbed ‘coopetition!’ As will be discussed, the more successful online
travel sites offer multiple products (air, hotel, car, etc) from multiple
vendors, as their key attraction (Preston and Trunk?eld, 2006). To
be successful, they need to be full-service and provide the ability to
research and purchase an entire trip on-line. In order to do this, they
need the detailed content and access to reservation facilities that they
can only get by cooperating with other distribution providers (Wade
and Raffour, 2000). Non-exclusive virtual alliances were thus formed,
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Distribution channels and e-commerce
with companies joining to develop new synergistic relationships
(Dale, 2003). Dale maintains that establishing such virtual clusters
leads to ‘synergistic strategic value’, with each partner reciprocally
and mutually bene?ting from the relationship, generating inimitable
and non-substitutable network resources. For example, the GDS, in
addition to facilitating travel agent bookings, also began providing
the reservation engine behind many of the online travel agency
websites – in effect, to their own competitors. However, each partner
with the GDS bene?ted by leveraging their investment, and their
virtual partners, by having access to an ef?cient information and
reservation service without having to develop a reservation engine for
themselves. Dale (2003) identi?es ?ve different levels of relationships:
Channel, which enables one company to access the distribution
channels of another; Collaborative, where competitors cooperate with
each other to achieve goals that would be dif?cult in isolation;
Communicative, where content from ‘infomediaries’ enriches and adds
value to partner websites; Complementary, where companies cross-sell
products normally bought together (e.g., ?ights and hotel rooms);
and Converse, where the partners distribute unrelated products, thus
allowing each one to access the distribution channels of the other
in a non-threatening manner. He speculates that competition in the
future will be dictated more by the network of partners as a whole
than by single intermediaries, and advises ?rms to participate in such
networks unless they want to be left at a competitive disadvantage
(Dale, 2003).
The arrival of the Web upset the tourism distribution apple cart and
prompted major changes in the way tourism products were being sold.
Movement toward web-based distribution has been swift, and travel
has quickly become the most popular product sold online. While actual
dollar estimates vary, most analysts agree that spending on travel is
about one third of total online business-to-consumer (B2C) transac-
tions. At the time of publication of their US online travel market report
Internet analyst ?rm PhoCusWright put the size of the US market
at over US$50 billion (PhoCusWright, 2006). While both Europe and
Asia lag considerably, their pace of growth is higher and, with big-
ger potential markets, are likely to catch up with and even overtake
US penetration rates in the very near future (Carroll and O’Connor,
2005). However revenue ?gures alone do not demonstrate the impor-
tance of e-commerce to the tourism sector. Online statistics effec-
tively ignore bookings in?uenced by, but not completed, in the online
environment. Estimates say that over 40% of travelers who research
travel online subsequently make their bookings in some other way. As
such revenues are not included in online travel statistics, published
?gures in reality signi?cantly understated the importance of the web
for travel.
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Broken promises – direct distribution to the customer
As e-commerce developed during the 1990s, many commentators
focused on its ability to facilitate direct communication with, and even
direct sales to the customer. Most claimed that travel distribution as we
knew it would change forever, and the trade press was packed with
predictions of dis-intermediation and the death of the travel agent.
Tourism suppliers were naturally enthusiastic about this potential, as
fewer (or ideally no) middlemen meant fewer commissions and no
transaction charges (Heung, 2003). Web distribution was also called the
‘great leveler,’ potentially offering smaller and independent suppliers
the opportunity to compete effectively on an equal footing with big-
ger companies by selling directly to the customer (Buhalis, 1999). Yet
over 10 years later, intermediaries are stronger than ever, and online
travel distribution is controlled by a handful of companies – all of them
intermediaries! Precisely, how did this occur?
The adoption of the Web as a mainstream consumer research and
commerce tool certainly prompted major change in the way tourism
products and services were being sold. In addition to bringing together
a vast network of suppliers and a widely dispersed customer pool into
a centralized electronic market place, in contrast to earlier electronic
channels, the Web allowed for a much richer consumer experience.
Developing web technology allowed both suppliers and intermediaries
to place a full color, interactive multi-media brochure directly into the
hands of potential customers at a relatively low cost (Murphy et al.,
1996). Furthermore, it permitted two-way communications, allowing
transactions to be carried out directly and instantly with the customer.
And unlike with physical products, ful?llment of transaction was not
a problem with travel services, particularly as the use of electronic
ticketing grew.
Tourism suppliers were quick to take advantage of the direct dis-
tribution potent of the Web. For example, a 2002 survey published in
the Cornell Quarterly shows how the majority of major hotel chains
provided both detailed product information and reservation facili-
ties directly to consumers on their brand websites. Similar studies of
Aragonese hotels (Garcés et al., 2004), Balearic hotels (Vich-i-Martorell,
2003), Scottish hotels (Buick, 2003), and Italian hotels (Minghetti, 2003)
indicate that usage of the Internet as a distribution channel had also
diffused into smaller unbranded hotels, typically producing between
2 and 5% of revenues for such properties. Unfortunately, brand-direct
websites typically provide limited utility in that shoppers can only
view and purchase the products of that particular supplier. Even the
largest operators (for example, the airlines) essentially limited them-
selves to distributing just their core product. However, research has
shown that consumers do not purchase travel in this way. A traveler
booking an airline ticket also usually needs a hotel (or vice versa), or
to ?nd out something about the destination, and would like to know
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Distribution channels and e-commerce
about visas and health requirements (Poon, 1994). To satisfy these com-
plex and diverse information needs, consumers increasingly turned
to online travel agencies, whose key differentiating point was broad
choice, not only in terms of offering products from multiple competing
brands, but also by providing a full product range and thus offer-
ing a one-stop-travel-shop for the ‘harassed’ consumer (Preston and
Trunk?eld, 2006).
Offering ‘full-service’ has become a key aspect of online travel agent
strategy (Preston, 2005). Driven by falling (or even eliminated) airline
commission, most began placing great emphasis on cross-selling hotel,
car hire and destination services – products that are attractive because
of their relatively high pro?t margins. By encouraging consumers to
buy all their travel needs from the same site, they can both increase
average spending and generate higher pro?ts. This strategy is rein-
forced by the promotion of dynamic packaging services, which leverage
the online intermediary’s product portfolio and technological expertise
to provide customers with the facilities to interactively assemble their
own made-to-measure travel packages (Cai et al., 2004). Brand-direct
supplier sites simply cannot compete in terms of breadth of service
or depth of functionality. The mega agencies have also been investing
millions in of?ine and online advertising to build brand awareness and
have, to a large extent, succeeded in convincing the consumer that the
best bargains and best service can be found on their sites. Thus, despite
efforts by tourism suppliers, the combination of features, i.e., brand
and pricing, is accelerating a trend toward re-intermediation, with the
big winners in the growth of the sale of travel online being the mega
agencies rather than the travel supplier.
It is interesting to note that many of the online travel agencies have
their origins outside the travel sector. Thus, while traditional travel
agents hesitate to change their archaic methods of operations (Ozturan
and Akis-Roney, 2003), online companies are not conceptually lim-
ited by pre-existing relationships or traditional notions of how to do
business, which has allowed them to challenge the status quo and intro-
duce new and innovative business practices. For example, the business
model that most online intermediaries use to work with travel suppliers
has come to be known as the merchant model (Carroll and Siguaw,
2003). In contrast to the traditional commission-based agent relation-
ship (where suppliers paid intermediaries a commission each time they
sold a product), with the merchant model the intermediary negotiates
?xed allocations of inventory at highly discounted net rates and subse-
quently sells these products at a mark up, taking as pro?t the difference
between the rate negotiated and the price at which they manage to
sell the product online (O’Connor, 2003). While this might look like a
good deal for the supplier (no commissions or other transaction costs,
and the ability to set net rates to re?ect the minimum amount they are
prepared to accept for their product), the stronger negotiating power of
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the online merchants means they can demand rates signi?cantly lower
than what the supplier might freely wish to give. In addition, by careful
management of their margin, they can then sell onward such rooms at
highly competitive prices – in many cases cheaper than the rates being
offered on the supplier’s own website! For example, O’Connor’s (2002)
study of online hotel chain pricing found that online travel agencies
frequently offered the cheapest prices for hotel rooms, particularly at
the upper end of the market. Of course suppliers are always free to
refuse to participate, but, in classic fashion, nobody wants to be the
?rst to leave the online agencies, as to do so risks losing out on large
volumes of potential (even if low yield) bookings.
