Close your eyes for a minute and imagine you are the new brand manager for Tide laundry detergent. First, congrats on the promotion. Second, laundry detergent is generally considered a commodity, but Tide and other detergent manufacturers have spent millions of dollars creating brand image and developing brand loyalty… just like the airlines have done. These laundry detergent manufacturers spend a lot of money for one main purpose: to secure repeat purchase behavior… just like the airlines do.
Back to Tide and your first day on the job. You’re running ten minutes late and you’ve spilled coffee on your shirt. You have a meeting with your main distribution provider, Big T’s Trucking Company. Well thank goodness you work at Tide now because I’m sure they have one of those Tide Sticks laying around somewhere. Anyway, you’ve been told that Tide uses 3 primary trucking companies that manage over 60% of your distribution, but Big T is the largest.
Big T shows up and, after a few pleasantries to soften up the new guy, begins to dictate to you the size, shape and color of the detergent container you can use if you want to continue to use Big T Trucking. Oh yes, since there are really only 3 main distribution suppliers, with Big T having the largest market share in your region of the world, you don’t really have much of a choice. You are immediately puzzled because if you agree to the Big T way of distributing your product, none of the customers you have worked so hard to get and retain will be able to tell the difference between a jug of Tide and the competitors’ detergents. As you ponder this dilemma, things get even worse when Big T tells you that the selling shelf space and displays in the stores Big T supports would all be the same and managed by Big T. Big T states that they use a “highly efficient” method of distribution that lines up all the detergent in a row, all looking exactly the same, because this method “prevents” the laundry detergent manufacturers from hiding fees and allows customers to easily comparison shop… by price. Because Big T knows customers ONLY buy laundry detergent based on price.
Hold on a second, even I don’t get this. I admit I’m a Tide guy. I love the big orange container and some days I just feel like buying a laundry detergent that makes my clothes smell like they were dried on my mother’s clothesline. (By the way, that was really great except for the occasional bird dropping.) So, I for one certainly have some brand loyalty to Tide. But now my favorite detergent looks just like every other detergent on the market—same color, same packaging, same scent. I know Tide wouldn’t like it, and I bet even some consumers wouldn’t like it. But for some reason it’s okay for airlines to be distributed this way? Who are we kidding?
When has it ever been acceptable for the middleman or intermediary to actually diminish brand value for its customers? Never. Yet for a variety of reasons, this practice is tolerated, lobbied for, and sued over in the world of airline distribution to travel agencies.
Seriously, think about it. What other industry supply chain can you name where the middleman or intermediary has all the power and control, and gets to make all the rules?
Ask yourself that question!
In what supply chain does the distribution provider get this power? The power to define how products are priced, displayed and sold. The power to decide who has access to the distribution system and who does not. The power to either limit or restrict certain distribution practices. And the power to take fees from one side of the supply chain only to distribute some of those fees to the other side of the supply chain as incentives to keep using a specific distribution system, all the while providing a disincentive for new and innovative solutions to enter.
The very definition of intermediary is about value added. Wikipedia (yes, my only true source of facts) defines intermediary as “a third party that offers intermediation services between two trading parties. The intermediary acts as a conduit for goods or services offered by a supplier to a consumer. Typically the intermediary offers some added value to the transaction that may not be possible by direct trading.”
So when I continue to hear the legacy airline distribution companies say to the airlines, “Hey, we can sell your airline product anyway you like.” Sorry, but I don’t believe it, and it kind of reminds me of Henry Ford’s great comment that you could buy a Ford in “any color you like as long as it’s black.”
So let’s see if I have this right. The value the GDS distribution intermediary brings to the airlines is to force the airlines to give them all their content (full content), turn their brand and content into a commodity, provide disincentives or outright prohibit them from using new lower-cost distribution technologies and then… charge the airlines an unusually high price that appears to have little to do with creating overall distribution value.
Now of course I am exaggerating here. Clearly the current GDS distribution systems provide value to airlines. These systems can provide an efficient and cost-effective channel to a majority of travel agencies… not all and not all the same way as it is today. That model simply no longer works. The “my way or the highway” approach to travel agency distribution is no longer a strategy the airlines will accept.
But rather than working cooperatively with their airline customers on distribution optimization, selling innovation strategies, and product personalization to help the airlines with their brand management and loyalty development, these distribution companies seem much more interested in inventing the concept of hidden airline fees, or one-off and unproven direct connects, or latency, or whatever the next anti-direct connect battle cry is… and then go off and spend what certainly appears to me lots of money hiring spokespeople to spread the word.
The current indirect airline distribution channel is old. It’s dirty. It’s in need of a cleaning. But unlike those coffee stains on your shirt, I think this may be a job for more than just Tide.
What do you think?