CHANNEL DESIGN FOR EFFECTIVE TOURISM DISTRIBUTION STRATEGIES

This article forms part of the “Innovation in New Zealand tourism through improved distribution channels” project funded by the Foundation for Research, Science and Technology.

Abstract

The issue of channel design has been virtually ignored in the tourism distribution literature. This article seeks to contribute to filling this gap by developing a practical step‐by‐step process to preparing an effective tourism distribution strategy. It is based on a review of the channel design literature and consideration of the strategic implications of a body of applied sector‐specific research on tourism distribution in New Zealand. The way in which this process was developed is outlined before the seven‐step channel design process itself is presented. Conclusions are then drawn and suggestions for future research are offered.

Keywords:

• Channel design
• customers
• distribution
• monitoring
• strategy
• suppliers

INTRODUCTION

Technological advances and changing consumer preferences have expanded the range of channels that tourism suppliers might use to distribute their products and multi‐channel distribution is now common. Each channel or path to the market may appeal to different segments, suit some products more than others, and have a simple or complex structure. Somewhat more slowly, distribution is also being acknowledged as a key part of revenue management: Returns can vary significantly from one channel to the next with each channel having its own set of costs and benefits (Choi & Kimes, 2002; Pearce & Taniguchi, 2008).

Green (2005, p. 7) contends that “Distribution strategy has quickly become the function in hotel marketing that can have the greatest impact on profitability.” Kang, Brewer, and Baloglu (2007, p. 39) assert that “yield management has become increasingly complex because of the multitude of channels available and the absence of a well thought out methods [sic] to evaluate the effectiveness of online channels”; and as a result, “hotels need to determine which channels are the most effective in driving business to the property and also anticipate which channels will be the most popular.” Similarly, with regard to ski resorts, Williams and Dossa (1998, p. 2) note: “Effective marketing programs depend on an understanding of the structure and behavior of these distribution options as well as an appreciation of the behavior and potential impact of the customers using these channels” They also observe, however, that because of the lack of research in this area that “many tourism destination marketing managers frequently find themselves making decisions without having a full understanding of either the channel operators or the clients derived from those channels.”

Deciding which distribution channels to use and in what combination is, therefore, critical and challenging. To date, however, the issue of channel design in tourism distribution has all but been ignored (Kotler, Bowen, & Makens, 1996; Green, 2005), with the focus in published work being variously on channel structure, roles, relationships, and the impact of new technologies (Buhalis & Laws, 2001; Alcázar Martínez, 2002). This is in marked contrast to manufacturing and some service sectors where the importance of channel design has been explicitly recognized for some time and is now a distinctive field of study (Cespedes, 1988; Stern, Sturdivant, & Getz, 1993; Mallen, 1996; Fava Neves, Zuurbier, & Cortez Campomar, 2001; Sharma & Mehrotra, 2007). Much of this work has involved large corporations. One reason for the relative lack of attention to channel design in tourism may be that it is a sector composed predominantly of small and medium enterprises (SMEs) and as Simons and Bouwman (2004, p. 246) observe: “Generally speaking, SMEs put very little time and resources into analysis and design.”

This article seeks to contribute to filling this gap in the literature and to encourage a more systematic and structured approach to tourism distribution by developing a practical step‐by‐step process to preparing an effective tourism distribution strategy. It is based on a review of the channel design literature and consideration of the strategic implications of the findings resulting from a large, integrated body of applied sector‐specific research on tourism distribution in New Zealand.

Elaborating a channel design process constitutes the last phase in a major 5‐year project aimed at developing a more systematic understanding of the diverse distribution channels for New Zealand tourism and examining ways of increasing their effectiveness (Pearce, 2003). The final objective of the project was to develop a set of best practice guidelines for tourism distribution. During the course of the project it became apparent that tourism suppliers in New Zealand address distribution in varied ways; some use quite sophisticated approaches but many others are less structured, even ad hoc, in dealing with this key part of their business—one which may account for up to a quarter of their operating expenses. Development and dissemination of a more systematic and strategic approach to distribution was seen to be the best means of synthesizing best practice and increasing the effectiveness of the distribution practices of New Zealand suppliers. This, in turn, required developing a robust and practical approach to channel design for the distribution of tourism products. The way in which this process was developed is outlined in the next section before the channel design process itself is presented; conclusions are drawn and suggestions for future research are offered.