Managing multiple channels of distribution
With electronic distribution in tourism growing more complex, a vari-
ety of issues associated with the management of the area have devel-
oped. As Sigala and Buhalis (2002) note, hoteliers who successfully
manage their electronic distribution add value, develop their brand,
and build customer loyalty; those who fail risk losing customers to
intermediaries. This section examines four of the most topical issues
in tourism distribution channel management identi?ed from the lit-
erature – channel choice, pricing over multiple channels, managing
distribution cost, and ownership of the customer.
Channel choice
One effect of the growth in tourism e-commerce is an exponen-
tial growth in the number of distribution channels through which
the tourism product can be sold. As has been discussed, a large
variety of electronic channels have developed to supplement, but never
quite completely replace, traditional of?ine intermediaries. GDS-based
channels continue to thrive and, at the same time, Internet-based chan-
nels have also grown into an important source of business for most
tourism suppliers.
However, the set of channels used cannot be increased in?nitum. As
the number of channels increases, so too does the complexity of the
supporting infrastructure and, in turn, the cost of running the overall
distribution system (O’Connor and Picolli, 2003). For example, work-
ing with multiple distribution channels implies maintaining both price
and inventory in multiple distribution databases. If the supplier works
with online travel agencies, this can be cumbersome, labor-intensive,
and therefore costly as most require suppliers to perform these tasks
manually on an extranet-based system. Suppliers have to log into each
system in turn, process reservations or cancellations, and manually
change pricing/availability data to re?ect updated market conditions.
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Distribution channels and e-commerce
Obviously, developing interfaces between the online travel agency
systems and the reservation systems of tourismsuppliers would greatly
simplify this process. Such developments would not only allow avail-
ability and prices to be updated automatically, but would also allow
suppliers’ yield management modules to work more effectively, as they
would have more complete and accurate historical data on allocation
take-up and could therefore forecast more accurately. And while the-
oretically the technology exists to automate this process (in particular
using the Open Travel Alliance’s XML standard), online travel agents
have little motivation to facilitate such connectivity, as they effectively
pro?t from the market disequilibria created by suppliers who have to
manually performupdates. Faced with a cumbersome, time-consuming
task, many suppliers simply do not make updates as frequently as they
should, allowing the online agents to make higher margins by exploit-
ing the differences between the prices charged and actual demand.
Automation of the process would eliminate these differences as prices
and availability would be instantaneously updated whenever market
conditions changed. Thus, despite promises to the contrary, only the
largest tourism companies have been successful at convincing online
travel agencies to provide such direct connect facilities.
How then can suppliers decide which of the growing range of chan-
nels to include in their portfolio of distribution channels? As O’Connor
and Frew (2004, p.180) point out, ‘the decision as to which channel to
use has become increasingly complex, and hotel managers currently
have little guidance to help them determine which best match their
needs.’ In their paper, they propose an evaluation methodology for
electronic channels of distribution to help practitioners make this deci-
sion. In contrast to contemporary literature, which stresses evaluating
projects on ?nancial or marketing criteria, O’Connor and Frew sug-
gest that technical and operational factors should instead drive the
evaluation and decision process. The study highlights the complex
nature of such evaluations, as well as demonstrates how the increas-
ingly complex environment makes the use of a formal methodology
more important. However, as Enz (2003) points out, in reality most
suppliers are using multiple simultaneous electronic channels without
a clear understanding of their impact and the effect this has on their
overall pro?tability, as will be discussed below.
Pricing in an online world
Yield management is a set of techniques frequently used by airlines,
hotels, and other service ?rms with ?xed capacity to try to balance sup-
ply of their perishable product with forecasted demand in such a way
as to maximize revenue in the long term (Kimes and Wagner, 2001).
Being already a complex process, yield management has become more
dif?cult to implement because of the growth in the use and variety of
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electronic distribution channels discussed above. In addition to provid-
ing suppliers with more distribution options, each channel has different
revenue characteristics, costs, and levels of control (Helsel and Cullen,
2005), making the manipulation of the channel over which the customer
makes a reservation an important issue (O’Connor and Frew, 2002).
In the past, suppliers achieved this by segmenting customers and
offering different prices/conditions for each segment over different
channels (Choi and Kimes, 2002). Inef?ciencies in information distri-
bution effectively prevented rates destined for one market segment
from being seen or booked by the others (Lehmann, 2003). However,
the adoption of the Internet as an information medium has greatly
increased price and rate transparency (O’Connor, 2003). Consumers can
quickly and easily search multiple online channels before committing
to making a reservation (PriceWaterhouseCoopers, 1999). In addition,
a new type of online tool (known as meta-search) has developed that
allows travelers to comparison shop a large number of sites in prac-
tically a single click (well known examples include Kayak, Sidestep,
TravelAxe and Kelkoo). As a result, it has become increasingly dif?cult
to use differential pricing, either by market segment or by point of sale.
In practice, any rate, given to any distributor, can potentially end up
on the Web and thus be seen and booked by all customers.
Thus managing price has become both more important and, at the
same time, more dif?cult. One widely adopted strategy is price con-
sistency – having the same rate for each customer on all distribution
channels and at all points-of-sale (Santoma and O’Connor, 2006). An
alternative is to offer cheaper prices on direct websites – a strategy that
is often used to try to encourage customers to book directly, rather than
through intermediaries. In a 2003 study, O’Connor analyzed the online
hotel market to establish which pricing strategy had become the norm.
His ?ndings show that hotel companies typically use multiple simulta-
neous distribution channels, but that no one channel was consistently
cheapest. Analyses reveals differences based on market segment, with
consumers more likely to ?nd cheaper prices on direct channels (chain
website and call center) at the lower end of the market, and through
intermediaries, at the upper end. Highlighting how up-market and lux-
ury hotels appear to be offering their cheapest prices though channels
with the highest cost of distribution, O’Connor concludes that hotels,
in general, do a poor job of managing prices over multiple distribution
channels and urges them to develop well-thought-out pricing policies
that would encourage consumers to book directly through brand web-
sites. Anecdotal evidence would seem to suggest that operators have
followed this advice, as evidenced by the recent growth in the inclu-
sion of ‘Best Rate Guarantees’ on many supplier websites (Chin-Chien
and Schwartz, 2006).
However a worrying effect of such guarantees is the downward
pressure they appear to place on rates. With everyone promising the
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Distribution channels and e-commerce
‘best’ rate, suppliers and intermediaries are in effect engaged in a
price war that, while bene?cial for the consumer, has resulted in lower
and lower margins for suppliers (PriceWaterHouseCoopers, 2005). This
downward spiral is being ampli?ed by the online intermediaries, who
employ market managers to encourage suppliers to further reduce their
negotiated rate in return for better placement on search results listings.
Consumers are also learning that they can often ?nd better prices by
waiting until the last minute to make their booking (Thompson and
Failmezger, 2005). Thus, while the Web promised incremental business
by allowing suppliers to reach customers that they could otherwise not
have attracted, in practice many of the customers that actually book
online are ones who would have booked through some other channel,
in any case. The difference is, however, that the prices that are paid
results in a far lower yield for the hotel than had the booking been
made in the ‘normal’ fashion. Some more street-smart customers are
booking far in advance, monitoring online channels for better prices
and wherever possible canceling their original reservation to re-book at
a cheaper rate, closer to the arrival date. Failure to include appropriate
restrictions or fences to prevent such practices can potentially have a
drastic effect on pro?tability (Enz, 2003).
