From corner shop to electronic shopping mall?

From Corner Shop to Electronic ShoppingMall?Alison Morrison1* and Antony Harrison2

1The Scottish Hotel School, University of Strathclyde, 94 Cathedral Street, Glasgow, UK2Department of Hospitality, Tourism and Leisure Management, Glasgow Caledonian University, ParkCampus, Glasgow, UK

ABSTRACT

The article investigates how a small hotel®rm can achieve effective representationwithin electronic distribution systems, andaccess essential marketing skills, providing itwith the potential to transform itself from a`corner shop' operating in a mainly domesticmarket, to participation in an `electronicshopping mall' with global reach. It exploresthe range, nature and characteristics ofcurrent and emerging technologies that mayplay a major role in the distribution of thesmall hotel product, and their impact andimplications. The strategic alliance form oforganisation, in terms of membership of amarketing consortium, as one strategy ofeffectively addressing the technologies andmarket challenges is investigated. Finally,the ®ndings are tested relative to electronicdistribution systems and strategic allianceswithin a major hotel marketing consortium.# 1998 John Wiley & Sons, Ltd.

Received 13 January 1998; Revised 6 May 1998; Accepted 21May 1998

Keywords: small ®rm; marketing consortium;electronic distribution.

INTRODUCTION

Thekey issue to be addressed in this paperis how a small hotel ®rm can achieveeffective representation within electro-

nic distribution systems, and access essentialmarketing skills, providing it with the poten-tial to transform itself from a `corner shop'operating in a mainly domestic market, toparticipation in an `electronic shopping mall'with global reach. This focus on the small ®rmis particularly signi®cant as (Sheldon, 1993) inexcess of 90% of the accommodation establish-ments world-wide are small, independent,¯exible, seasonal and family managed. Asimilar dominance is re¯ected within the UKwhere owner-operators account for 85% of allhotels (MSI, 1996). Predominately, indepen-dently owned hotels have a maximum of 50rooms, often employ less than 10 people,operate in the lower reaches of the market,and are located in coastal and country resorts,i.e. tertiary locations (Buhalis and Main, 1996).Furthermore, the majority of its trade iscomposed of the independent internationaltraveller (Go, 1992). This increasing orientationto overseas markets represents a severe chal-lenge to the marketing skills of small hotel ®rmoperators (Scottish Enterprise National, 1996),which is exacerbated by the high informationintensity of the product and distributionsystems, and its technology driven evolution(Pollock, 1995).Thus, it is apparent that small hotel ®rms

cannot afford to stay out of the emergentglobal electronic market place, as their compe-titiveness, and indeed chances of survival, maybe jeopardised (Cahill, 1996). Furthermore,these developments have generated a wealth

PROGRESS IN TOURISM AND HOSPITALITY RESEARCHProg. Tourism Hospit. Res. 4, 349±356 (1998)

CCC 1077±3509/98/040349±08 $17.50 # 1998 John Wiley & Sons, Ltd.

* Correspondence to: Dr. A. Morrison, The Scottish HotelSchool, University of Strathclyde, Curran Building, 94Cathedral Street, Glasgow, G4 0L6.

of novel market opportunities, introduceddifferent forms of competition and competitiveforces (Cho and Connolly, 1996), and changedthe power base of certain intermediaries as akey access route to the market place. Indeed,disintermediation via the Internet, wherebytraditional intermediary organisations withinthe distribution system may be by-passed, isthe predicted phenomenon (Vernon, 1997). Forthe small hotel ®rm, the dilemma is how toidentify and formulate an appropriate market-ing strategy, which will enable effectiverepresentation and participation.Consequently, the four key research objec-

tives addressed in this paper are to:

(1) develop an understanding of the range,nature and characteristics of current andemerging technologies that may play amajor role in the distribution of the smallhotel product;

(2) identify the impact and implications oftechnological developments for smallhotel ®rms;

(3) consider the strategic alliance form of

organisation, in terms of membership ofa marketing consortium, as one strategyof effectively addressing the technologi-cal and market challenges;

(4) test ®ndings relative to distributionsystems and strategic alliances within amarketing consortium.

