Distribution, Channel Strategy, and the Importance of OTAs (or Not)
By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | September 08, 2019
To the uninitiated, the concept of revenue management may be simply described as the process of "selling the right product, at the right price, to the right person, at the right time." Of course, it's a bit more complicated than that, and in the hotel industry, we know there's another key ingredient to this recipe: the right distribution channel.
By addressing channel performance-the concept of measuring key performance indicators across a complex, multi-channel booking landscape-hoteliers can optimize pricing and marketing across all channels, and boost revenue as a result. But for those new to the world of advanced revenue management practices and technology, how does one begin to map out a proactive and profitable distribution strategy?
How you choose to distribute your offerings must be carefully and regularly assessed, with the goal of maximizing your profit potential always in mind. Evaluating channel acquisition costs, looking beyond online travel agencies (OTAs) for better revenue opportunities, and finding ways to drive more direct bookings are all good practices for monitoring and improving the health of your distribution strategy. First and foremost, however, a functional distribution strategy starts with the quality of the people implementing it and the tools they use to drive it forward.
The Right People and the Right Technology
There has been a significant evolution in how distribution drives hotel profitability due to emerging industry data sources, channels and a variety of new technology. Such is the complexity of prices, restrictions, add-ons, channel usage, technology, and distribution costs that many hotels have considered this function large enough to split off on its own, increasing job roles that develop, execute and measure their comprehensive and intelligent distribution strategies.
The complexity of distribution channels, and the impact an effective distribution program can have on a property's ability to grow revenue, make it critical to understand how the quality of this role increases your overall profitability. Without the right staff and systems in place, your hotel will struggle to realize its full revenue potential. Not properly managing or accounting for distribution costs directly affects the net revenue results you can expect from your distribution strategy.
Working with OTAs
Today's costs for acquiring guests are significant. OTAs charge between a 15 to 25 percent commission for every booking they secure, with hotels also paying hefty transaction fees to their selling systems if the reservation is received through them. These third-party costs influence the amount of revenue hotels can secure from each guest, ultimately impacting a property's bottom line.
For many hoteliers, OTAs are an accepted part of the distribution toolkit due to their marketing power and high customer traffic. However, before engaging with an OTA, you must fully understand the value and costs associated with the third-party distribution platform. Any relationship weighted in favor of an OTA to the detriment of your ability to obtain satisfactory revenue outcomes should be reviewed. For example, in the past, many OTAs required a last-room-available guarantee for their channels, which resulted in hotels losing ultimate control on yielding of inventory.
Hoteliers currently using OTAs to secure bookings should also consider ways to use those platforms to better support future business. To increase both new and return business, intelligent hoteliers are letting OTAs handle the initial capturing of guests, and then implementing strategies and incentives that ensure those guests book future reservations directly with their hotel, eliminating ongoing third-party booking expenses.
The Direct Path to Profit
The most cost-effective online booking channel for a hotel remains its own website. How can you maximize direct bookings through your website? The first step is increasing web traffic from potential guests and attracting more "lookers." To do this, you need to understand more about those lookers. What dates are they searching for? Where do they search? What is driving them to a particular market? Collecting this market intelligence provides data that can be used to develop targeted marketing campaigns that attract the right type of lookers-the ones most likely to become "bookers."
You can also increase direct bookings by retargeting past visitors and directing them to your website. When researching a location, potential guests may visit a variety of travel websites and OTAs before deciding where to stay. Hotels need to keep their property on the top of the consumer's mind and influence guests to book on the hotel's website. Technology that offers tailored ads customized around visitor behavior or website activity can help achieve an estimated 10 percent return rate on website visits, increasing direct booking opportunities.
Hotel owners are all too aware that in today's competitive environment, every dollar counts when it comes to increasing the value of a hotel asset. Any competitive edge that translates into a stronger bottom line should be sought out, and every piece of hotel business should be evaluated to determine its true worth. With rising costs associated with acquiring new guests through third-party platforms, hotels need to consider their most effective booking channels and maximize direct business.
Your Website Design Counts
If a website's booking process is not seamless and secure, guests will book elsewhere. That means all the work that went into attracting a guest led to providing someone else a commission for that booking. Work closely with your marketing department to ensure your hotel's website delivers an enhanced experience with user-friendly features that provide easy navigation and booking. It is also important that the website can be viewed in multiple languages to cater to guests traveling from around the world.
Hotels should incorporate user-generated content from social media sites, such as user ratings and reviews, to assure guests of the credibility and service standard of the hotel. Since over half of online bookers search online reviews before making reservations, it is critical to provide online reviews as a component of website content.
Smartphones and tablets are increasingly used for researching hotels, and the majority of last-minute and same-day reservations are now made via mobile devices. Hoteliers looking to capture guest bookings from mobile devices need to ensure their website is user-centric, responsive and compatible on mobile devices.
Ultimately, guests seek hotel experiences tailored around their unique needs, which is why they often visit a hotel's website for more information. However, if the hotel website isn't focused around the needs of the consumer (such as having more photos, videos and reviews than an OTA), they may quickly move on to another property. Hotels may not be able to compete with OTAs on the level of website traffic they generate, but they should beat them at showcasing their own property.
For instance, most hotel rooms look similar, and while it is important for guests to know what the rooms look like, hotels should focus more on their differentiators. These differentiators could be local experiences or their iconic rooftop pool, specialty restaurant or intriguing property history. Millennials may not be as brand loyal as previous generations, but they aren't driven solely by price either. They appreciate unique experiences they can share with their networks-and they are willing to pay more for it.
Some Tactical Next Steps
As hotels reevaluate their third-party distribution strategies and amp up their direct booking game, they gain flexibility in managing rate and availability parity. The time is now to start reviewing your OTA contractual commitments. Changes typically take time to go into effect and have a significant bearing on how you can enact channel optimization in the long run.
The key to building a solid foundation is to clean your "data house" now. Set your immediate focus on reviewing and modifying your channel and source codes, understanding your channel costs, and introducing more flexibility into your contracts with booking partners.
Review and capture your channel costs by looking at each booking endpoint in your distribution ecosystem-from direct to your website and through each booking partner. As you consider each booking endpoint, define the cost of taking each additional booking.
Next, review the business coding for your channels and sources. Ensure your team agrees upon a set of well-defined codes representing each booking origin point. And, most importantly, ensure you have buy-in that these codes will be reliably assigned to reservations (ideally automatically via systems and interfaces). Initially this will ensure the collection of good reporting data and later will serve as an input to forecasting and optimization. Recoding booking history is typically challenging, so that's why it is important to draw a line and begin the process to collect clean data.
Once you have clean data from which you can isolate your channel costs, you can make the decision to take more or less of the available demand through various channels on the basis of the cost to take one additional reservation through that channel. This is how you can really start to improve profit performance-by controlling costs on a channel-by-channel basis.
We will see mutually beneficial relationships develop with OTA partners as brands continue to drive business directly to their own websites and begin the conversations to review their OTA contracts. This is but one step in the journey toward profit optimization and a shift toward long-term decisions in revenue management.
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