The manner in which hospitality companies bring their products to market remains a cornerstone of any competitive strategy. From traditional road-side hotel signs to modem computer networks, consumers have always based much of their travel decisions on information. The travel business -and every other portion of its distribution chain, including suppliers, intermediaries and customers -is experiencing intense competition for the dissemination of information (including price and availability). The entire $200 billion travel and leisure industry worldwide has a stake in how travel information is distributed, and stands to gain or lose much in the emerging distribution model. As technologies continue to evolve, competing for the consumer purchase will increasingly take place in the virtual arena as players battle for "electronic shelf space."

As a result, the competition for electronic shelf space on the Global Distribution Network (GDN) is of critical importance in an industry where perception is reality and service is increasingly defined by technological advancements, rather than human interaction solely. The GDN is transforming the dynamics of the distribution environment -typified by the unrelenting clamor for the best position in the electronic market. As a result, travel and leisure industry companies must reevaluate their strategic positions in the distribution chain. Direct access to customers, the bread and butter of the existing value chain, remains at the forefront in terms of strategic direction.

Indeed, the electronic shelf space can be defined as the "real estate found on the computer screen. Almost all hospitality transactions taking place today, except for small country inns in Europe or the United States, employ some form of computer terminal where hotel availability is checked and reserved. For call center reservation agents, travel agents and individuals booking through the Internet, the physical screen, which displays GDN information, is the location of the virtual shelf space. Controlling electronic shelf space - and the number of "eyes" that view GDN information through one specific portal into this virtual inventory  is of utmost importance to the world's leading hospitality and travel companies. This article describes the GDN product and its electronic shelf space, the components and players of each part of the distribution chain, and a framework for corporate decision-making in an evolving distribution model.

The Emergence of GDN

At its inception, the Global Distribution System (GDS) represented a closed, dedicated connection of terminals displaying travel information about airlines, hotels, car rentals, cruises and other travel products. Used almost exclusively by travel agents, the GDS created a distribution chain that was relatively linear, allowing each chain player to collect a portion of the transaction. Today, however, the GDS has been reduced to just one component of a much larger ecosystem of networked travel information with advances in communication and software. It is this larger structure - the Global Distribution Network or GDN -that is dramatically affecting how business is done in the hospitality and travel industries. This emerging distribution model might be more closely described as a multi-dimensional flow of information and transactions - with any intermediary in the channel able to distribute travel information and complete a transaction directly with the customer.

Unlike many consumer products, which are displayed on physical store shelves, some degree of computerized inventory and distribution system is essential to display hospitality product information. Just as each supermarket aisle displays individual, physical items, specific domains and locations in electronic commerce house hospitality information. GDS providers, such as Galileo, Apollo, Worldspan or Sabre, often represent these domains. Increasingly, however, Internet-based travel companies, on-line access providers and other virtual communities appeal directly to consumers and travel agents, thereby circumventing the traditional GDS. As a result, hospitality and travel suppliers must develop comprehensive channel management strategies to maximize yield for each existing channel and new component. In addition to the existing GDS, online access providers, Internet service providers, virtual communities, emerging intermediaries and direct connectivity among different suppliers must all be considered and evaluated separately as part of a channel management strategy.

Where is the Electronic Shelf Space?

Traditionally, the electronic shelf space was found in two places: either the travel agent's desktop or at the reservation center of individual suppliers (accessed by consumers via the telephone). The airline or hotel supplier was connected to travel agents through the GDS, which created a straightforward variable cost structure to sell travel products. Although designed for the airlines, the GDS's widespread distribution (currently 40,000 terminals worldwide) attracted other hospitality and travel companies to list their inventory. Since their information is displayed in a similar format to airlines, hotel, car rental and tour wholesaler products are compromised on the GDS because of limited description and display of information, as well as the inability to sell inventory directly from a central reservation system. The inventory is essentially on consignment to the GDS at a pre-determined price, regardless of market fluctuations after the product allotment was made available. The end-consumer, travel agents and suppliers had two forms of communication  the GDS terminal or the telephone.