Managing distribution cost
As can be seen from the above discussion, Internet-based distribution
has created both opportunities and problems for revenue managers
(Choi and Kimes, 2002). More channels generally mean increased reach,
potentially allowing hotels to sell more rooms. However the cost of
using such channels can vary greatly. Considering only transaction
costs, direct Internet channels (e.g., the hotel’s own website) tend
to be cheaper than indirect channels (Helsel and Cullen, 2005). Yet,
more than half of all online bookings come through intermediaries,
whose transaction costs vary from around 10% to substantially higher
(PhoCusWright, 2006). Informal discussions with industry practition-
ers indicate that most online intermediaries demand (and frequently
receive) mark-ups of between 17 and 30%. In addition, other admin-
istrative, technical, and organizational costs mean that working with
certain online intermediaries can be between two to three times more
expensive than using traditional methods.
Thus, in order to maximize pro?tability rather than just sales, dis-
tribution managers need to shift their focus from what rate can be
achieved through a channel to the incremental cost of using that chan-
nel (Choi and Kimes, 2002). However, little empirical research has
focused on how to manage distribution costs across multiple elec-
tronic channels. In a 1999 paper, Noone and Grif?n propose combining
Activity Based Costing with yield management principles in what they
call Customer Pro?tability Analysis, while in a 2002 paper Choi and
199
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Handbook of Hospitality Marketing Management
Kimes use a simulation to demonstrate the application of yield man-
agement techniques to multi-channel problems. No study provides
practical advice on how to implement yield management in such situ-
ations, or to help yield managers decide what rate to charge on what
channel.
Ownership of the customer
The growth in the number and diversity of tourism distribution chan-
nels has also lead to another problem – ownership of the customer.
Travelers now have the ability to search for and book travel products
in many different ways. As has been discussed above, online travel
agencies are particularly attractive to consumers because of their con-
venience, their rich feature set, and their competitive prices (Preston,
2005). Consumers searching and booking on such sites practically
always ?nd a product that meets their needs and, in most cases, the
site will propose several alternatives, in direct contrast to supplier sites
that may not have a suitable product available or may be booked out
for the dates requested. As has also been discussed above, in many
cases the prices offered by the online intermediary will frequently be
as good as, if not better than, those available on supplier-direct sites.
Given such levels of service, where is the customer likely to go the
next time he or she wants to make a travel booking? Few studies pro-
vide concrete guidelines about how to develop and maintain effective
lodging websites, making it dif?cult for suppliers to know how to
compete (Jeong et al., 2003). Chung and Law (2003) do provide some
guidelines as to the type of information that should be included to
help develop better sites. More guidance on best practice is needed
as the majority of online agencies have started to put more emphasis
on building customer loyalty, by developing reward programs that
recognize frequent and high value customers and use electronic mar-
keting techniques to develop a closer relationship with them (Preston
and Trunk?eld, 2006).
O’Connor and Picolli (2003) highlight this threat and stress the need
for suppliers to drive customers to direct websites to help regain own-
ership of the shopping experience and gather valuable customer data.
They council hoteliers to rethink their approach to distribution and to
move away from a shelf space approach – being present on as many chan-
nels as possible – toward being more selective in terms of the channels
with which they work (Castleberry et al., 1998). O’Connor and Frew
(2004) similarly stress the need to drive customers to the direct web-
sites. They suggest that by using sophisticated customer relationship
management (CRM) techniques based on their personal contact with
the customer, they can build customer loyalty and in this way combat
the growing power of the online intermediaries. Only by developing
such close relationships with the customer can they reduce the danger
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200
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of substitution, thus helping to ensure long-term pro?tability (Piccoli
et al., 2003).
Suppliers have begun to give customers increased incentives to book
directly on branded websites, with trends indicating that the promise
of the Web as a facilitator of direct distribution may ?nally be about
to happen. Rewards for booking directly include extra frequent-?yer
miles, tiered bene?ts and special prices. Suppliers are also becoming
more aggressive in their pricing strategies, want everyone to know
that the best deals are available on their own websites, and thus are
unwilling to allow any intermediaries to have a noticeable advantage
in pricing. Many are also increasing the range of products sold through
their brand-direct sites. As was discussed above, one of the primary
reasons that suppliers have not been successful at driving signi?cant
amount of business to their sites is that consumers often want a one-
stop-shop offering both brand choice and the ability to cater for all their
travel booking requirements – something that is clearly not available
on a single company’s branded website. This has not stopped some
suppliers from trying; for example, SouthWest.com now offers hotel
and car rentals, Hyatt.com provides air and car booking facilities as
well as packaged vacations, and Dollar.com, air and hotel reservation
capabilities (Buhalis and O’Connor, 2006).
Are suppliers winning the battle? PhoCusWright estimates that
direct to supplier sales comprised 51% of the total online market in
2005 – a very insigni?cant increase over prior years (PhoCusWright,
2005). Despite considerable effort, the majority has failed to signi?-
cantly change their distribution mix. While brand-direct websites are
in general quite successful at selling to loyalty club members – in effect
to their existing customers – they are less successful at attracting incre-
mental business. The online agencies, with their broader choice and
product categories, offer the opportunity both to attract new business
and also make a valuable contribution in terms of keeping planes and
hotels full. An adaptation of the merchant model discussed above may
help to preserve this relationship. With this strategy, both parties win;
the supplier gets to set the minimum acceptable rate that they are will-
ing to accept as the net rate offered and the online agency can achieve
an acceptable level of pro?tability by adding their own margin before
sale to the customer.
Summary and conclusion
It can be seen that trouble continues to brew in the online travel sector.
While suppliers would ideally like consumers to book directly, they
face severe competition from online travel agencies. Both parties are
engaged in a battle for the hearts and minds of the traveler – a battle
that is being fought in the relatively unexplored terrain of Internet
commerce.
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Handbook of Hospitality Marketing Management
From the above discussion, it is clear that empirical research in this
area could best be described as sparse. At a strategic level, little useful
guidance is available to either suppliers or intermediaries as to how
best to attract, convert, and build loyalty in today’s elusive travel con-
sumer. In common with most of the tourism and hospitality research,
the little published research that exists in the ?eld of electronic distribu-
tion in tourism tends to be relatively weak (Lynn, 2002). As O’Connor
and Murphy (2005) point out, the majority of studies display ‘an over-
reliance on the survey method, unrepresentative and convenience sam-
pling, shallow analyses, misinterpretations of data, and a tendency to
draw conclusions and make broad generalizations without providing
adequate evidence.’ They also point out that there appears to be a lack
of meta-knowledge as to what other researchers are doing, with the
result that many studies replicated each other with minor difference in
focus or geographical area, and that few articles build on each other to
extend the pool of available knowledge in any meaningful way.
It is clear that e-commerce and distribution in tourism is a topic
that is important, but not well understood. A very large number of
research opportunities are self-evident. What has been the effect, ?nan-
cially and strategically, of the move from a commission model to the
merchant model? How should suppliers price their products across
multiple simultaneous channels to both drive as much business as
possible directly, but at the same time bene?t from the reach that inter-
mediary channels provide? Research from the consumer perspective
is particularly needed to help clarify many issues. What motivates a
consumer to use one distribution channel rather than another? How
do price, convenience, website design, and website content encourage
consumers to change from lookers into bookers? How do consumers
react to seeing different prices on different distribution channels? Does
the use of restrictions or fences have an effect on their perceptions, or
on where they book? How effectively do loyalty or frequent-?yer pro-
grams attract, retain, and build customer loyalty? Will current devel-
opments in user-generated content result in customers displaying less
faith in brands? These suggestions, albeit in no way exhaustive, illus-
trate the rich and interesting range of potential research questions that
could be addressed.
The Chinese have a saying – ‘May you live in interesting times’ –
which may be interpreted as either a blessing or a curse. Its meaning
is particularly relevant in the ?eld of electronic distribution in tourism
and e-commerce. In this chapter, I have attempted to provide an
overview of the current state of play in this rapidly evolving arena.