APPROACH

A twofold approach was taken. Firstly, the wider literature on distribution strategies and channel design was reviewed to identify channel design processes that had been developed in other sectors and the issues that had been identified there. In particular, the review sought to articulate clearly and explicitly the concept of channel strategy and to identify the steps involved in the channel design process. Secondly, the key findings of the New Zealand project were systematically evaluated in the light of the channel design process that emerged from this review in order to identify the particular characteristics of tourism distribution that might be incorporated into a sector‐specific strategy. This evaluation was facilitated by the “whole systems” approach which formed part of the overall project design from the outset (Pearce, 2003) and resulted in the collection and analysis of a large, comparable, and integrated body of data covering the full spectrum of channel members from suppliers through intermediaries to consumers and a range of issues from channel structure, to behavior and performance. Moreover, these issues were considered across a range of suppliers in different sectors (accommodation, transport, attractions and activities, events and conventions); multiple intermediaries (inbound operators, tour wholesalers, travel agents, e‐intermediaries….); and different market segments (domestic and international, independent and packaged, leisure and convention). These two strands were then drawn together: The literature review helped shape an overall strategy framework while the empirical findings informed and elaborated the tourism‐specific elements which determined the tourism channel design process presented in this article.

Literature Review

Stern and El‐Ansary (1992) argue that marketing channels should be viewed as an orchestrated network that creates value for the user or consumer through the generation of form, possession, time, and place utilities. Given the range and interdependency of channel members and the multiple utilities involved, orchestrating the network can be a demanding balancing act. Recognizing this, Anderson, Day, and Rangan (1997, p. 68) argue: “Ultimately, a channel strategy is a series of trade‐offs and compromises that align the company's resources with what it should do to satisfy its target customers and stay ahead of its competitors.” Similarly, Cespedes (1988, p. 222) contends: “…channel design can usefully be viewed as the result of a process designed to balance two often incompatible goals of managers: their desire to control important channel functions directly while also leveraging limited resources, especially financial and selling resources.”

In channel design, this complexity and these trade‐offs are commonly addressed by working through the key issues in a sequence of steps. Variations occur in the number of steps recommended, the starting point in the process, and what is encompassed. Magrath and Hardy (1991), Mallen (1996), and Sharma and Mehrotra (2007) all propose a six‐stage process, though they differ on what is included. Stern and colleagues (1993) outline an eight‐step process, while Fava Neves et al. (2001)—after providing a useful review of four other models—elaborate their own more comprehensive model incorporating four phases and eleven steps. The greater number of steps in the Fava Neves et al. model is in part a function of a more comprehensive initial understanding phase and in part a result of including more transaction costs analysis in the process. In some instances, channel design and channel strategy are expressly incorporated in the firm's overall strategic framework (Rosenbloom, Larsen, & Mehta, 1997; Anderson et al., 1997; Pumphrey, 2006). In others, the focus is more immediately on channel design (Sharma & Mehrotra).

In one of the few tourism applications, Kotler et al. (1996) are less graphic in depicting the sequence of steps but discuss the process in terms of four stages: analyzing consumer needs, setting the channel objectives and constraints, identifying major channel alternatives, and evaluating them. Green (2005), focusing on online distribution in the hotel sector, does not propose a sequence of steps, outlining instead a set of elements for a distribution strategy: metrics, risk assessment, branding, channel analysis, and web strategy.

Certain common threads run through the diversity of steps and approaches proposed. Particular emphasis is given to being customer‐focused:

	“At the outset, the focus in designing distribution systems should be on customer needs for levels of service, such as order size, location, convenience, delivery time, product variety and the like” (Stern et al., 1993, p. 2).
	“Focusing on the customer requires the ability to identify customer channel preferences and to market based on those preferences” (Schoenbachler & Gordon, 2002, p. 50).
	“Designing the distribution channel starts with determining the services that consumers in various target sectors want…” (Kotler et al., 1996, p. 473).

