The chain of distribution is an important concept to understand when studying or working in travel and tourism. Whilst the term may sound complicated, it is actually very simple. This article explains what is meant by the chain of distribution, outlines the different levels of the chain, and gives examples of travel and tourism companies found at each level.
What is the chain of distribution?
The chain of distribution is the series of companies or businesses that are involved in transporting, storing and providing goods and services to customers.
The chain of distribution is often represented visually using a chart. This chart demonstrates the different elements of the chain of distribution at different levels. The levels are typically given the titles of: principals, wholesalers, retailers, consumers.
The chain of distribution helps us to understand horizontal and vertical integration.
Video: The chain of distribution made simple
Elements of the chain of distribution
There are four key elements within the typical chain of distribution that are commonly noted.
However, it is important to note that not all businesses and business structures will follow this ‘chain’. Sometimes there will be only one element and sometimes there may be more than four. Each business system is different and is designed in order to ensure that business operations are as efficient and effective as possible. As such, the chain of distribution is more of a guide than a rule!
Principals
The principals are the core elements that are being sold to the consumer.
Within the tourism industry this includes a wide variety of products and services including accommodation, transport, attraction tickets and ancillary products and services.
Examples: Marriott hotel room, Airbnb apartment, easyJet flight booking, ticket to Disney, Jordan pass
Wholesalers
The wholesalers are the people who package the product.
Within the travel and tourism industry, the most common type of wholesaler is the tour operator. Other wholesalers include bed banks such as Hotelbeds, which buy hotel rooms in bulk and sell them on to travel agents and tour operators. A tour operator is the organisation who takes various aspects of the travel experience and packages them together. This is then traditionally sold by a travel agent.
Many organisations choose to undertake their tour operations and travel agents elements together, so it may not always be transparent to the consumer that these are actually two separate stages in the chain of distribution.
Many travellers now put together their own holidays online, booking flights, accommodation and activities separately or through dynamic packaging. However, traditional package holidays remain popular, particularly with families, because of their convenience and the financial protection they offer.
Examples: TUI, Jet2holidays, Kuoni, Hotelbeds
Retailers
The retailers are the organisations that sell the products and/or services.
Within travel and tourism, we often refer to travel agents as being the most common retailers.
Traditionally, travel agents had high street shops, and many of these have closed in recent years as bookings have moved online to online travel agencies (OTAs) such as Expedia and Booking.com. However, there has also been strong growth in independent and homeworking travel agents, many of whom work through a host agency (find out more about how to become an independent travel agent).
Many people also choose to avoid intermediaries altogether and book directly with principals, such as airlines and hotels – a process known as disintermediation.
Examples: TUI stores, Hays Travel, Expedia, Booking.com, independent travel agents
Consumers
The consumers are the customers who purchase the products and/or services.
There are many different types of tourists. The most common types of tourists include business travellers, leisure tourists, domestic tourists, international tourists and people who are visiting friends and relatives (VFR).
Examples: Families, employees, relatives, students
To conclude: Chain of distribution
When studying travel and tourism it is important that you understand the chain of distribution. This chain includes four key elements, however it is important to remember that this is not a rigid rule, rather it is a guideline for understanding how different organisations interact and work together in the travel and tourism industry.
Chain of distribution: FAQs
Below are answers to some of the most common questions about the chain of distribution.
What is the chain of distribution in tourism?
The chain of distribution is the series of businesses involved in getting tourism products and services from the companies that provide them to the customers who buy them.
What are the four levels of the chain of distribution?
The four levels are principals (such as airlines, hotels and attractions), wholesalers (such as tour operators), retailers (such as travel agents) and consumers (the tourists).
What is a principal in travel and tourism?
A principal is the company that provides the core travel product, such as an airline seat, a hotel room or an attraction ticket.
What is disintermediation in tourism?
Disintermediation is when consumers bypass intermediaries such as tour operators and travel agents and book directly with principals, such as airlines and hotels, usually online.
How does the chain of distribution relate to integration?
The chain of distribution helps to explain horizontal integration (when companies at the same level merge) and vertical integration (when a company owns businesses at different levels, such as TUI owning airlines, tour operators and travel agencies).
Further reading
If you found this article on the chain of distribution useful, these articles may also be of interest:
- Horizontal and vertical integration: Made easy
- Components of tourism: Structure of the tourism industry
- Types of travel agents
- How to find clients as a travel agent
- What is ABTA and how does it work?