RANGE, NATUREANDCHARACTERISTICSOF ELECTRONIC DISTRIBUTION SYSTEMS

A graphical consolidation of the multifariousnature of electronic distribution alternatives,both automated and non-automated, open tothe small hotel ®rm in reaching the customerappears in Figure 1. Table 1 presents descrip-tions of each of the components identi®ed, allof which have the potential to connect, interactand communicate using electronic digital tech-nology. From Figure 1 it is obvious that thesmall hotel ®rm is confronted with a seeminglyendless volume of interconnectivity combina-tions, involving private and public sectorintermediaries, and a variety of automationdevices. Although these have the potential tosource valuable business for the small ®rm,associated negative features can be summar-ised as: increased transaction costs; `imperfect'technology access; and limited visibility in themarket place (Dietrich et al., 1997).In addition, it is predicted that in the future

roles will only exist in electronic distributionsystems for those who meet the needs ofcustomers and/or add value to the productsupplier (Vernon, 1997). Thus, it is consideredvital that the small hotel ®rm assesses thedegree to which the various connectionsenhance their product and are `transactional'by their target market(s). That is to say, can thecustomer purchase, as well as receive persua-sive information through, the selected connec-tion? For example, the pro®le of Internet usersis similar to that of the most attractive tourismmarkets: af¯uent; well educated; frequenttravellers; and above average spend on tour-ism products (Pollock, 1995).

IMPACT AND IMPLICATIONS OFTECHNOLOGICAL DEVELOPMENTS

It is clear that the impact of these technologicaldevelopments and the implications for small

SHF

CONSORTIA

RESERVATIONSCos.

SWITCH Cos.

GDS

Hard StorageDevices

Web/InteractiveTV

TRAVEL AGENTS

CUSTOMER NTOs

I

N

T

E

R

N

E

T

WEB SITE

Automation devices Small Hotel Firm intermediaries

WEB SITE

WEB SITE

WEB SITE

WEB SITE

WEB SITE

Figure 1. Electronic distribution alternatives: smallhotel ®rm (SHF). Source: Harrison and Morrison(1997).

# 1998 John Wiley & Sons, Ltd. Prog. Tourism Hospit. Res. 4, 349±356 (1998)

350 A. Morrison and A. Harrison

Table 1. Components of the electronic distribution system. Sources: Emmer et al (1993); Welch (1996); Buhalisand Main (1997)

Centralised reservationsystems (CRS)

All information needed to make a reservation, e.g. product speci®cation, price,quality, availability, etc., is consolidated within a computerised centralisedreservation system. The large hotel groups, consortia, and specialistreservation companies, with CRSs are permanently linked to the GDSs

Global distributionsystems (GDSs)

Four dominate travel bookings world-wide: Amadeus/System One(Lufthansa, Air France, Iberia); SABRE (American Airlines); Galileo (UnitedAirlines, BA, KLM, US Air, Swissair); and WORLDSPAN (TWA, North West,Delta). Through these systems travel agents have accurate, real-timeinformation on a hotel's rates and availability

Hard storage devices Devices such as CD-ROM are strictly information retrieval sources, with nointeraction between end-supplier and end-user. The producers of such mediainclude GDSs, travel organisations such as the AA, and NTOs

Internet It is predicted that consumers will commence to make their own reservations,as hotel room databases become available on Internet, thus replacing traditionalmethods. All small hotel ®rm intermediaries have aWeb site. Travel Web hasgrown to become the leading electronic hotel catalogue with brochures for over8000 properties, representing 26 chains and many independent properties. In1997, the on-line travel market was worth $1 billion

Marketing consortia Can be described as groupings of hotels, most of which are single,independently owned hotels. They share corporate costs, such as marketing,while retaining independence of ownership and operation. Theseorganisations can be either location or market speci®c. Within a hotelconsortium a hotel is less tied than in other types of af®liation

National tourismorganisations (NTOs)

Increasingly moving towards a leadership role in the co-ordination of smallhotel ®rm marketing activities. Speci®cally, in the form of integrateddestination management systems, developed through collaboration withsoftware houses and government agencies, e.g. Integra and the ScottishTourist Board

Reservation companies A specialist retail outlet for the hotel product offering. They are CRS drivenand have access to GDS. In effect these organisations act as brokers, holdingstock of available rooms for sale to all interested parties