While the customers' needs may be a starting point in channel design, these must be weighed against other factors. As Kotler et al. (1996, p. 473) continue: “To design an effective channel, the company must understand the services its customers require and then balance the needs of those customers against the feasibility and costs of meeting them.” Similarly, Pumphrey (2006, p. 56) asks: “How can they [the channels] be the most cost‐effective and revenue efficient at the service levels the customers wants?”

Consideration then needs to be given to which distribution functions are to be performed and how (Mallen, 1996; Morelli, 2006). Anderson et al. (1997, p. 68) observe: “Channel functions are the basic building blocks of the design process. While functions cannot be eliminated, they can be combined creatively to reduce cost and to improve responsiveness and be dispersed among several players.” What then are the alternative ways these functions might be carried out, by whom, and at what cost? Cespedes (1988) stresses the trade‐offs in channel design between control and financial resources. When distribution systems are already in place and they are being reviewed or a more strategic approach is being adopted, consideration of the alternatives will also involve analysis of the gap between what is being offered and what might be provided (Stern et al., 1993; Fava Neves et al., 2001).

Measurement and monitoring are identified as a key feature in the latter stages (Mallen, 1996; Fava Neves et al., 2001; Stone, Hobbs, & Khaleeli 2002; Wilson & David, 2007). This point is well made by Pumphrey (2006, p. 64) who observes: “…the ultimate rule emerging is that we need to ensure that measurement systems are in place to monitor and refine the progress of the strategy. This means that we need to track the volume and resource absorbed for all contact drivers across all channels.”

THE NEW ZEALAND PROJECT

In terms of channel design, four key points emerge from the systematic evaluation of the findings of the New Zealand project which provided a wealth of tourism‐specific material needed to elaborate the more general process elements into relevant and meaningful steps for the distribution of tourism products.

Firstly, the research highlights the diversity of tourism distribution channels. Some commonalities do occur—especially in terms of package tourism—but important differences are found from sector to sector, market to market, and segment to segment (Stuart, Pearce, & Weaver, 2005; Smith, 2007a, 2007b; Smith & Garnham, 2006; Sharda & Pearce, 2006; Pearce & Sahli, 2007; Pearce, Tan, & Schott, 2004, 2007; Schott, 2007). As a result, most suppliers use multi‐channel distribution systems and may be faced with a reasonably wide range of alternative channels, more so than in many other sectors where multi‐channel distribution is often more recent (Frazier, 1999; Coelho & Easingwood, 2004). The implication of this from a channel design perspective is that any process has to be set out systematically in general terms if it is to be widely applicable and provide a clear framework for considering the alternatives and choosing among them.

Secondly, the “whole systems” approach to distribution used in the project highlights the need to take account of the perspective and behavior of all channel members (Pearce, 2003). In line with much of the wider literature, the customers' viewpoint is subsequently taken as a starting point (Pearce & Schott, 2005; Smith, 2007b), but the needs and behavior of the suppliers and other intermediaries are also explicitly included (Stuart et al., 2005; Pearce, 2007a; Pearce & Sahli, 2007; Pearce & Tan, 2006; Pearce et al., 2004, 2007; Smith, 2007b; Smith & Garnham, 2006; Schott, 2007). Again, these needs and this behavior are travel‐specific.

Thirdly, very little evidence emerged that New Zealand tourism suppliers had formal distribution strategies in place and even less that they were actively monitoring their distribution in any systematic fashion. The general absence of formal distribution strategies means that any process proposed would have to be robust and relatively straightforward if it were to be widely adopted. A step‐by‐step approach would break down what can be quite a complex process into a series of more manageable chunks. The lack of monitoring reflected in part the methodological challenges of evaluating channel performance in the tourism industry. Research on this topic resulted in the elaboration and application of a practical methodology that revealed substantial cross‐channel variations in net revenue (Pearce & Taniguchi, 2008). The results reinforce the need for a more strategic approach to tourism distribution while the methodology shows how suppliers can monitor and evaluate channel performance.