Intellectually, I ?nd this segment of the tourism industry to be
particularly fascinating. Technology continues to develop at a rapid
pace, and in fact has been identi?ed as one of the top ?ve most volatile
factors affecting tourism (Olsen, M. 1995). Each change presents new
challenges and opportunities, making the distribution arena both
• • •
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Distribution channels and e-commerce
dif?cult to understand and at the same time highly exciting. To be
successful, tourism suppliers and intermediaries must continually
assess the likely impact of new developments and examine how to
integrate them into their methods of operation. Doing so presents
tremendous opportunities, yet is risky as technology may move on
even before implementation is complete. Yet, not to do so risks being
left behind in a state of competitive disadvantage. Such choices are
faced by tourism companies every day, and it’s only by having a
thorough understanding of the electronic distribution environment
that they can succeed in the long run.
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• • • • 7
Distribution channels
and e-commerce
Peter O’Connor
Distribution channels and e-commerce
Introduction
Information technology can ful?ll various roles in tourism, acting as
‘a creator, protector, enhancer, focal point and/or destroyer of the
tourism experience’ (Stipanuk, 1993, p. 267). However, many people
believe that its greatest impact has been the change it has caused in how
tourism products and services are marketed and sold. Developments in
technology have driven a revolution in tourism distribution channels,
totally changing relationships between suppliers and intermediaries,
and even the very structure of the distribution network itself. Suppliers,
intermediaries, and consumers have all embraced the electronic world,
with the result that tourism, in common with many other aspects of
society, increasingly operates in a digital world (Buhalis, 1998).
Avariety of different electronic systems have been developed to facil-
itate tourism distribution and these have dramatically affected the way
in which tourism products are marketed, sold, and delivered (Connell
and Reynolds, 1999). Before examining these effects, this chapter out-
lines how electronic distribution has developed within tourism to
explain where we ?nd ourselves today. The evolutionary path from
manual systems to the closed Global Distribution Systems (GDS)-based
systems to the open distribution network enabled by the Internet is
explored. Current challenges, such as managing multiple simultaneous
distribution channels, working with online intermediaries, and react-
ing to rapidly changing technology are also examined to help readers
understand this highly complex environment. The absence of quality
academic research on tourism distribution is highlighted, and sugges-
tions are made as to why and how this de?ciency should be addressed.
The importance of information
Information has been described as the lifeblood of the tourism industry,
as, without it, the potential customer’s incentive and ability to travel
is severely limited (Wagner, 1991). In few other activities are the gen-
eration, collection, processing, communication, and use of information
as important for day-to-day operations as in the tourism sector (Poon,
1993). Potential travelers need appropriate information before depart-
ing on a trip to help with planning and help them choose between
different options, and also need access to accurate and detailed infor-
mation during their visit, as the trend toward more independent travel
increases (Preston and Trunk?eld, 2006).
Certain characteristics of tourism heighten this dependence on infor-
mation. Foremost among these is the intangibility of the tourism
product; unlike manufactured goods, a travel experience cannot be
inspected prior to purchase and therefore consumers are almost com-
pletely dependent on descriptions or representations when making
a purchase decision (Middleton, 1994). Tourism’s diversity is also
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Handbook of Hospitality Marketing Management
important, as in many cases it is this heterogeneity that makes such
a product attractive in the ?rst place. Tourism products are also ?xed
geographically, meaning that the customer cannot pre-test the product
and must travel – in effect, consume the product – in order to expe-
rience what they are buying (Lewis et al., 1995). These characteristics
combine to make consumers highly dependent upon accurate infor-
mation to gain an indirect sense of a tourism product’s qualities and
to help differentiate between competing products (Go and Pine, 1995).
In addition, tourism products are rarely bought in isolation, and ‘the
endless combinations and permutations of alternative travel routes,
transportation modes, time and lodging accommodation make travel
decisions dif?cult even for the initiated’, further increasing the need for
appropriate information to aid in the decision-making process (Kaven,
1994, p.116).
Recent changes in social life heightened the need for information
(Vaughan et al., 1999). In today’s world, time has become a scarce
commodity and thus leisure travel represents an important emotional
investment that cannot be easily replaced if something goes wrong.
As a result, annual holidays or even weekend breaks have become
increasingly associated with risk. Planning the simplest trip means
choosing among a bewildering array of options and running a risk
of making an inappropriate choice. As Buhalis (1997) points out ‘the
greater the degree of perceived risk in a pre-purchase context, the greater
the consumer propensity to seek information about the product.’. Therefore,
to minimize such risk, consumers seek out appropriate information
to minimize the gap between their expectations and their subsequent
experience.
Consumers have also become more knowledgeable and demanding.
Having grown up comfortably with foreign travel through package
holidays in their formative years, and with exposure to broader hori-
zons as a result of television and increased education, many want more
than the sun, sea, and sangria experience, and are increasingly com-
fortable organizing it for themselves (Poon, 1994). Travel frequency has
increased, and instead of (or frequently in addition to) an annual sum-
mer vacation, these ‘new leisure travellers’ take multiple short breaks
throughout the year, often organized independently and at short lead-
times (Preston and Trunk?eld, 2006). To facilitate such customers, the
fast, ef?cient exchange of information between the supplier and the
customer (or their agent) is essential.
Consumers have traditionally sourced travel information in a vari-
ety of ways. These include either directly from tourism suppliers such
as hotels, airlines and car hire companies, or through intermediaries
such as travel agents and tour operators, who act as information bro-
kers making the connection between customer and supplier (Kotler
et al., 1996). The latter have traditionally serviced traveler’s infor-
mation needs in one of two ways: either by distributing print-based
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Distribution channels and e-commerce
promotional materials or through personal contact (Dube and
Renaghan, 2000). Print-based materials, such as brochures, catalogues,
and travel trade manuals, suffer from several limitations. Print is a
static, one-dimensional medium that is limited in its capacity to ade-
quately communicate the intricacies of the multi-sensory tourism expe-
rience (Middleton, 1994). In addition, developing print-based media is
costly and time consuming, with the resulting material becoming out-
dated quickly. Space limitations also mean that choices must be made
in terms of content, potentially limiting the effectiveness of the selling
message.
Communicating information personally is more effective, as the
information provided to potential customers can be more closely
matched to their needs. However, this approach is also problematic.
Tourism is the ultimate dispersed industry, with potential clients com-
ing from everywhere and wanting to go everywhere. Each has very
different information needs. With millions of individualistic purchasers
and thousands of heterogeneous tourism experiences, the permuta-
tions of information expand to a fearsome level – far above the level
with which a typical travel advisor could be expected to be familiar,
irrespective of their level of training or expertise. Developments in
information technology have provided a solution to this ‘knowledge
gap’ (Buhalis, 2000).
The origins of travel e-commerce
Go and Pine (1995, p.307) de?ne a channel of distribution as one that
provides ‘suf?cient information to the right people at the right time and
in the right place to allow a purchase decision to be made, and provides
a mechanism where the consumer can purchase the required product.’
This viewpoint is supported by a variety of authors (e.g. Bitner and
Blooms 1982; Middleton 1994; Buhalis 2000; O’Connor and Frew, 2003)
who support the argument that the primary purposes of distribution
channels within tourism are to provide information for prospective
purchasers (be they end consumers or intermediaries) as well as to
establish some mechanism to enable consumers to make, con?rm, and
pay for reservations.