Switch companies Evolved to act as an intermediary between the CRSs and GDSs. Suchcompanies include THISCO, Ultraswitch and Wizcom, and enable smallergroups to connect via them. Switch companies are unwilling to offer thisservice to small ®rms, who are not able to offer suf®cient reservations incometo cover permanent linkage costs

Travel agents Retailers of the composite tourism product of which hotel accommodation ispart. Acting as an agent for participating hotels they distribute their products,which entitles the agent to a commission of 10±12% on the sale

End-user bookingsystems

Software packages that can translate natural language commands (English,French, etc.) into the likes of CRS commands negating the need to beconversant in the specialised language of reservations systems. Hotelcompanies are developing such systems, which allow the customer to maketheir own travel arrangements without going through agents

Web interactive television Enables the customer to interact digitally with the Internet through their owntelevision, PC and some purchased hardware and software, using the likes ofCable connections. This is known as WebTV. It is already used in the UnitedStates, and collaboration between British Telecom and BSkyB has resulted inthe launch of British Interactive Broadcasting. This illustrates the opportunityto reach the customer almost directly, and in real-time

Wholesalers/touroperators

Consolidate the components of the tourism product into a package, which canbe sold through distribution systems to the public. They do not sell direct tothe public but through outlets such as travel agents or airline sales of®ces


Corner Shop to Electronic Shopping Mall 351

hotel ®rms are as complex as they aresigni®cant. In simple terms, they are integrat-ing the distribution system, generating newroles and relationships between variousplayers and enabling more ¯exible routes tothe market place. This appears to be resultingin three key challenges for the small hotel ®rmas follows.

Selectivity

The small hotel ®rm is being bombarded witha large volume of novel market opportunitiesinitiated, in particular, by global distributionsystems (GDS), national tourist organisations(NTO), and the expanding capabilities of theInternet and interactive television. It needs tohave access to sophisticated marketing sup-port skills in order to support the achievementof a degree of selectivity in the identi®cationand pursuit of the most fertile of theseopportunities.

Interconnectivity

The rede®nition of roles and relationships andthe need to access international marketsrequires the small hotel ®rm to scrutinise andre-map their pattern of inter-connectivity, inorder to maximise market opportunities, en-sure the effectiveness of representation and tominimise associated transaction costs. For thesmall ®rm, given the necessary managementand technological capabilities, this may resultin greater direct connectivity, a reduction inthe dependence on intermediary organisationssuch as switch companies and travel agentsand the Internet becoming a substitute forcentral reservation systems.

Visibility

In theory, the emergent technology enables thesmall hotel ®rm to access global distributionsystems more directly, thus increasing itsindependence from intermediary organisa-tions. The reality, however, is that in order tobecome visible within an excessively clutteredmarket place, a critical mass requires to beachieved. This can be addressed througheffective marketing strategies and an easilyidenti®able corporate identity and/or brand.

STRATEGIC ALLIANCES

Thus, it appears that the small hotel ®rmrequires to formulate a strategy that addressesthe need for selectivity of market oppor-tunities, interconnectivity rede®nition andvisibility in the market place. One solutionwhich the small hotel ®rm could adopt is thatof a strategic alliance, which could createbene®ts from a mix of resources and themeshing of ®rms' cultures and functions(Lewis, 1990). With respect to small ®rms, thestrategic alliance relationship is de®ned (Mor-rison, 1995, p. 129) as:

Co-operation with ®rms in order to add totheir competencies, improve market andcompetitive position, and retain indepen-dence of ownership. The relationshipsvary in terms of the degree of commit-ment, control, co-operation and organisa-tional formality. Dimensions may includecollaboration, competition, contributions,and mutual consequences.

The use of strategic alliances is not new, andin most Western economies they have a longhistory (Daems, 1991; Shaw and Dawson,1993). Academics (Drucker, 1992; Donckelsand Lambrecht, 1995), however, recognise oneof the most signi®cant trends of the decade tobe the rapid increase in the adoption of suchorganisational arrangements. Dominant fac-tors contributing to their increasing promi-nence include: integration of global markets;technological interdependence and risk shar-ing; governmental national policies promotingco-operative practices; converging consumertastes; and general competitive pressures(Ohmae, 1989; Lewis, 1990). The combinedeffect of these factors is raising requirementsfor an independent small ®rm's ability tosucceed.Relative to marketing within the hotel

industry, such strategic alliances tend to takethe form of membership of a marketingconsortium, the relationship of which toelectronic distribution systems can be ob-served in Figure 1. The tourism industry itselfhas recognised the bene®ts of such co-opera-tive practices at national and local levels(Murray, 1997), and in 1997 approximatelyone million hotel bedrooms globally were



members of the major hotel consortia (Anon.,1997).