Fourthly, synthesis of the various strands of the empirical research and their reinterpretation in the light of the fundamental principles of distribution resulted in the elaboration of a needs‐functions model of tourism distribution (Pearce, 2008) which had a significant impact on the formulation of the strategy process. The model emphasizes the needs of tourists and the functions required to meet those needs (Figure 1). International leisure tourists are segmented by their distribution behavior into three segments: independent, customized, and package. Their needs are expressed in terms of time, place, form, and possession utilities. The functions required to meet them are information provision, assortment, bundling, and booking and purchase. This model proved very instrumental in reinforcing and elaborating a customer‐oriented approach and, in contrast to the prevailing tourism distribution literature, focuses on functions rather than structures. Focusing on functions directs attention to the essence of a distribution strategy, what needs to be done to create an effective path to the market, and opens up a wider range of alternatives early in the process compared to a preoccupation with structures. The model also has a strong geographical component with significant implications for channel design. Some needs are expressed in the market ahead of travel, others at the destination, and a third group en route between the two. This reflects the underlying characteristics of tourism distribution: facilitating the movement of tourists from their home region to destinations where the consumption of goods and services essentially occurs in situ rather than the physical distribution of products—the focus of much of the wider literature.

Figure 1 A Needs‐Functions Model of Tourism Distribution Source. Reprinted from Annals of Tourism Research, 2008, Vol 35/1, pp. 148–168, Douglas G. Peace, ‘A needs‐functions model of tourism distribution’, with permission from Elsevier.

Once a draft process had been completed by drawing together ideas from the wider channel design literature with the lessons and findings from the New Zealand project, it was trialled at four industry workshops hosted by regional tourism organizations and attended by more than 200 tourism suppliers. Response and feedback from the participants was very positive and validated the process in terms of its structure, relevance, and practicality. The main suggestion made was to clarify some terms and include a glossary in the strategy handbook (Pearce, 2007b).

While it was developed in a New Zealand context—the country is particularly dependent on long‐haul travel—the systematic process outlined has a more general application in tourism and might be readily used elsewhere, providing account is taken of local market conditions and destination characteristics. As with studies of channel design processes from other sectors reported in the literature (Stern et al., 1993; Fava Neves et al., 2001; Sharma & Mehrotra, 2007), the overall process is outlined before the considerations involved at each stage are discussed in more detail.

THE TOURISM DISTRIBUTION STRATEGY PROCESS

Figure 2 outlines the process tourism suppliers might use to develop an effective distribution strategy. The focus is directly on distribution and assumes other key strategic decisions regarding the marketing mix functions have already been made, notably those relating to promotion, pricing, and products.

Figure 2 A Distribution Strategy Design Process for Tourism

Two basic principles underlie the process depicted in Figure 2. Firstly, the process stresses the need to be customer‐focused, to take account of the distribution needs of customers as well as the business's own requirements. In essence, the process involves achieving the best possible fit between these two sets of needs. Secondly, it involves taking a series of basic steps that deal with distribution in a systematic fashion. Taking a structured stepwise approach to designing a distribution strategy makes the task of developing a strategy more straight forward and also readily enables the strategy to be revisited to take account of changes in the market or the operating environment; for example, as new market opportunities or threats appear, new products are developed or technologies improve.

Seven basic steps are involved:

1. identify the distribution needs and preferences of each customer segment targeted;

2. identify the supplier's distribution needs;

3. identify the functions to be performed to meet the distribution needs of the customers and the supplier;

4. evaluate the alternative ways by which these functions might be performed;

5. decide on the distribution mix;

6. implement the distribution strategy;

7. monitor and evaluate the distribution strategy.

The issues to be considered in these seven steps are now discussed in more detail.

Step 1: Identify Customer Needs and Selection Preferences

The distribution needs and preferences of customers vary from market to market, segment to segment, and sector to sector; but certain common features can be observed which provide some general guidance for individual businesses seeking to identify their own customers' needs and preferences. In making their travel decisions and arrangements, tourists in varying degrees need:

1. information about destinations and the products available there;

2. a range of travel products and services—including transport to and at the destination, accommodation and attractions, and activities;

3. an assortment of products and services from which to choose;

4. to book and pay for the products and services they have selected.

