For most hotel marketers, there does not appear to be much science regarding the decision on which distribution channels are used, as well as the ongoing management of those channels. A few years ago, one of my clients invited me to their annual marketing conference to speak on this topic. While the head office staff understood the importance of channel management, it appeared that most of the hoteliers had adopted a strategy that seems common across much of the industry.
The common strategy I referred to is the acquisition of as many distribution channels and partners within each channel as can be identified. While it may sound like a great idea at face value, there are a number of criteria that should be evaluated before expanding distribution to new channels and new partners within those channels. Sound marketing fundamentals require that we first identify the target audience for our product or service, then, after the audience has been clearly identified and validated, we can identify which methods of distribution are currently used by or would be preferable to those exact targeted audiences.
So you may ask: what is the problem with distributing your hotel everywhere possible? First, there is the time and expense associated with the acquisition of those channels and agreements that must be forged within each channel. If there are really no new customers to be found within a new channel, it can be argued that the time and energy of those staff responsible for identifying and signing each new agreement (as well as setting up the rates and inventory) could be better spent elsewhere. Second, many distribution channels and companies operating in those channels require an inordinate amount of time to be spent loading and adjusting rates, setting restrictions and managing inventory. The worst case example of this are extranets that require separate rate, availability and restriction updating, as well as separate handling of reservations that cannot be processed through the hotel’s central reservation system or property management system. If these channels do not produce sufficient reservations, then why go through the effort of all the aforementioned steps? It is also possible that some shoppers using specific websites may also be checking multiple distribution channels for their best offer. Going through the aforementioned steps really starts to look like insanity when these shoppers are offered rate parity through distribution channels, especially when those distribution channels cost the hotel a much higher fee per reservation (and when they require separate manual management through extranets).
Another practice I frequently observe is the application of rate parity through all booking channels. I have written separately on this topic, but it needs to be mentioned again specific to good channel management practices. Virtually every hotel has a different cost per net reservation for each of its distribution channels. GDS bookings are almost always more expensive than Internet bookings made through the hotel’s own website. Central reservations office (CRO) bookings are traditionally the highest cost per net reservation bookings that a hotel will receive based on their high cost structure. So why is it then that hotels routinely set their selling price the same for all channels when the costs vary so dramatically? The most common answer I have encountered is that (a) they cannot risk undercutting te selling price for some companies operating in certain channels (online travel agents are the best example), for fear that these companies will stop distributing their hotel, or suppress the property to a page 999 result in the city search. Reason (b) is offered that for those distribution channels that they do control, which includes the hotel’s own website and the CRO, they do not want to alienate or confuse those clients/shoppers by publishing different rates in these channels. The fear is that these clients/shoppers may elect to book elsewhere, resulting in a lost booking, and possibly a lost client.
Regarding the first reason offered for rate parity, I will argue that unless the hotel has been reduced to a complete commodity, whereby price is the only determining factor a shopper uses when deciding what hotel to reserve, the hotel has a responsibility to manage its distribution costs in a manner that ensures maximum profitability. Would you expect to pay the same price for a television sold at a department store as the same model sold at a big box warehouse? Of course not. If your hotel has indeed been reduced to a price-driven commodity, then the real work to be done is establishing some unique attributes and services, and marketing those items effectively. Become the best at what you do. If the answer is, we are not the best at what we do in any area – then an overhaul of the product is what is needed. Otherwise, intermediaries like OTAs will dictate how low your hotel must sell its rooms at in order to be included in their distribution strategy. Make no mistake; OTAs are not distribution “partners”. They will drop your hotel for a better offer from a competitor without thinking twice and all OTAs are in the process of building their own brand, not yours. The hotel marketer’s aim is to establish a product that is unique and direct its target audience to those distribution channels that are the most cost effective and reinforce brand loyalty.
As for the second reason offered, customers sometimes need to be educated as to where they must go to find the best rate. That distribution channel should be the one that is the most profitable for the hotel. As has been the case in the airline industry where customers insisting on using CROs for reservations and changes are charged higher fares and fees, this same discipline must be applied to hotel distribution. Of course there will initially be some complaining from some customers. Given the amount of money to be saved by adjusting rates to cost of booking by channel, this is a battle well worth fighting.
Last, if you are not already doing so, be aware of the cost of distribution for each booking channel, and for each company selling your hotel within those channels. This should be part of the hotel’s marketing plan and monitored on a regular basis. There should be an ongoing strategy to examine distribution costs and efforts should be made to redirect customers to those booking channels that are acceptable to those customers. There is money to be made by doing so. Each dollar saved in distribution fees is a dollar added to net room revenue.
In summary, while it does make sense to have the widest possible product distribution in many cases, there are several criteria that should be evaluated when determining whether or not to add (or delete) a distribution channel. Adding high maintenance distribution channels or companies without a clear return on investment is not good marketing practice. Managing all channels effectively requires evaluating how the hotel’s target audience prefers to do business and how they can effectively be redirected to booking channels that are more profitable to the hotel.