Airline Product Distribution
In business, the term distribution refers broadly to the process of delivering the product to
the customer. For airlines, the product is the ticket or cargo waybill. Driven by rising costs
and competitive pressures, and empowered by new technologies, carriers have continued
to make headway in expanding their distribution offerings to business and non-business
consumers. In doing so, the airlines have increased productivity and reduced expenses.
Capturing costs associated with the distribution of an airline ticket is inherently subjective,
requiring the analyst to decide what expenses (e.g., sales force, distribution planning staff,
reservations agents, call center communications and rent, city ticket offices, mailing,
printing, advertising, agency commissions, global distribution system [GDS] booking fees,
hardware/software) should be included in that category. That is, distribution costs are
functional rather than organizational, entailing a blend of organizational costs (i.e., labor,
commissions, purchased services, communications, advertising, and promotion).
An evaluation of a distribution channel that considered only costs would be flawed, of
course. Improved channel profitability is the appropriate objective, requiring a thorough
analysis of channel shift, revenue production, and dilution, as well as the full array of
direct and indirect costs. Deriving this data at the industry level, however, is elusive. ATA
does not collect any distribution-related data from its members. DOTs Form 41 reports
contain line items for agency commissions but not for GDS fees, which are lumped in with
other professional and technical fees.
No central, official source exists for volume, revenue, or cost of channel. One notable
governmental source is GAOs July 2003 report entitled Airline Ticketing: Impact of
Changes in the Airline Ticket Distribution Industry. Although private research on these
topics exists, report metrics are not always comparable. Terms may be defined differently.
Some private sources include:
* comScore Networks
* Forrester Research
* Jupiter Research
* PhoCusWright
* SITA Airline IT Trends Survey
comScore, Inc. – a Global Internet Information Provider
comScore maintains massive proprietary databases that provide a continuous, real-time
measurement of the myriad ways in which the Internet is used and the wide variety of
activities that are occurring online.
Mission-critical information relating to both offline and online activities is collected
through comScores innovative use of the Internet as a timely and powerful data collection
medium.
comScores products and services are utilized by many of the worlds leading corporations
to better understand, leverage and profit from the rapidly evolving worldwide Web.
distribution – channel strategy
The following table describes the factors that influence the choice of distribution channel
by a business:
Influence Comments
Market factors An important market factor is “buyer behaviour”; how do buyers want to
purchase the product? Do they prefer to buy from retailers, locally, via mail order or
perhaps over the Internet? Another important factor is buyer needs for product information,
installation and servicing. Which channels are best served to provide the customer with the
information they need before buying? Does the product need specific technical assistance
either to install or service a product? Intermediaries are often best placed to provide
servicing rather than the original producer – for example in the case of motor cars.
The willingness of channel intermediaries to market product is also a factor. Retailers in
particular invest heavily in properties, shop fitting etc. They may decide not to support a
particular product if it requires too much investment (e.g. training, display equipment,
warehousing).
Another important factor is intermediary cost. Intermediaries typically charge a”mark-up”
or “commission” for participating in the channel. This might be deemed unacceptably high
for the ultimate producer business.
Producer factors A key question is whether the producer have the resources to perform the
functions of the channel? For example a producer may not have the resources to recruit,
train and equip a sales team. If so, the only option may be to use agents and/or other
distributors.
Producers may also feel that they do not possess the customer-based skills to distribute
their products. Many channel intermediaries focus heavily on the customer interface as a
way of creating competitive advantage and cementing the relationship with their supplying
producers.
Another factor is the extent to which producers want to maintain control over how, to
whom and at what price a product is sold. If a manufacturer sells via a retailer, they
effective lose control over the final consumer price, since the retailer sets the price and any
relevant discounts or promotional offers. Similarly, there is no guarantee for a producer
that their product/(s) are actually been stocked by the retailer. Direct distribution gives a
producer much more control over these issues.