The highly perishable nature of the tourism product makes ef?cient
and effective distribution particularly important, as any unsold item
cannot be stored and subsequently consumed at a later date. Thus,
selling every airline seat, hotel room, cruise-berth, or excursion seat
every night at an optimum price is key to pro?tability. As was dis-
cussed above, most tourism suppliers make use of intermediaries such
as travel agents and tour operators, but increased emphasis is being
placed on direct sales using electronic channels (Tse, 2003). Electronic
systems have many advantages over their traditional, labor-intensive
counterparts. They have few capacity limitations, offer in?nitely more
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geographical reach, have a low marginal cost, and are more easily able
to incorporate dynamic data such as room inventory/rates (O’Connor,
1999). Furthermore, while traditional distribution channels have to be
used in pairs – i.e., combining an advertising medium (e.g., brochures
or guidebooks) with an interactive medium (e.g., a telesales agent
or a travel agent) – to complete the transaction, electronic systems
can potentially ful?ll both roles and allow travelers to make reserva-
tions for themselves in a fraction of the time, cost, and inconvenience
involved in traditional methods (Chung and Law, 2003). These bene?ts
prompted widespread adoption of electronic systems throughout the
tourism value chain, and thus have changed the way in which travel
goods and services are sold forever!
Electronic distribution in tourism has its origins in the travel-agent-
focused GDSs. Originally conceived by the airlines as internal inventory
control systems in the late 1960s, the GDSs subsequently broadened
their scope by incorporating travel products, in addition to airline
seats, and by providing direct access to travel agents to their systems
(Karcher, 1995). From a travel agent perspective, processing reserva-
tions manually is a time-consuming, labour-intensive, and, therefore,
costly process. Using a computerized system allow them to see real-
time availability and pricing information, and to make instant book-
ings, making the entire searching/booking process faster, cheaper, and
more ef?cient. De-regulation of the airline sector in the United States in
the 1970s accelerated GDS adoption, as a computerized system became,
to a large extent, essential to help untangle the vastly increased num-
ber of ?ight and fare options (Hitchins, 1991). At the same time, most
airline reservation systems began cross-selling complementary travel
products, including hotel accommodation, car hire, cruises, rail tickets
and virtually every other travel product, both to increase service levels
to their travel-agent customers and to help offset the high costs of run-
ning the system. This ultimately resulted in the one-stop-travel-shops
that we know today as Global Distribution Systems or GDSs (Knowles
and Garland, 1994). Subsequent mergers and acquisition have resulted
in four main companies (Amadeus, Galileo, WorldSpan, and Sabre)
dominating the sector. GDSs today are used by approximately 95% of
travel agencies worldwide, and many of the major travel agency chains
will no longer make a booking for a client unless it can be processed
electronically (HEDNA, 1997). This makes representation on the major
GDSs essential for any tourism company wishing to sell through the
travel-agent community (Bennett, 1993).
The GDSs are not without their limitations. First, they service a
small (although in?uential) user base – in effect, just travel agents.
Although consumers can now access the systems over the Internet,
their structure and methods of operations still focus primarily on the
needs of travel agents, resulting in complex procedures, cryptic codes,
and unintelligible data. A further problem is the lack of ?exibility in
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terms of the data displayed to the user. While less of a problem in the
United States where hospitality chains predominate, the majority of
tourism products are heterogeneous, not standardized, and relatively
complex. Indeed, in many cases it is these characteristics that make
them attractive to travelers, in the ?rst place (Bennett, 1996). However,
as the GDSs were designed to distribute the more homogeneous airline
product, the structure of their databases cannot cope with the depth
and diversity of data needed to effectively market such diverse tourism
products (Emmer et al., 1993). Given their size, complexity and the
fact that they rely on technology that is over 30 years old, changing
these databases to incorporate more complex requirements is a nearly
impossible task.
In response to this problem, many tourism companies have devel-
oped their own reservation systems (known as central reservation
systems (CRS)) with more appropriate database structures, and have
subsequently linked them electronically to the GDSs for access to the
travel agent market (McGuf?e, 1994). However, developing and main-
taining a reservation system is relatively expensive, with both high
upfront capital costs and substantial running and transaction costs.
As a result, many companies outsource their electronic distribution
to third-party providers. For example, in the hotel sector, represen-
tation companies have emerged to provide distribution services to
smaller non-chain hotels, providing them with CRS capabilities and
connecting them to the GDS market (Morrison et al., 1999). Destina-
tion Management Systems, which concentrate on distributing tourism
products of particularly smaller and independent tourism suppliers
from a distinct geographical region, could be regarded as providing
similar services (Pollock, 1995). However, with the exception in a small
number of European countries, the impact of destination management
systems has been relatively minimal, as most have failed to evolve
beyond the experimental stage into full commercial systems (Frew and
O’Connor, 1999).
The arrival of the e-commerce
Until the early 1990s, electronic channels of distribution in tourism
were as described above – a cozy status quo where the operators of
electronic systems cooperated, rather than competed, with each other.
Relationships were effectively linear and participants had a mutually
bene?cial role to play (Anderson Consulting, 1998). From the perspec-
tive of the supplier, electronic channels of distribution were effective in
that they generated business, but at the same time were unpopular in
that they were expensive to develop and use. Between 1993 and 1997,
commissions and other reservation costs increased by approximately
117%, prompting many suppliers to seek alternative ways of distribut-
ing their product (Waller, 1999). During this period, one of the most
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Handbook of Hospitality Marketing Management
revolutionary technological developments of all time – the Internet –
became available for public and commercial use. The widespread con-
sumer adoption of the World Wide Web – one of the key services
enabled by the Internet – provided an outstanding opportunity for
suppliers to bypass the multiple intermediaries controlling electronic
distribution and reach out to transact business directly with the cus-
tomer (Smith and Jenner, 1998).
Tourism suppliers were quick to exploit the opportunity presented
by the Web, in part because of the existing high level of comput-
erization in airlines and travel agencies. As a commercial medium
the Web is ideal, facilitating direct access to customers with a high
propensity to travel, as well as potentially offering major savings, as
the cost of processing voice calls and intermediary commission can be
eliminated (Jeong and Lambert, 1999). These bene?ts prompted what
Buhalis (2000b) described as ‘a radical change in the operation, distri-
bution and structure of the tourism industry.’ The majority of tourism
suppliers began distributing over the medium (Pusateri and Manno,
1998) and it had a profound effect on the way in which travel products
were being marketed, distributed, sold, and delivered (Williams and
Palmer, 1999).
Perhaps the most signi?cant effect was the shake up that it prompted
in channel structure. While the previous GDS-based network had been
linear, closed, and cooperative, Web-based distribution was open, com-
petitive, and extremely confusing! In addition to cooperating with each
other as they did in the past, most participants in the travel distribu-
tion chain began directly competing with each other by developing
consumer-orientated websites with provision of information and book-
ing facilities (Connolly et al., 1998). The situation is well summarized
by Dombey (1998, p. 3) as ‘little short of a technological stampede.
Up and down the traditional distribution chain providers are work-
ing feverishly to re-engineer their travel systems to bypass both the
GDS and the travel agent and create a direct link with the customer.’
In essence, the level of mutual dependence between participants has
decreased as each tried to circumnavigate intermediaries lower down
on the distribution chain and transact business directly with the cus-
tomer (Jarvela and Loikkanen, 1999).
Paradoxically, in addition to more competition, there was also
more cooperation – a phenomenon which Werthner and Klein (1999)
dubbed ‘coopetition!’ As will be discussed, the more successful online
travel sites offer multiple products (air, hotel, car, etc) from multiple
vendors, as their key attraction (Preston and Trunk?eld, 2006). To
be successful, they need to be full-service and provide the ability to
research and purchase an entire trip on-line. In order to do this, they
need the detailed content and access to reservation facilities that they
can only get by cooperating with other distribution providers (Wade
and Raffour, 2000). Non-exclusive virtual alliances were thus formed,
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Distribution channels and e-commerce
with companies joining to develop new synergistic relationships
(Dale, 2003). Dale maintains that establishing such virtual clusters
leads to ‘synergistic strategic value’, with each partner reciprocally
and mutually bene?ting from the relationship, generating inimitable
and non-substitutable network resources. For example, the GDS, in
addition to facilitating travel agent bookings, also began providing
the reservation engine behind many of the online travel agency
websites – in effect, to their own competitors. However, each partner
with the GDS bene?ted by leveraging their investment, and their
virtual partners, by having access to an ef?cient information and
reservation service without having to develop a reservation engine for
themselves. Dale (2003) identi?es ?ve different levels of relationships:
Channel, which enables one company to access the distribution
channels of another; Collaborative, where competitors cooperate with
each other to achieve goals that would be dif?cult in isolation;
Communicative, where content from ‘infomediaries’ enriches and adds
value to partner websites; Complementary, where companies cross-sell
products normally bought together (e.g., ?ights and hotel rooms);
and Converse, where the partners distribute unrelated products, thus
allowing each one to access the distribution channels of the other
in a non-threatening manner. He speculates that competition in the
future will be dictated more by the network of partners as a whole
than by single intermediaries, and advises ?rms to participate in such
networks unless they want to be left at a competitive disadvantage
(Dale, 2003).
