"Supply Driven vs Demand Driven" Distribution

Article Published in Business Travel Executive

Travel distribution is changing ... which is blatantly obvious these days. But the question becomes ... to what? Looking around at industry happenings, one might perceive that nobody knows ... or more optimistically, that there is a lot of experimenting going on. I'm inclined to think the latter.

Lufthansa Airlines is experimenting with a "Pay as you Fly" program with Siemens. Virtually all of the major carriers are selectively testing some form of direct-purchase agreement with key corporations. Most airlines have web sites of their own where fare are often different than those found through the GDS/CRSs and consortiums of airlines are now launching enhanced sites. Consolidators have gained increased prominence and many of the e-travel agencies are evolving direct purchase consolidator-like agreements.

However, the Priceline.com model seems to reflect increasing acceptance of what I believe may likely become a core element of the new distribution model. Do NOT jump immediately to the conclusion that I'm suggesting that the Priceline model is "the future". I'm not. But Priceline does represent a mental change that we, in the travel industry, must understand and begin to manage.

In the traditional travel product distribution model, the airline seat tended to "anchor" the distribution process - particularly in high volume buyer markets. The airline distribution solution was, and is, a classic "supply driven" marketing process. Airlines "manufacture seats" and supply them to the market where, with the encouragement of airline marketing programs and advertising, consumers select from the choices offered and the prices offered. Competitive advantages of one outlet (i.e., airline, agency, tour operator, etc.) over another are largely a function of the trade-off between the ability to broadcast a "message" to the buyer versus the ability to "package" content or perceived value-added.

A "demand-driven" marketing model appears to be evolving around virtually every segment of e-business -- be it eToys, eBay, or even some of the classic "supply- driven" retailers like JC Penny's or Land's End. Those of you that earn a living from serving as an intermediary in the "supply-driven" travel distribution model need to step back and review your roles. How will your current job or role shift in a "demand-driven" channel?

When corporate travel managers begin to aggregate their buying power through an Internet portal ... how will the airline "seat manufacturer" deal with the aggregated bulk buying demand? ... what role will the corporate travel agency fill when its corporate customer can buy better through an Internet aggregator than through the "supply-driven" GDS channel? ... what skills and tools must a travel agency or corporate travel manager have to enable "demand-driven" buying on behalf of its buyer customers -- in lieu of "supply driven" choices?

There will be many many alternatives to the "demand-driven" Priceline model. Finding and experimenting with varying degrees of balance between "supply-and demand-driven" travel distribution will continue ... as noted ... for at least another five or even ten years.

But the really new dimension, that few yet understand, has to do with the marketing issues that surround a "demand-driven" distribution channel. Over the past 35 or so years, there has been little precedence to serve as valid guidelines to marketing and selling in a "demand-driven" economy.

It has only been in the last ten years that communication technology has developed to the point where interactive bi-lateral communication between seller and buyer has enabled the buyer to feedback to the supplier real-time needs ... and/or to seek multiple alternative solutions to fit their needs virtually instantaneously.

While technology is the enabler ... the technology is created, managed, and used by humans - in response to human demands and needs. It is a phenomenon not limited to the airline distribution channels. It is impacting all businesses. For the first time since the beginning of the "supply-driven" Industrial Age, the economics of choice and selection are no longer linked to the physical product distribution channel. The buyer is able to easily and virtually reflect demand or choice on the supplier - changing forever, the role relationships between buyer and seller. It will be an exciting time.