As shown in Figure 1, international leisure tourists want to fulfill these needs in various times and places: in the market ahead of travel; at the destination itself; en route between the market and the destination or between destinations, especially when independent touring is involved. Other segmentations are also possible, and will vary from one client base to another; for example, corporate travellers, convention goers, or event attendees (Garnham, 2005; Smith & Garnham, 2006; Smith, 2007b). Channel choice is influenced by various factors, but the single most important is generally the ease and simplicity with which tourists can book and pay for their travel arrangements (Pearce & Schott, 2005). However, which channel is the easiest to use may vary from person to person.

Step 2: Identify Supplier's Distribution Needs

The distribution requirements of suppliers will vary by sector and business but generally are influenced by three broad sets of inter‐related factors: market coverage, product characteristics, and business characteristics (Stuart et al., 2005; Pearce & Tan, 2004, 2006; Smith 2007a; Smith & Garnham, 2006; Pearce & Sahli, 2007; Schott, 2007).

Market coverage involves such considerations as where does product information need to be made available and which points of sale are required? This depends on the size and location of the markets targeted, especially the domestic/international mix and extent to which these markets are nearby or distant, dispersed, or concentrated; the nature of the target markets, particularly whether they are broadly‐based or niche and specialist, touring or stay‐put; seasonality; and market share—the distribution needs of dominant players will vary from those suppliers having only a small share of the market. Product characteristics will affect distribution requirements, especially in terms of the need for reservations and advance purchase. These include: product appeal, capacity constraints, and the need to schedule staff and make logistical arrangements. Business characteristics that influence distribution requirements include the size and resources of the business; the age of the firm and financial considerations (profitability, return on investment, cash flow and yield management).

Step 3: Identify the Functions to be Performed to Meet the Distribution Needs of the Customers and the Supplier

Figure 1 provided an overview of the functions required to fulfill the differing distribution needs of three major customer segments and where and when these might be required (Pearce, 2008). The key functions identified are:

• Information provision: making available adequate information in the right time and place is essential to stimulate demand, aid product and destination choice, and facilitate the booking of products and services.

• Sorting: bridging the discrepancy between the assortment or range of goods and services provided by tourism suppliers and those sought by tourists. Most suppliers operate in a single sector and offer a limited range of products and services to a large number of customers. Individual tourists, on the other hand, usually require a small amount of a wide range of products and services. The sorting process helps customers access the products they need and often involves selection and classification of suppliers' products by an intermediary. Being part of an assortment of products offered by an intermediary; for example, being included in a wholesaler's catalogue, may be an important part of the distribution process.

• Bundling: combining together various elements of a holiday or trip (transport, accommodation, attractions…) into a package or set of customized travel arrangements.

• Booking and purchase: how and when tourists make payment and take possession of title is a key distribution question.

The functions undertaken to meet the customers' and suppliers' needs are complementary: Tourists will want product information, suppliers need to make information available; tourists make reservations, suppliers or intermediaries take reservations.

Figure 1 can be used as a basic framework to begin shaping a distribution strategy. It enables the functions required to be related to particular sectors and segments and where and when functions need to be performed. It contrasts, for example, the higher levels of service sought by package and customized tourists—bundling, reduction of transactions, advance purchase and ready availability in the market—and the lesser, or at least different, demands of independent tourists who tend to assume more of the key functions themselves and do not require all or most of the functions to be performed in the market.

Existing businesses have to determine the extent to which their current distribution system ensures all relevant functions are satisfactorily provided for the segments targeted and the products offered. Some lack of fit may be found between the distribution functions sought and those provided due to such factors as a lack resources or expertise, inappropriate and inefficient intermediaries, or inadequate and outmoded technologies. New businesses will need to identify what the ideal set of functions is for the markets they are targeting and how and to what extent these might be delivered.

