Distribution Challenges: Perspective From Hotels
By Michael McCartan Managing Director Europe, the Middle East, and Africa, Duetto | August 18, 2013
We live in the age of information. The internet explosion has touched upon nearly all areas of human life, and infiltrated nearly every country and culture worldwide. With information of any sort being available through a simple Google search, emergence of new technologies, empowered customers and superior connectivity has fundamentally altered the way of doing business. More so for the hospitality industry!
In the last 18 years since the launch of Expedia, the exponential growth of online booking has been un-nerving for the industry. From a mere 4% in 2000, online sales have come a long way to contribute over 32% of revenue of the lodging industry (Forrester Research). With the continuous shift to online business coupled with changed consumer behavior pattern, hotels are finding it difficult to cope up with the challenge not restricted to competition with the neighborhood properties anymore, but far beyond that – to capture and retain the attention of the consumers who would spend an average of 20 to 29 days researching their trip before hitting the 'Book' button. For hotels, online sales channels have become a potential threat, trying to disturb the equilibrium they used to enjoy before the advent of internet.
The e-commerce landscape has leaped ahead in the last decade. From traditional OTAs to discounted sites to same-day booking channels to mobile – online distribution for the hotel industry has expanded beyond the capabilities of most hotels, leaving them struggling with complexities of finding the optimal distribution mix.
In a market research study with revenue managers conducted in association with Ecole Hoteliere de Lausanne (EHL), Switzerland we have seen that while discussions in the press and at hospitality conferences have moved onto new topic areas of social media, flash sales and mobile, revenue managers are still fumbling with the basics. The economic downturn has taken a huge toll on the industry's confidence level, with price replacing value as the key strategy for filling beds. Hotels have been forced to expand their sales and distribution networks and thereby surrendered their marketing into the hands of third parties. This has resulted in complex revenue strategies and pricing structures that are preventing hotels to achieve their full product value.
We interviewed those responsible for managing distribution channels of both independent properties and large chain hotels in France, Germany, Spain, UK and USA to understand the key challenges faced in distribution and sales management. While in parts the interviewees acknowledged that technology has delivered capabilities to meet the new demands in the sales landscape, many revenue managers continue to struggle with and comprehend some of the essential strategies to maximize bookings and revenue.
Instead of developing strategies to drive maximum value from new channels of social media, mobile, GroupOn, eBay, Travelzoo etc, hotels are trying to gain control of rate parity. The retail sites are continuously monitoring rate, and any breach has a serious impact on the hotel's ranking on the OTA site along with a hefty penalty. For hotels, the key challenge is to lower costs of distribution while raising rates and occupancy with rate parity.