The arrival of the Web upset the tourism distribution apple cart and
prompted major changes in the way tourism products were being sold.
Movement toward web-based distribution has been swift, and travel
has quickly become the most popular product sold online. While actual
dollar estimates vary, most analysts agree that spending on travel is
about one third of total online business-to-consumer (B2C) transac-
tions. At the time of publication of their US online travel market report
Internet analyst ?rm PhoCusWright put the size of the US market
at over US$50 billion (PhoCusWright, 2006). While both Europe and
Asia lag considerably, their pace of growth is higher and, with big-
ger potential markets, are likely to catch up with and even overtake
US penetration rates in the very near future (Carroll and O’Connor,
2005). However revenue ?gures alone do not demonstrate the impor-
tance of e-commerce to the tourism sector. Online statistics effec-
tively ignore bookings in?uenced by, but not completed, in the online
environment. Estimates say that over 40% of travelers who research
travel online subsequently make their bookings in some other way. As
such revenues are not included in online travel statistics, published
?gures in reality signi?cantly understated the importance of the web
for travel.
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Broken promises – direct distribution to the customer
As e-commerce developed during the 1990s, many commentators
focused on its ability to facilitate direct communication with, and even
direct sales to the customer. Most claimed that travel distribution as we
knew it would change forever, and the trade press was packed with
predictions of dis-intermediation and the death of the travel agent.
Tourism suppliers were naturally enthusiastic about this potential, as
fewer (or ideally no) middlemen meant fewer commissions and no
transaction charges (Heung, 2003). Web distribution was also called the
‘great leveler,’ potentially offering smaller and independent suppliers
the opportunity to compete effectively on an equal footing with big-
ger companies by selling directly to the customer (Buhalis, 1999). Yet
over 10 years later, intermediaries are stronger than ever, and online
travel distribution is controlled by a handful of companies – all of them
intermediaries! Precisely, how did this occur?
The adoption of the Web as a mainstream consumer research and
commerce tool certainly prompted major change in the way tourism
products and services were being sold. In addition to bringing together
a vast network of suppliers and a widely dispersed customer pool into
a centralized electronic market place, in contrast to earlier electronic
channels, the Web allowed for a much richer consumer experience.
Developing web technology allowed both suppliers and intermediaries
to place a full color, interactive multi-media brochure directly into the
hands of potential customers at a relatively low cost (Murphy et al.,
1996). Furthermore, it permitted two-way communications, allowing
transactions to be carried out directly and instantly with the customer.
And unlike with physical products, ful?llment of transaction was not
a problem with travel services, particularly as the use of electronic
ticketing grew.
Tourism suppliers were quick to take advantage of the direct dis-
tribution potent of the Web. For example, a 2002 survey published in
the Cornell Quarterly shows how the majority of major hotel chains
provided both detailed product information and reservation facili-
ties directly to consumers on their brand websites. Similar studies of
Aragonese hotels (Garcés et al., 2004), Balearic hotels (Vich-i-Martorell,
2003), Scottish hotels (Buick, 2003), and Italian hotels (Minghetti, 2003)
indicate that usage of the Internet as a distribution channel had also
diffused into smaller unbranded hotels, typically producing between
2 and 5% of revenues for such properties. Unfortunately, brand-direct
websites typically provide limited utility in that shoppers can only
view and purchase the products of that particular supplier. Even the
largest operators (for example, the airlines) essentially limited them-
selves to distributing just their core product. However, research has
shown that consumers do not purchase travel in this way. A traveler
booking an airline ticket also usually needs a hotel (or vice versa), or
to ?nd out something about the destination, and would like to know
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Distribution channels and e-commerce
about visas and health requirements (Poon, 1994). To satisfy these com-
plex and diverse information needs, consumers increasingly turned
to online travel agencies, whose key differentiating point was broad
choice, not only in terms of offering products from multiple competing
brands, but also by providing a full product range and thus offer-
ing a one-stop-travel-shop for the ‘harassed’ consumer (Preston and
Trunk?eld, 2006).
Offering ‘full-service’ has become a key aspect of online travel agent
strategy (Preston, 2005). Driven by falling (or even eliminated) airline
commission, most began placing great emphasis on cross-selling hotel,
car hire and destination services – products that are attractive because
of their relatively high pro?t margins. By encouraging consumers to
buy all their travel needs from the same site, they can both increase
average spending and generate higher pro?ts. This strategy is rein-
forced by the promotion of dynamic packaging services, which leverage
the online intermediary’s product portfolio and technological expertise
to provide customers with the facilities to interactively assemble their
own made-to-measure travel packages (Cai et al., 2004). Brand-direct
supplier sites simply cannot compete in terms of breadth of service
or depth of functionality. The mega agencies have also been investing
millions in of?ine and online advertising to build brand awareness and
have, to a large extent, succeeded in convincing the consumer that the
best bargains and best service can be found on their sites. Thus, despite
efforts by tourism suppliers, the combination of features, i.e., brand
and pricing, is accelerating a trend toward re-intermediation, with the
big winners in the growth of the sale of travel online being the mega
agencies rather than the travel supplier.
It is interesting to note that many of the online travel agencies have
their origins outside the travel sector. Thus, while traditional travel
agents hesitate to change their archaic methods of operations (Ozturan
and Akis-Roney, 2003), online companies are not conceptually lim-
ited by pre-existing relationships or traditional notions of how to do
business, which has allowed them to challenge the status quo and intro-
duce new and innovative business practices. For example, the business
model that most online intermediaries use to work with travel suppliers
has come to be known as the merchant model (Carroll and Siguaw,
2003). In contrast to the traditional commission-based agent relation-
ship (where suppliers paid intermediaries a commission each time they
sold a product), with the merchant model the intermediary negotiates
?xed allocations of inventory at highly discounted net rates and subse-
quently sells these products at a mark up, taking as pro?t the difference
between the rate negotiated and the price at which they manage to
sell the product online (O’Connor, 2003). While this might look like a
good deal for the supplier (no commissions or other transaction costs,
and the ability to set net rates to re?ect the minimum amount they are
prepared to accept for their product), the stronger negotiating power of
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Handbook of Hospitality Marketing Management
the online merchants means they can demand rates signi?cantly lower
than what the supplier might freely wish to give. In addition, by careful
management of their margin, they can then sell onward such rooms at
highly competitive prices – in many cases cheaper than the rates being
offered on the supplier’s own website! For example, O’Connor’s (2002)
study of online hotel chain pricing found that online travel agencies
frequently offered the cheapest prices for hotel rooms, particularly at
the upper end of the market. Of course suppliers are always free to
refuse to participate, but, in classic fashion, nobody wants to be the
?rst to leave the online agencies, as to do so risks losing out on large
volumes of potential (even if low yield) bookings.
Managing multiple channels of distribution
With electronic distribution in tourism growing more complex, a vari-
ety of issues associated with the management of the area have devel-
oped. As Sigala and Buhalis (2002) note, hoteliers who successfully
manage their electronic distribution add value, develop their brand,
and build customer loyalty; those who fail risk losing customers to
intermediaries. This section examines four of the most topical issues
in tourism distribution channel management identi?ed from the lit-
erature – channel choice, pricing over multiple channels, managing
distribution cost, and ownership of the customer.