METHODS

Primary research was aimed at the evaluationof the effectiveness of small hotel ®rm mem-bership of a marketing consortium as astrategy for addressing the identi®ed needsof selectivity, interconnectivity and visibility.As can be observed from Table 2, within theUK the leading consortia, in terms of thenumber of hotel rooms in membership, is theConsort Hotel Group. Furthermore, the pro®leof its' membership most closely matches thatof the small hotel ®rm presented in this paper'sintroduction. Thus, it was selected as theorganisation to host preliminary primaryresearch. The methods adopted includeddetailed analysis of the organisational litera-ture, information sourced from print mediaover the period 1995 to 1997 and a site visit toobserve the technology in action. In addition,four in-depth interviews were undertakenwith the Directors of Marketing, Membership,Finance and the Chief Executive. The inter-views were tape recorded, transcribed andanalysed. The ®ndings are presented in theform of a brief case study.

THE CASE OF CONSORT HOTELS

Consort Hotels was established in January1981. The membership is composed of 180independently owned and operated hotelsspread throughout the UK. Member hotelsmust have aminimum two-star rating from theAutomobile Association, at least 12 rooms andideally be 15 miles or more from an existingmember. Relative to Consort's sales andmarketing activities, it exists to promote thefacilities of its member hotels nationally andinternationally. In terms of competitive posi-tioning, Consort perceives it to be ahead ofLogis of Great Britain and MinOtels, on parwith Best Western and, in quality terms, belowGrand Heritage. Consort has formed allianceswith other consortia representing Europeanhotels, such as Neotel, in order to network apan-European alliance and presence. In Feb-ruary 1997, Consort commenced a £50 000rebranding and repositioning strategy thatseparates leisure and corporate marketing forits member hotels. Renamed Consort HotelsGroup, the word `consortium' has beendropped from its marketing literature becauseit was found to be confusing. Consort statedthat this decision to undertake a rebrandingand repositioning strategy was a response todemands from guests for a more consistent

Table 2. Top ®ve consortia represented in the UK (1998). Source: Consortia promotional literature

Consortium Number of hotels Number of rooms Market level of operation

Consort 180 9540 2 and 3 starBest Western 220 8360 3 starLogis of Great Britain 400 5600 2 starMinOtel GB 200 3600 2 starGrand Heritage 80 2800 4 star

Table 3. Traditional intermediary commissions

Intermediary Commission

Hotel booking agencies 15% on net commission paidTravel agents 15% commission paidBookings through GDS 17.5% commission, plus 72p per transaction, and up to $4.38 depending on

system used plus VATSwitch companies Charges equal 1±2% of annual sales



product.The technological capabilities of Consort's

electronic distribution system are a mirrorimage of that presented in Figure 1. Consortprovides members with a centralised reserva-tions service (CRS), which in their opinionplaces it at the forefront of technologicaldevelopment. It enables it to offer the collectivemembership bene®ts that could not beachieved on an individual basis. The systemhas been developed by Innsite Hotel Servicesbased on precise speci®cation laid down by themanagement of Consort and consultants spe-cialising in hotel and travel trade computertechnology. The system is now linked into thefour major GDS networks, Galileo, Sabre,Amadeus and Worldspan. This offers aseven-second response to any one of thepotential 450 000 travel agency screens world-wide, 24 hours a day, and 365 days of the year.Each member hotel has its own uniquereference code.This linkage to these networks enables