With the evolution of the Internet, however, the shelf space has grown exponentially and become much more complex. In fact, the electronic shelf space is now quite crowded. Many suppliers (hotel, airline, and car rental companies) tour and travel companies, virtual agents and travel agents maintain web sites and conduct business over the Internet. In addition, some web sites offer various levels of travel information and advice, most of which are linked to one or more of the above booking engines. Combined, these groups are expected to account for $2 billion in bookings annually by the year 2002~~ All of these entities are targeting the computer screen through which consumers and travel agents view the world. Each entity exerts influence on one or more channels in the distribution model.

Channel Management

Channel management for hospitality and travel companies requires more than simply understanding the value chain and managing the players. Hospitality companies will need to develop business measurements that effectively represent digital commerce, determining the health and profitability of each available channel. Effective information auditing and analysis will become standard in each organization's sales strategy. Tools such as decision-support systems. data warehousing, and On Line Analytical Process (OLAP) systems will be required to respond to the market dynamics of each channel and its customers.

Completing a customer-initiated transaction includes product maintenance. information inquiries, inventory access and technical infrastructure to support these distribution developments. Indeed, Jupiter Communications, a new media research firm helping companies make business decisions about consumer interactivity, believes the largest opportunity for sellers of complex travel products - such as cruises and rooms at resorts - lies in integrating the online channel into existing sales channels to reduce the sales cost. Integrated sales channels will help travel companies qualify customers online, reducing the number of calls to close sales of higher-priced products off-line.

Technology by itself does not provide the solution, however. The creative integration and use of today's emerging channel network provides the potential for successful distribution management. Each travel supplier is required to carefully thread each customer through the most effective channel.

Requiring excellent coordination between any intermediary and supplier, the functional success to the customer is measured by accurate and timely information on an electronic shelf that owns the greatest amount of computer screen real estate.

The Players

The hospitality and travel players battling for electronic shelf space can be found in three major categories Suppliers, Intermediaries and Customers. Suppliers contract to provide travel information in various channels for a fee. Channel providers pass the travel information onto the customers and seek to motivate certain customers to use their channel with incentive fees. Individual customers might receive incentive fees from the channel provider and commissions from the supplier.

Each player has its own set of challenges for management. Past business strategies do not apply to the GDN. The virtual communities of the GDN have unique business requirements as they are created with players clustering around themes or connected interests. It is these virtual communities that form the "neighborhoods" where customers tend to congregate. Each cluster is focused on information services, products, customer demographics or new business models that take advantage of the new technologies. Tactics for building the customer relationship include developing virtual communities from strategic alliances between companies such as America Online and Preview Travel. Strategic alliances such as these are creating more attractive virtual communities by providing an appealing product and services.
Customer participation is a very important characteristic in virtual communities because it is the one factor that differentiates this model from other markets. The behavior of travel agents on the GDS and customers who are currently buying products and services online clearly indicate that companies can increase the volume of transactions in their digital channels. Companies have the opportunity to increase service levels, provide personalized interaction that builds customer loyalty, and provide new services that have been previously unavailable. Companies that understand the GDN will benefit from these valuable resources.

Suppliers

Players in the travel supply arena include airlines, hotels, rental car companies and tour and travel wholesalers involved in the provision of air, lodging, tours, car hire and destination services for travelers. The challenge for suppliers will be to manage and control the multiple entities that make up their GDN. Companies that participate in virtual communities must be willing to relinquish portions of inventory control and capacity management. Existing yield management techniques will need to be adapted to allow companies to effectively participate in the GDN. The rate at which distribution channels are changing is alarming. Suppliers will be challenged to determine the level of integrating the GDN into their organization. Suppliers in general seem to lack a vision of where the GDN market is going and the role technology is playing in determining the future of the travel industry. In addition, the high cost of distribution is now causing many suppliers to reevaluate current distribution strategies. Southwest Airlines, for example, has chosen Sabre as its sole global distribution system for low-cost distribution. In addition, it created a robust interactive Internet site that had booking capabilities. A secondary effect of streamlining and lower cost was increased demand for Southwest products.