Channel choice
One effect of the growth in tourism e-commerce is an exponen-
tial growth in the number of distribution channels through which
the tourism product can be sold. As has been discussed, a large
variety of electronic channels have developed to supplement, but never
quite completely replace, traditional of?ine intermediaries. GDS-based
channels continue to thrive and, at the same time, Internet-based chan-
nels have also grown into an important source of business for most
tourism suppliers.
However, the set of channels used cannot be increased in?nitum. As
the number of channels increases, so too does the complexity of the
supporting infrastructure and, in turn, the cost of running the overall
distribution system (O’Connor and Picolli, 2003). For example, work-
ing with multiple distribution channels implies maintaining both price
and inventory in multiple distribution databases. If the supplier works
with online travel agencies, this can be cumbersome, labor-intensive,
and therefore costly as most require suppliers to perform these tasks
manually on an extranet-based system. Suppliers have to log into each
system in turn, process reservations or cancellations, and manually
change pricing/availability data to re?ect updated market conditions.
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Distribution channels and e-commerce
Obviously, developing interfaces between the online travel agency
systems and the reservation systems of tourismsuppliers would greatly
simplify this process. Such developments would not only allow avail-
ability and prices to be updated automatically, but would also allow
suppliers’ yield management modules to work more effectively, as they
would have more complete and accurate historical data on allocation
take-up and could therefore forecast more accurately. And while the-
oretically the technology exists to automate this process (in particular
using the Open Travel Alliance’s XML standard), online travel agents
have little motivation to facilitate such connectivity, as they effectively
pro?t from the market disequilibria created by suppliers who have to
manually performupdates. Faced with a cumbersome, time-consuming
task, many suppliers simply do not make updates as frequently as they
should, allowing the online agents to make higher margins by exploit-
ing the differences between the prices charged and actual demand.
Automation of the process would eliminate these differences as prices
and availability would be instantaneously updated whenever market
conditions changed. Thus, despite promises to the contrary, only the
largest tourism companies have been successful at convincing online
travel agencies to provide such direct connect facilities.
How then can suppliers decide which of the growing range of chan-
nels to include in their portfolio of distribution channels? As O’Connor
and Frew (2004, p.180) point out, ‘the decision as to which channel to
use has become increasingly complex, and hotel managers currently
have little guidance to help them determine which best match their
needs.’ In their paper, they propose an evaluation methodology for
electronic channels of distribution to help practitioners make this deci-
sion. In contrast to contemporary literature, which stresses evaluating
projects on ?nancial or marketing criteria, O’Connor and Frew sug-
gest that technical and operational factors should instead drive the
evaluation and decision process. The study highlights the complex
nature of such evaluations, as well as demonstrates how the increas-
ingly complex environment makes the use of a formal methodology
more important. However, as Enz (2003) points out, in reality most
suppliers are using multiple simultaneous electronic channels without
a clear understanding of their impact and the effect this has on their
overall pro?tability, as will be discussed below.
Pricing in an online world
Yield management is a set of techniques frequently used by airlines,
hotels, and other service ?rms with ?xed capacity to try to balance sup-
ply of their perishable product with forecasted demand in such a way
as to maximize revenue in the long term (Kimes and Wagner, 2001).
Being already a complex process, yield management has become more
dif?cult to implement because of the growth in the use and variety of
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electronic distribution channels discussed above. In addition to provid-
ing suppliers with more distribution options, each channel has different
revenue characteristics, costs, and levels of control (Helsel and Cullen,
2005), making the manipulation of the channel over which the customer
makes a reservation an important issue (O’Connor and Frew, 2002).
In the past, suppliers achieved this by segmenting customers and
offering different prices/conditions for each segment over different
channels (Choi and Kimes, 2002). Inef?ciencies in information distri-
bution effectively prevented rates destined for one market segment
from being seen or booked by the others (Lehmann, 2003). However,
the adoption of the Internet as an information medium has greatly
increased price and rate transparency (O’Connor, 2003). Consumers can
quickly and easily search multiple online channels before committing
to making a reservation (PriceWaterhouseCoopers, 1999). In addition,
a new type of online tool (known as meta-search) has developed that
allows travelers to comparison shop a large number of sites in prac-
tically a single click (well known examples include Kayak, Sidestep,
TravelAxe and Kelkoo). As a result, it has become increasingly dif?cult
to use differential pricing, either by market segment or by point of sale.
In practice, any rate, given to any distributor, can potentially end up
on the Web and thus be seen and booked by all customers.
Thus managing price has become both more important and, at the
same time, more dif?cult. One widely adopted strategy is price con-
sistency – having the same rate for each customer on all distribution
channels and at all points-of-sale (Santoma and O’Connor, 2006). An
alternative is to offer cheaper prices on direct websites – a strategy that
is often used to try to encourage customers to book directly, rather than
through intermediaries. In a 2003 study, O’Connor analyzed the online
hotel market to establish which pricing strategy had become the norm.
His ?ndings show that hotel companies typically use multiple simulta-
neous distribution channels, but that no one channel was consistently
cheapest. Analyses reveals differences based on market segment, with
consumers more likely to ?nd cheaper prices on direct channels (chain
website and call center) at the lower end of the market, and through
intermediaries, at the upper end. Highlighting how up-market and lux-
ury hotels appear to be offering their cheapest prices though channels
with the highest cost of distribution, O’Connor concludes that hotels,
in general, do a poor job of managing prices over multiple distribution
channels and urges them to develop well-thought-out pricing policies
that would encourage consumers to book directly through brand web-
sites. Anecdotal evidence would seem to suggest that operators have
followed this advice, as evidenced by the recent growth in the inclu-
sion of ‘Best Rate Guarantees’ on many supplier websites (Chin-Chien
and Schwartz, 2006).
However a worrying effect of such guarantees is the downward
pressure they appear to place on rates. With everyone promising the
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‘best’ rate, suppliers and intermediaries are in effect engaged in a
price war that, while bene?cial for the consumer, has resulted in lower
and lower margins for suppliers (PriceWaterHouseCoopers, 2005). This
downward spiral is being ampli?ed by the online intermediaries, who
employ market managers to encourage suppliers to further reduce their
negotiated rate in return for better placement on search results listings.
Consumers are also learning that they can often ?nd better prices by
waiting until the last minute to make their booking (Thompson and
Failmezger, 2005). Thus, while the Web promised incremental business
by allowing suppliers to reach customers that they could otherwise not
have attracted, in practice many of the customers that actually book
online are ones who would have booked through some other channel,
in any case. The difference is, however, that the prices that are paid
results in a far lower yield for the hotel than had the booking been
made in the ‘normal’ fashion. Some more street-smart customers are
booking far in advance, monitoring online channels for better prices
and wherever possible canceling their original reservation to re-book at
a cheaper rate, closer to the arrival date. Failure to include appropriate
restrictions or fences to prevent such practices can potentially have a
drastic effect on pro?tability (Enz, 2003).
Managing distribution cost
As can be seen from the above discussion, Internet-based distribution
has created both opportunities and problems for revenue managers
(Choi and Kimes, 2002). More channels generally mean increased reach,
potentially allowing hotels to sell more rooms. However the cost of
using such channels can vary greatly. Considering only transaction
costs, direct Internet channels (e.g., the hotel’s own website) tend
to be cheaper than indirect channels (Helsel and Cullen, 2005). Yet,
more than half of all online bookings come through intermediaries,
whose transaction costs vary from around 10% to substantially higher
(PhoCusWright, 2006). Informal discussions with industry practition-
ers indicate that most online intermediaries demand (and frequently
receive) mark-ups of between 17 and 30%. In addition, other admin-
istrative, technical, and organizational costs mean that working with
certain online intermediaries can be between two to three times more
expensive than using traditional methods.