Product factors Large complex products are often supplied direct to customers (e.g.
complex medical equipment sold to hospitals). By contrast perishable products (such as
frozen food, meat, bread) require relatively short distribution channels – ideally suited to
using intermediaries such as retailers.
Distribution Intensity
There are three broad options – intensive, selective and exclusive distribution:
Intensive distribution aims to provide saturation coverage of the market by using all
available outlets. For many products, total sales are directly linked to the number of outlets
used (e.g. cigarettes, beer). Intensive distribution is usually required where customers have
a range of acceptable brands to chose from. In other words, if one brand is not available, a
customer will simply choose another.
Selective distribution involves a producer using a limited number of outlets in a
geographical area to sell products. An advantage of this approach is that the producer can
choose the most appropriate or best-performing outlets and focus effort (e.g. training) on
them. Selective distribution works best when consumers are prepared to shop around” – in
other words – they have a preference for a particular brand or price and will search out the
outlets that supply.
Exclusive distribution is an extreme form of selective distribution in which only one
wholesaler, retailer or distributor is used in a specific geographical area.
How do you sell to your end-users? Do you use a direct sales team? Resellers? A catalog or
website?
Distribution channels are the pathways that companies use to sell their products to
end-users. B2B companies can sell through a single channel or through multiple channels
that may include
o Direct/sales team: One or more sales teams that you employ directly. You may use
multiple teams that specialize in different products or customer segments.
o Direct/internet: Selling through your own e-commerce website.
o Direct/catalog: Selling through your own catalog.
o Wholesaler/distributor: A company that buys products in bulk from many manufacturers
and then re-sells smaller volumes to resellers or retailers.
o Value-added reseller (VAR): A VAR works with end-users to provide custom solutions
that may include multiple products and services from different manufacturers.
o Consultant: A consultant develops relationships with companies and provides either
specific or very broad services; they may recommend a manufacturers product or simply
purchase it to deliver a solution for the customer.
o Dealer: A company or person who buys inventory from either a manufacturer or
distributor, then re-sells to an end-user.
o Retail: Retailers sell directly to end-users via a physical store, website or catalog.
o Sales agent/manufacturers rep: You can outsource your sales function to a company that
sells different manufacturers products to a group of similar customers in a specific
territory.
Distribution is one of the classic 4 Ps of marketing (product, promotion, price, placement
a.k.a. distribution). Its a key element in your entire marketing strategy — it helps you
expand your reach and grow revenue.
Here are three distribution examples:
DIRECT TO END USERS SELL THROUGH A DEALER NETWORK SELL
THROUGH A VAR (VALUE-ADDED RESELLER)
You have a sales team that sells directly to Fortune 100 companies.
You have a second product line for small businesses. Instead of using your sales team, you
sell this line directly to end-users through your website and marketing campaigns. You
have two markets and two distribution channels. You sell a product through a geographical
network of dealers who sell to end-users in their areas. The dealers may service the
product as well.
Your dealers are essentially your customers, and you have a strong program to train and
support them with marketing campaigns and materials. You sell a product to a company
who bundles it with services or other products and re-sells it. That company is called a
Value Added Reseller (VAR) because it adds value to your product.
A VAR may work with an end-user to determine the right products and configurations,
then implement a system that includes your product.
To create a good distribution program, focus on the needs of your end-users.
o If they need personalized service, you can utilize a local dealer network or reseller
program to provide that service.
o If your users prefer to buy online, you can create an e-commerce website and fulfillment
system and sell direct; you can also sell to another online retailer or a distributor to offer
your product on their own sites.
o You can build your own specialized sales team to prospect and close deals directly with
customers.
Wholesalers, resellers, retailers, consultants and agents already have resources and
relationships to quickly bring your product to market. If you sell through these groups
instead of (or in addition to) selling direct, treat the entire channel as a group of customers
* and they are, since theyre buying your product and re-selling it. Understand their needs
and deliver strong marketing programs; youll maximize everyones revenue in the process.