Step 4: Consider the Alternative Ways by Which These Functions Might be Performed

Figure 3 provides a framework to consider the alternative ways by which the identified functions might be performed. It can be worked through both vertically and horizontally.

Figure 3 A Framework for Considering Distribution Alternatives

A basic choice exists between direct and indirect distribution. Decisions about direct and indirect distribution are heavily influenced by what functions need to be carried out when and where. In general, indirect distribution becomes much more significant when the functions need to be performed in the market, especially where these are distant and/or dispersed international markets. Intermediaries are usually also required for en‐route distribution unless the supplier is a networked business (Pearce & Sahli, 2007). For small and medium suppliers, direct distribution is usually a more feasible option in nearby domestic markets as well as at the destination where demand is already concentrated geographically (Pearce & Tan, 2006; Pearce, 2008).

Certain functions, such as those involving high levels of sorting and bundling, generally lie outside the scope of suppliers. Assembling a series tour, for example, involves selecting and combining a range of products, commonly from different suppliers. Making it available in the market also requires some means of advanced distribution, usually through a network of travel agencies or possibly through a call center direct to the wholesaler or tour operator (Pearce et al., 2007). Similarly, customizing travel in the market means accessing, assembling, and selling customers an assortment of products. In some instances, especially for short‐haul travel, market‐based intermediaries will source products directly from suppliers; in others, intermediaries often rely upon the destination presence and greater familiarity of destination‐based inbound operators to facilitate the sorting and bundling process by providing advice on the design of the itinerary and making land‐based arrangements (Sharda & Pearce, 2006; Pearce et al., 2007).

At the destination, use of a local intermediary facilitates consumer choice and transactions for independent travellers by making an assortment of products available for booking and purchase in a single location, together with customer advice and possibly assurance. The existence of this assortment in one place also concentrates demand from tourists actively seeking services, making the information center or other local intermediary an efficient location for the supplier's promotional and sales efforts.

A second level of choice for both direct and indirect distribution relates to whether distribution will be offline or online. Potentially online channels offer great scope for bridging the gap between consumers and suppliers by making travel products continuously available to tourists in the market, en route or at the destination; indeed from anywhere the Internet can be accessed. In practice, the suitability of online distribution varies, especially by function and sector. Initially used primarily for information provision, online distribution for booking and purchase has occurred most rapidly where products are relatively standardized and price sensitive, most notably in the air transport and hotel sectors (Card, Chen, & Cole, 2003; Wolfe, Hsu, & Kang, 2004; Pearce & Schott, 2005). Increasingly sophisticated search engines facilitate the finding and sorting of information on individual suppliers' websites, while third‐party websites provide varying levels of assortment. Bundling is as yet less readily handled online although recent technological advances are offering increasing scope for dynamic packaging whereby travellers are able to select and combine their own products rather than just make discrete selections.

Varying revenue and cost structures are associated with the different functions and how and by whom they are carried out. Pearce and Taniguchi (2008) report substantial differences between the best and worst performing channels in terms of net revenue generated. Transferring functions to other parties may also mean some loss of control over the way a product is distributed; for example, in terms of how it is bundled with those of other providers, over the quality of service and information provided to buyers and the final price offered to customers. Brand dilution may also occur. As a result, in addition to the direct and indirect costs analyzed by Pearce and Taniguchi, tourism distribution may be subject to various transaction costs—“the intangible costs of running and managing a channel” (Ng, 2007, p. 5). Ng notes: “Such costs arise from impediments in reaching and enforcing agreements within a channel and are associated with activities such as bargaining, contracting, monitoring performance, and engaged in only as a consequence of a need to coordinate activities among transactions. Transaction costs also include the cost of acquiring market information; costs arising from environmental uncertainty, and … the cost of opportunism” (p. 5).

Step 5: Decide on the Distribution Mix

Most tourism suppliers will require several channels in order to cater to a range of segments, to meet the needs and preferences of different customers, and to extend coverage of their product. Decisions about an appropriate distribution mix will be primarily influenced by two main objectives: satisfying the customers' needs, and maximizing profits.