Thus, in order to maximize pro?tability rather than just sales, dis-
tribution managers need to shift their focus from what rate can be
achieved through a channel to the incremental cost of using that chan-
nel (Choi and Kimes, 2002). However, little empirical research has
focused on how to manage distribution costs across multiple elec-
tronic channels. In a 1999 paper, Noone and Grif?n propose combining
Activity Based Costing with yield management principles in what they
call Customer Pro?tability Analysis, while in a 2002 paper Choi and
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Kimes use a simulation to demonstrate the application of yield man-
agement techniques to multi-channel problems. No study provides
practical advice on how to implement yield management in such situ-
ations, or to help yield managers decide what rate to charge on what
channel.
Ownership of the customer
The growth in the number and diversity of tourism distribution chan-
nels has also lead to another problem – ownership of the customer.
Travelers now have the ability to search for and book travel products
in many different ways. As has been discussed above, online travel
agencies are particularly attractive to consumers because of their con-
venience, their rich feature set, and their competitive prices (Preston,
2005). Consumers searching and booking on such sites practically
always ?nd a product that meets their needs and, in most cases, the
site will propose several alternatives, in direct contrast to supplier sites
that may not have a suitable product available or may be booked out
for the dates requested. As has also been discussed above, in many
cases the prices offered by the online intermediary will frequently be
as good as, if not better than, those available on supplier-direct sites.
Given such levels of service, where is the customer likely to go the
next time he or she wants to make a travel booking? Few studies pro-
vide concrete guidelines about how to develop and maintain effective
lodging websites, making it dif?cult for suppliers to know how to
compete (Jeong et al., 2003). Chung and Law (2003) do provide some
guidelines as to the type of information that should be included to
help develop better sites. More guidance on best practice is needed
as the majority of online agencies have started to put more emphasis
on building customer loyalty, by developing reward programs that
recognize frequent and high value customers and use electronic mar-
keting techniques to develop a closer relationship with them (Preston
and Trunk?eld, 2006).
O’Connor and Picolli (2003) highlight this threat and stress the need
for suppliers to drive customers to direct websites to help regain own-
ership of the shopping experience and gather valuable customer data.
They council hoteliers to rethink their approach to distribution and to
move away from a shelf space approach – being present on as many chan-
nels as possible – toward being more selective in terms of the channels
with which they work (Castleberry et al., 1998). O’Connor and Frew
(2004) similarly stress the need to drive customers to the direct web-
sites. They suggest that by using sophisticated customer relationship
management (CRM) techniques based on their personal contact with
the customer, they can build customer loyalty and in this way combat
the growing power of the online intermediaries. Only by developing
such close relationships with the customer can they reduce the danger
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200
Distribution channels and e-commerce
of substitution, thus helping to ensure long-term pro?tability (Piccoli
et al., 2003).
Suppliers have begun to give customers increased incentives to book
directly on branded websites, with trends indicating that the promise
of the Web as a facilitator of direct distribution may ?nally be about
to happen. Rewards for booking directly include extra frequent-?yer
miles, tiered bene?ts and special prices. Suppliers are also becoming
more aggressive in their pricing strategies, want everyone to know
that the best deals are available on their own websites, and thus are
unwilling to allow any intermediaries to have a noticeable advantage
in pricing. Many are also increasing the range of products sold through
their brand-direct sites. As was discussed above, one of the primary
reasons that suppliers have not been successful at driving signi?cant
amount of business to their sites is that consumers often want a one-
stop-shop offering both brand choice and the ability to cater for all their
travel booking requirements – something that is clearly not available
on a single company’s branded website. This has not stopped some
suppliers from trying; for example, SouthWest.com now offers hotel
and car rentals, Hyatt.com provides air and car booking facilities as
well as packaged vacations, and Dollar.com, air and hotel reservation
capabilities (Buhalis and O’Connor, 2006).
Are suppliers winning the battle? PhoCusWright estimates that
direct to supplier sales comprised 51% of the total online market in
2005 – a very insigni?cant increase over prior years (PhoCusWright,
2005). Despite considerable effort, the majority has failed to signi?-
cantly change their distribution mix. While brand-direct websites are
in general quite successful at selling to loyalty club members – in effect
to their existing customers – they are less successful at attracting incre-
mental business. The online agencies, with their broader choice and
product categories, offer the opportunity both to attract new business
and also make a valuable contribution in terms of keeping planes and
hotels full. An adaptation of the merchant model discussed above may
help to preserve this relationship. With this strategy, both parties win;
the supplier gets to set the minimum acceptable rate that they are will-
ing to accept as the net rate offered and the online agency can achieve
an acceptable level of pro?tability by adding their own margin before
sale to the customer.
Summary and conclusion
It can be seen that trouble continues to brew in the online travel sector.
While suppliers would ideally like consumers to book directly, they
face severe competition from online travel agencies. Both parties are
engaged in a battle for the hearts and minds of the traveler – a battle
that is being fought in the relatively unexplored terrain of Internet
commerce.
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Handbook of Hospitality Marketing Management
From the above discussion, it is clear that empirical research in this
area could best be described as sparse. At a strategic level, little useful
guidance is available to either suppliers or intermediaries as to how
best to attract, convert, and build loyalty in today’s elusive travel con-
sumer. In common with most of the tourism and hospitality research,
the little published research that exists in the ?eld of electronic distribu-
tion in tourism tends to be relatively weak (Lynn, 2002). As O’Connor
and Murphy (2005) point out, the majority of studies display ‘an over-
reliance on the survey method, unrepresentative and convenience sam-
pling, shallow analyses, misinterpretations of data, and a tendency to
draw conclusions and make broad generalizations without providing
adequate evidence.’ They also point out that there appears to be a lack
of meta-knowledge as to what other researchers are doing, with the
result that many studies replicated each other with minor difference in
focus or geographical area, and that few articles build on each other to
extend the pool of available knowledge in any meaningful way.
It is clear that e-commerce and distribution in tourism is a topic
that is important, but not well understood. A very large number of
research opportunities are self-evident. What has been the effect, ?nan-
cially and strategically, of the move from a commission model to the
merchant model? How should suppliers price their products across
multiple simultaneous channels to both drive as much business as
possible directly, but at the same time bene?t from the reach that inter-
mediary channels provide? Research from the consumer perspective
is particularly needed to help clarify many issues. What motivates a
consumer to use one distribution channel rather than another? How
do price, convenience, website design, and website content encourage
consumers to change from lookers into bookers? How do consumers
react to seeing different prices on different distribution channels? Does
the use of restrictions or fences have an effect on their perceptions, or
on where they book? How effectively do loyalty or frequent-?yer pro-
grams attract, retain, and build customer loyalty? Will current devel-
opments in user-generated content result in customers displaying less
faith in brands? These suggestions, albeit in no way exhaustive, illus-
trate the rich and interesting range of potential research questions that
could be addressed.
The Chinese have a saying – ‘May you live in interesting times’ –
which may be interpreted as either a blessing or a curse. Its meaning
is particularly relevant in the ?eld of electronic distribution in tourism
and e-commerce. In this chapter, I have attempted to provide an
overview of the current state of play in this rapidly evolving arena.
Intellectually, I ?nd this segment of the tourism industry to be
particularly fascinating. Technology continues to develop at a rapid
pace, and in fact has been identi?ed as one of the top ?ve most volatile
factors affecting tourism (Olsen, M. 1995). Each change presents new
challenges and opportunities, making the distribution arena both
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Distribution channels and e-commerce
dif?cult to understand and at the same time highly exciting. To be
successful, tourism suppliers and intermediaries must continually
assess the likely impact of new developments and examine how to
integrate them into their methods of operation. Doing so presents
tremendous opportunities, yet is risky as technology may move on
even before implementation is complete. Yet, not to do so risks being
left behind in a state of competitive disadvantage. Such choices are
faced by tourism companies every day, and it’s only by having a
thorough understanding of the electronic distribution environment
that they can succeed in the long run.
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