Forecasting Techniques and Maintaining Market Share in a Multi-Dimensional Resort
By Natasa Christodoulidou Professor, California State University | September 2012
In the past hotel revenue managers have used the rack rate as their foundation for determining daily room rates. They used to forecast rates based on supply and demand by using some revenue management techniques. A large part of their inventory would be offered to wholesalers at large discounts. As distribution technologies matured, more distribution channels became available to hoteliers.
Electronic distribution channels and in particular online travel agencies (OTAs) and meta sites have urged hotels to seek new strategies for determining rates. Many hotel operators have signed contracts with online travel agencies (OTAs) such as Expedia, Travelocity, and Booking.com. Most hotels today do not permit OTAs to sell rooms for less than what the hotels charge on their own website in an effort to achieve rate parity.
A successful revenue strategy for many hotel operators, and in particular operators who work in hotel chains, has been to offer a "best rate" guarantee if the reservation is made directly through the hotel's own website. In this way, they engage the customer directly, bypassing distribution intermediaries and OTAs wherever possible. As a result of this, often they are able to achieve a reduction in distribution costs and an increase in reservation volumes.
Hotel revenue managers are overwhelmed by the complexity that has evolved with the number of distribution channels that are on the market. Hotels now are using a number of channels to optimally distribute the hotel room inventory; currently no single distribution channel dominates the hospitality market. Some revenue managers choose opaque travel sites such as as Priceline and Hotwire to dispose of any last minute excess inventory.
Another hotel rooms inventory distribution option is through meta sites. A travel meta site is a travel website that pools all travel related search engine results together and then relays that information to the user. These websites do not own a database of hotel room inventory like the OTAs; rather, they display the results on their website as they are obtained from other consolidator or hotel websites. Hence, these websites are used for comparing prices and features of different hotels simultaneously.
Examples include Kayak.com or Fly.com, which usually charge a referral fee or a pay-per-click (PPC) fee. This has reduced costs significantly because a referral fee or a PPC fee costs little compared to a traditional commission-based fee that is paid to the consolidators. Some review sites also charge referral fees or PPC fees for directing traffic to a hotel's website.