Three levels of decision are required to determine an appropriate distribution mix:

• Channel mix: which channels are to be used?

• Channel width: how many different outlets or intermediaries are to be used for each type of channel?

• Channel partner selection: which intermediaries are to be selected?

For both established and new operators the channel mix sought might be expressed in terms of the volume of business and net return generated through each channel used. In deciding an appropriate channel mix it is necessary to:

• determine the coverage each channel provides to each of the segments targeted in terms of the functions discussed in Step 4 and the size and location of each segment;

• assess the profitability of each channel taking full account of all costs and revenue on a channel‐by‐channel basis;

• take into account any other factors which are central to the marketing and distribution objectives, such as maintaining control or improving seasonality;

• balance customers' needs against profitability and available resources.

There may be more choice in reaching some segments than others. Suppliers catering to independent travellers will generally have a wider range of choice—various forms of direct channels, the use of local intermediaries, third party websites—than those whose products are bundled together and sold as part of a series tour through one or more intermediaries (Pearce et al., 2007).

Coverage versus cost is a key issue in decisions about the channel width for each type of channel chosen. By extending channel width, is coverage of the targeted markets being extended or merely duplicated? Kang et al. (2007, p. 40) observe: “… retaining direct and intermediated channels is a compromise alternative which may enable greater market penetration than using either one alone. However, a hotel's direct channel can be seen as a direct competitor to its intermediary partner, potentially leading to tension referred to as channel conflict, which can undermine attempts to develop cooperative relations in the intermediated channels and lower the profits of all parties.” Increasing channel width, especially when using multiple channels, also has implications for distribution management; for example, the time and cost involved in dealing with intermediaries, coordinating reservations, managing availability and accounting.

Coverage and cost are also major considerations in selecting particular channel partners such as inbound operators, wholesalers, or online intermediaries. Distribution factors to consider here include:

• the degree of specialization in the supplier's product and destination;

• the nature of their networks and coverage of the market;

• their commitment and capacity to handle the product (Ng, 2007);

• their fees and charges relative to the services they provide.

All of these will affect the volume and yield of the business they can deliver.

Step 6: Implementation

Distribution must be seen as somebody's specific responsibility, part of someone's job description, in order to ensure that sufficient time and resources are allocated to implementing the strategy. While this may seem self‐evident, it is often not the case with many small‐ and medium‐sized businesses where distribution is but one of many roles assumed by the owner‐operators or their managers and one that is often submerged by more immediate operational activities. Adequate and appropriate operational systems for all of the functions being assumed by the supplier also need to be put in place. Suppliers targeting international markets must be “export ready”; that is, they must have staff and operational systems in place which will enable them to deal with offshore distributors and be prepared to adopt pricing structures that reflect the involvement of one or more sets of intermediaries in the distribution system.

With indirect distribution, the end‐user—the tourist—is now dealing with an intermediary; the supplier's immediate customer becomes an intermediary. Understanding how intermediaries find out about products, select suppliers, and why they change them is vital to implementing a distribution strategy (Pearce, 2007a). Three major sets of factors are taken into account by offshore intermediaries when selecting New Zealand suppliers: those related to products (market fit, market demand, and product quality); people (the attributes of the suppliers—their keenness and perceived ability to work with the intermediaries); and competitive prices. Product dissatisfaction expressed through complaints and negative feedback from clients is the prime reason intermediaries change suppliers.

Step7: Monitor and Evaluate

Regular monitoring and evaluation is needed to ensure that any distribution strategy is meeting customers' needs and business requirements—the feedback loop in Figure 2. This involves tracking the performance of existing channels, assessing any changes in demand, and remaining abreast of technological and other developments. This will enable identification of any changes or improvements that need to be made.

A first step is to build an adequate database. The better the database, the better suppliers will be able to assess the effectiveness of their existing strategy, gauge the changes that need to be, and evaluate the impact of these once taken. From a business perspective, distribution channel management should be seen not just as a marketing tool but also as a form of revenue management. Better integration of booking systems with financial records will enable the revenue management implications of distribution to be evaluated more readily (Pearce & Taniguchi, 2008).