Consort to negotiate preferred supplier statuswith the major UK and world-wide hotelbooking agents such as American Express/Thomas Cook, Carlson-Wagonlit and HoggRobinson. The ®nal stage of development,currently being completed, involves the con-nection of all member hotels by modem link,enabling them `real time' updating of theirroom availability status within the system.Those hotels, currently running Innsite Omegaand Innfront systems, can select a full systemsinterface option enabling reservations to bepassed directly into their system withoutmanual intervention. A licence fee of £470 plusVAT is applicable for this service. In addition,all hotels are featured on Internet via HotelNetThe membership fee of Consort is made up

of three components: a one-off initial joiningfee of £950; an annual levy of £231 plus VATfor a place at the National Conference; and theannual fee, the minimum of which is £4260 fora hotel of 12±30 bedrooms. During the year toJune 1997, Consort sourced £1 109 616 worth ofbusiness which equates to an average of £6164per member. Members only pay for the book-ings that they receive, for example, 5% on rackrate business. Commissions are paid centrallyby Consort in the agent's local currency andrecharged to members monthly. Table 3

illustrates the extent of commissions paid totraditional intermediaries by Consort on behalfof its members. In the short to medium-term,Consort believe that bookings from thesetraditional sources are likely to remain con-stant. Many of the emerging technologies,however, are making the ability to bypasssuch intermediaries more viable. This maylead to a rede®nition of their roles and charge-structures in relation to both customers andend-suppliers such as hotels.

CONCLUSIONS

From our preliminary research, which hasbeen focused primarily on the core organisa-tion of the consortium, it would appear thatmembership of a marketing consortium hasthe potential to address the challenges ofelectronic distribution and the associatedmarketing activity facing the small hotel ®rm.This is achieved in the following manner.

(1) Selectivity. Through 180 hotels poolingtheir marketing resources, the individualsmall ®rm has access to the technology,marketing expertise and support offeredby the Consort Hotel Group. This en-ables collective and individual selectiv-ity relative to the most fertile of marketopportunities. For example, the rebrand-ing activity, focusing on the two coremarkets of corporate and leisure, allowsmember hotels to be selected for moretargeted promotions according to theirsuitability. The combination of thesefactors has the potential to enhance theeffectiveness of the small ®rm's market-ing strategy, increase bargaining powerover other parties within the electronicdistribution system, and strengthencompetitive position.

(2) Interconnectivity. Membership of Con-sort represents a `gateway' into theelectronic distribution system. In thisway the small ®rm secures access to theglobal market place, overcoming thehigh ®xed costs of installing technologydedicated to an individual small hotel®rm. Furthermore, operating and tech-nological transaction costs associatedwith sourcing business are amortised



among members of the consortium.Within the larger organisation, the small®rm also bene®ts from the growingability to by-pass traditional intermedi-aries as Consort investigates Web-siteand end-user systems collaborations.

(3) Visibility. The collective membership ofConsort represents a critical mass thathas the potential to achieve the consoli-dated power of a brand image, which isnecessary to be noticed in a clutteredglobal market place. As such, it providesthe small hotel ®rm with a more visible,prominent position in the electronicshopping mall, with greatly facilitatedconsumer accessibility, and consistencyof information available. Moreover, asConsort looks at pan-European allianceswith both marketing and electronic/code-sharing potential, the small hotel®rm becomes associated with a trulyinternational umbrella brand that alsobene®ts from ready-made customer loy-alty developed in alliance member coun-tries.

Thus, it appears that membership of amarketing consortium certainly has the `po-tential' to transform the small ®rm from acorner shop to a participant in the electronicshopping mall. Indeed, one Consort memberdescribed it as a `survival plan' for small hotel®rms (Anon., 1997), enabling the continuationof independent small ®rm ownership. Whatmust be questioned, however, is the extent towhich this considerable wealth of `potential'converts into real bene®ts for members. Ineconomic terms, a calculation based on theannual cost of membership for an averagebedroom size hotel (£4491), relative to theamount of sales found (£6164) through theconsortium, can be made. This results in areturn of £1.37 for each £1 invested. Thiscompares unfavourably with previous small®rm consortium research ®ndings (Morrison,1995), which showed a return of 1:7. Thus, itwould seem that the `potential' of the ConsortHotel Group is not translating into signi®cant®nancial returns for members. Furthermore,there is concern that the small hotel becomespowerless, losing autonomy in the distributionof its product as organisations, such as

consortia, increasingly act at `gate-keepers'controlling the sourcing and marketing re-sources of the collective membership. Theseissues will be the focus of future research.

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