The Internet has totally transformed the way hotel rooms are bought and sold. The number and variety of channels and the need for speed being two consequences. Many hotel companies are left wondering if they are selling their rooms through the best channels for maximum return. Why? The pricing strategy for inventory and the choice of distribution channel are inextricably linked, but the complete picture that helps hotel revenue managers benchmark the relative contributions of each channel to the bottom line is blurred or not available.
Studies published by industry trade associations show the cost of distribution is rising sharper than revenue. This is not sustainable, prompting hoteliers to look closer at their own performance metrics. Some distribution channels can cost as much as 35 percent of the hotel room revenue.
Scrutinising channel performance and contributions should be at the top of any hotelier’s agenda. Apart from financial considerations, distribution also impacts marketing strategies and the technology required to manage the shopping requests and bookings
The hospitality industry, especially in urban areas and popular resorts is highly competitive. This reality demands that hoteliers keep a close eye on which channels deliver the best returns, not only in room rates but also higher spending customers, in order to be able to determine the true costs affiliated with each channel revenue stream. Only when true costs are known can channel selection be optimised.
The combination of traditional channels, such as the Global Distribution Systems (GDSs) and voice/walk-in, plus the diverse online channels of OTAs, metasearch and social-media, have made the task of getting the most profitable distribution mix for the property type more challenging than ever. These days, third party distribution channels are marketing vehicles with cost implications as well as booking channels. To be successful, it is important that those responsible for distribution, marketing and revenue work together and understand how developments across the various channels can affect the hotel’s revenue management, pricing strategy and ultimately profitability.
So what are some of the key challenges facing hotel operators and how can real-time search monitoring be used to address them? We have identified four key ones that can be addressed with real time data.
1. Inventory allocations
Working out how many rooms to offer through which channel and when
When demand is strong, it is easier to get the right distribution mix, and the cost impact of not doing so may not be noticed. But at times of excess capacity, getting a less than optimum channel mix can cost hotels extra money in high commissions or even reduced prices, both of which impact profitability.
Real-time monitoring of search traffic through major distribution channels
Revenue management and distribution management go hand in hand in search of selling the right product to the right customer at the right time for the maximum price possible by the right channel! Real-time monitoring of distribution channel performance, where possible, gives hoteliers an accurate view of their inventories at any given time, enabling revenue managers to make appropriate rate setting and channel selection decisions.
2. Real time data for keeping track of demand
Establishing real-time demand & booking pace to help optimise pricing strategy
Competitive pressures mean hoteliers need to know demand patterns for their properties as accurately as possible as it happens. Demand is a key influence on price, while at the same time price can influence demand. Since the transparency of the Internet, pricing, is one of the most critical decisions a hotel revenue manager makes. Selling rooms for less than the optimum price or indeed not at all can be very costly. So it is imperative that revenue managers have the demand insight they need to price with precision to preserve profitability.
Monitoring real-time search traffic for early warnings of high, low or abnormal demand flows
The ability to monitor real-time search data (not just bookings) can alert hoteliers to sudden demand surges as well as capacity surpluses. Search intelligence can help hoteliers optimise their pricing strategies and manage their inventories in time to make a difference to profitability.
3. Negotiation strategies with OTAs
Knowing which OTAs deliver the best customers, for the least price
When distributing inventory through OTAs hotels need to recognise that in conjunction with their affiliates, OTAs are not just another distribution outlet, but powerful marketing organisations with big advertising budgets.
Real-time search traffic translates into channel performance analytics
Hoteliers should use analytics to select the most appropriate and productive OTAs to work with and then manage day-to-day participation. The more a hotel knows about the actual performance of a particular OTA, the better the negotiation position regarding contract terms and commissions.
4. Customer segmentation
Identifying customer categories
All roads start and end with the guest. While ‘Amazon-style’ customer intimacy and the ability to deliver 1-to-1 personalised offers or recommendations is everyone’s ideal, the level of integration required across hotel systems is not there. But there are many things hoteliers can do to better understand the consumer searching for accommodation, the context of the search itself and the distribution channels being used. Insight into the nature of the search, such as leisure or business, families, singles or groups can be derived from every search request made to the CRS for price and availability.
Use real-time search context to identify customer segment and improve offers
The lines between leisure and business are blurring, making customer segmentation more challenging. However, using search context such as short midweek stays as business and double room bookings over the week-end as leisure is a starting point, and can grow in sophistication. This allows an hotelier to recognise a variety of consumer groups with offers that matches their needs and budget level.
Hotel room distribution, is complex with many disruptive influences transforming the landscape. By summarising some of the dominant forces driving distribution technology and strategies today, we seek to demonstrate how search based analytics can give hotels the insight needed to address their distribution pain points.
For more detailed discussion on hotel distribution challenges and the opportunities to overcome those challenges download the white paper: “How Shopping Analytics Can Optimise Hotel Distribution“