Ms. Christodoulidou

Revenue Management

Key Challenges in Electronic Distribution Channels

By Natasa Christodoulidou, Assistant Professor, California State University

In the travel competitive arena, hotel executives have to deal on an every day basis with various challenges of distributing their room inventory. These challenges include Internet-only rates, distressed room inventory web sites (such as Priceline and Hotwire) and an increasing number of OTAs and Meta sites such as Hotels.com, Kayak.com and others. In order to distribute effectively the room inventory, a deep knowledge and understanding of the distribution channels as well as the impact of e-CRM and social media is required. One challenge is determining the combinations of distribution channels and the optimal number of hotel rooms to be offered for sale through each channel.

The hotel’s channel management distribution strategy is vital in determining the various outlets for the inventory of the rooms. Hotel revenue managers are well aware of the costs involved in selling a room through one channel such as a consolidator. This cost can be quite different than selling it directly through the hotel’s 800 number, the hotel’s website, or the hotel’s front desk. The ability to manage and selectively use a multitude of channels is the new focus of hotel managers who now concentrate on how to best select and work with third party intermediaries and channels instead of attempting to eliminate them. The current key challenges that are described below are rate parity, inventory and rate management, and electronic customer relationship management (e-CRM), as well the social media impact.

Rate Parity and Inventory Rate Management

Rate parity refers to consistently maintaining the same rates offered across distribution channels. This is the primary reason why hotel properties prefer to offer the “best rate guarantee”. If hotel operators can achieve that, then potential travelers do not need to search for hours on the web or on the phone for a lower rate. At the moment, there is no particular website that offers the lowest rate available. Even though many hotels direct websites do advertise that they offer the “best rate guarantee”, many travelers find lower rates once they start searching around. This creates increased frustration for the traveler who may feel that they can never get the best price possible unless they spend hours searching for it. Different consumers have different levels of willingness to pay, and the goal of revenue management is to price the room inventory optimally to meet the needs of the potential guest. When a hotel effectively controls rate parity, rate integrity is transparent and the traveler is confident in booking the particular hotel room rate.

Hotel managers often invest in technology based on how much the distribution costs will cost in relation to the property’s distribution strategy. Currently, they have become quite creative in their approaches to determine inventory and rate management. Many hotel managers oversee the accessibility of the low price inventory. They are become more and more selective in selecting consolidators to absorb excess inventory in order to avoid dilution and arbitrage while at the same time maintaining accuracy and availability. Distribution costs can sometimes be as high as 25% of hotel revenues. It is rather rare that a hotel can sell the entire sleeping room inventory directly at the rack rate as advertised directly by the hotel. Therefore a combination of distribution channels needs to be utilized in order for the inventory to be successfully sold every night.

Electronic Customer Relationship Management (CRM)

Electronic CRM is divided into three zones. The first zone is the zone of defection. Here the travelers are hostile and have the lowest level of satisfaction in e-CRM. The second zone is the zone of indifference. At this level the travelers are at a level of uncertainty. They have a medium level of customer satisfaction and customer loyalty toward the organization. These travelers are indifferent to e-CRM. The third zone is the zone of affection. These travelers are described as “Apostles”. Apostle in the Greek language refers to “spreading the word.” E-CRM focuses on bringing potential hotel guests from zone one to zone three. If the hotel guests can be classified into these three zones, due to limited resources, the property may decide to focus its resources on the zone of affection. It can then try to “convert” the customers belonging to the zone of indifference, and then convert the ones belonging to the zone of defection.

Electronic CRM is one of the potential solutions to the key challenges in electronic distribution challenge management. Every hotel property would like to have control of their rates, inventory, and the relationship with the hotel guest. In order to do that, there needs to be a strong partnership in addition to rate parity transparency. A number of variables are taken into consideration such as:

• How a hotel chooses to communicate with the customer once a customer is at its website,
• How customer information is collected, disseminated, and used,
• How hotel guests react after their stay by posting reviews on traveler sites, etc.

The potential hotel guests will book on the website that they feel they can trust the most based on these variables and dynamics.

Social Media and Online Reviews

We cannot dismiss the role and the impact of social media when it comes to e-CRM. Social media refers to the tools that give the web its social capabilities. The sites used in electronic distribution with respect to social media are in constant flux, allows the travel community to come together, communicate, and build upon each other’s thoughts, opinions, and ideas especially when it involves guests reviews.

Hotel managers need to treat guests’ reviews as listening posts and vehicles to gain important guest feedback for further enhancement of the electronic distribution channels the guests utilize when making their reservation in order for their booking experience to be enhanced. Many times, the details that are provided in the text of a review can mirror customer satisfaction (or dissatisfaction) and help improve service quality at the distribution level. In a study by Racherla, Connonly, and Christodoulidou (2010), it was shown negative reviews can uncover patterns of deficiency in the service standards and delivery. In addition, lengthy negative reviews can be used as the basis to understand the complaining behavior of the hotel guest.

Summary

Small hotel chains, large resorts, privately owned properties, and other types of lodging accommodations share these challenges, which need to be prioritized and resolved, based on the hotel’s capabilities and strengths. With the advancement of new information technology and marketing applications, innovative approaches may emerge in the future. While managing hotel distribution channels is purely a business operation, travelers’ opinions must be valued since the choice of an electronic distribution channel should reflect the needs and wants of existing and potential hotel guests.

Dr. Natasa Christodoulidou is a faculty member in the Management and Marketing Department at California State University where she teaches internet marketing and other related marketing courses at the undergraduate and MBA level. She earned her Ph.D. at the University of Nevada, Las Vegas. Dr. Christodoulidou also holds an MBA from the University of Wisconsin-Milwaukee, a Master’s of Accounting and a B.Sc. from Arizona State University. Her research interests are in the areas of hospitality technology, travel and tourism electronic commerce, hospitality electronic distribution, and electronic marketing. Ms. Christodoulidou can be contacted at 310-243-3502 or Nchristodoulidou@csudh.edu Extended Bio...

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