Intermediaries

These companies include internet providers, Telephony/Call Centers (Worldwide toll-free numbers automatic call detection systems, GDS marketing media solutions) and Universal Switch Providers. These switches are communications devices that translate, convert and exchange information between hotel systems (CRS's or PMS's and airline GDS's). Universal switches assist the travel supplier by providing suppliers with "one-stop shopping" for equal access to the assorted GDS providers. The hotel supplier currently is the only beneficiary of switch providers. Numerous opportunities exist for additional universal switch players for hotel as well as other travel suppliers. Currently there are two providers for hotel universal switches: Pegasus Systems' THISCO and Cendant's WizCom. Select hotels have integrated the switches into a distribution strategy to provide universal access from their Property Management Systems (PMS) and Central Reservations System (CRS) to the GDS's, and the Internet. Suppliers that go direct to the customer represent an obvious threat to intermediaries. Any player in the value chain can pirate a customer from an intermediary in the GDN. Channel providers have the potential to leverage strong existing virtual communities by adding new products and services to the value chain immediately. Travel suppliers that create direct links to customers will be able to chip away from intermediaries.

Customers

Entities with direct access to customers include travel agents, online travel agents, Internet/online service providers, corporate travel departments, company representatives that coordinate travel for employees, and individual travelers or agents acting on behalf of the consuming traveler. Clearly, the role of travel agents has evolved rapidly as they seek to remain competitive given the growth of the electronic shelf space. In simple terms, travel agents no longer serve as order-takers holding the monopoly on GDS access. In the new distribution model, travel agents become knowledge brokers, serving as travel consultants who add validity and credibility to the information.

Building Presence on the Electronic Shelf Space

Hospitality companies must place their product on the best electronic shelf to maximize their exposure. and share of the customer. The traditional adage of "location, location location" in the hotel business rings especially true within the GDN. Corporate success within the GDN is determined largely by location in the electronic arena. The most desirable "shelf space" location resides in specific virtual portals, such as browsers (United Airlines, America Online, Netscape, Microsoft Internet Explorer), on-line communities, the alliances dictating travel information, interlinks (electronic advertising, web site links, and other) and the intermediaries that represent the branded travel product to a company's key target audience.

Hospitality companies will benefit as they conduct feasibility studies investigating how to build presence on an electronic shelf space and determining which distribution
channel to select. Key questions must be answered. What is the best market mix on the GDN? Who are the target customers, and what areas of the GDN are predominately used by which customers (travel agents, corporate offices, or individuals)? How will my company ensure continuous distribution of timely, accurate, and reliable information to as many computer screens as possible? Given that traditional call center reservations can be six times as costly as electronic ones, what channels are most cost effective? What are the saving benefits and increased risks of an expanded GDN presence? In what ways must information be managed as it flows back, and how does that enable direct one-to-one marketing? Ultimately, a company must achieve two goals:

• Allow customers to search for products and services they are willing to purchase; 
• Provide a means to fulfill the transaction immediately.

A distribution strategy must also provide the means to fulfill the transaction immediately. This includes sufficient technical infrastructure to support an on-line transaction from multiple customers and computers. Enabling the transaction also requires the proper links with other suppliers, intermediaries, and on-line service providers. Several companies in North America and worldwide are developing sophisticated technology for fast, efficient bookings from single-image inventory, and storing the customer information for improved service and customization in the future.

Conclusion

The traditional value chain is dissolving, and that means hospitality and travel companies must rethink the importance of presence on the electronic shelf space. Travel and leisure companies on the GDN must evaluate the most cost effective and direct channel to distribute their products to a targeted and profitable travel customer. Building the new capabilities required to become a GDN player will further enhance a company's technology and sales strategies, which are becoming increasingly inter-twined. Strong brands, a sound technical infrastructure and value-added relationships to specific virtual communities will ensure that the productivity of emerging distribution channels will produce the largest amount of profitable and loyal
customers.

(Jay A. Castleberry is a Senior Consultant in Arthur Andersen 's Business Consulting Practice. Christian Hempell and Gretchen Kaufman are Consultants. They are based in Los Angeles.)

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