Key questions to consider in evaluating a distribution strategy include:

• What are the channels that visitors prefer to use and how well are these covered at present?

• What is the net revenue generated by each channel?

• Which channels best meet other business objectives such as attracting new customers or reducing dependency?

Consideration of the strategy in terms of the share of the different channels and their relative performance (e.g., best performing, worst performing) will assist decisions about which channels might be expanded, reduced, added, abandoned, or improved.

DISCUSSION AND CONCLUSIONS

The recent recognition of the importance of distribution as a source of competitive advantage in the marketing mix for tourism is not enough. A more strategic approach to tourism distribution is needed by owners and managers. This article has outlined a practical process by which suppliers might take a more structured and strategic approach to channel design and to the distribution of their products. By following the sequence of steps set out in Figure 2, suppliers will be able to more readily meet their customers' distribution needs and develop a channel design that assists them to fulfill their business objectives. This requires suppliers to acknowledge the role distribution plays in their business, to take a disciplined approach to it; and to allocate adequate time and resources to design, implementation, and monitoring. Some may already be doing this and the process may enhance existing practices. For others, the process outlined will provide a framework to give owners and managers more structure and direction to what they are doing, to move from an intuitive “just do it” approach to a more strategic one based on a greater understanding of their customers' needs, a more considered assessment of alternatives, and a more informed evaluation of channel performance.

Discussion of the way in which the process was developed has also highlighted the role of applied research. Consideration of the wider literature on channel design helped shape the elaboration of Figure 2 but the specific elements within each of the steps was very much determined by the synthesis of the findings from the project on tourism distribution in New Zealand. While the wider literature emphasizes the need to be customer‐focused, for example, understanding was needed of the specific distribution behavior of tourists in order to operationalize this step. Likewise, to monitor the strategy, another recognized step—the methodological issues associated with the challenges of evaluating the performance of multiple tourism distribution channels—first had to be overcome.

Scope clearly exists for more work in these and other areas. Figure 2 might be used not only as a framework for channel design but also to provide some direction for future research in this developing field. In the first instance, Figure 2 might be used as a means of more explicitly linking much existing and future research to the channel design process. There is, for example, a considerable body of literature on information search and travel decision making but this is often not linked directly to questions of distribution (Pearce & Schott, 2005). By relating such work to Step 1 in the channel design process—identifying customers' needs—the distribution implications of any findings in this field could be drawn out more effectively. This involves going beyond establishing patterns of use; for example, of online or offline channels, to investigate the underlying distribution behavior of travellers.

Figure 2 also underlines how the various steps are interrelated while the associated discussion, following Anderson et al. (1997), has emphasized the importance of channel functions as the basic building blocks of the design process. More attention might thus usefully be given to research on functions rather than structures and to consider these across the various steps. Jun, Vogt, and MacKay (2007), for instance, provide an interesting analysis of the use of different channels for pre‐trip information search and booking but more research on functions from the suppliers' perspective together with analysis of the costs of different functions would also be helpful to provide more detailed input into Steps 3, 4, and 5. Moreover, the current emphasis on information search (Luo, Feng, & Cai, 2004) needs to be balanced by more research on the other functions mentioned, especially bundling and sorting. As in the broader distribution literature, more quantitative research could also be undertaken to support the various aspects of decision making in Step 5; for instance, determining optimal channel mix and channel width (Fava Neves et al., 2001), as well as to extend and refine monitoring techniques. Pearce and Taniguchi's (2008) approach to measuring net revenue and Ng's (2007) work on transaction costs could be usefully extended. While a variety of metrics are being developed to measure online distribution(Green, 2005)—especially those involving search engines—the ongoing relevance of many offline channels underlines the importance of measures that can be applied across multiple channels so that comprehensive and balanced monitoring systems can be devised and implemented. Research is also needed to track the impact of changes in distribution strategies. Other researchers might explore more systematically what factors lead to or impede the successful implementation of distribution strategies.

Notes

This article forms part of the “Innovation in New Zealand tourism through improved distribution channels” project funded by the Foundation for Research, Science and Technology.