3 April 2018 | BI and data analysis, Revenue management, Rate parity, Distribution
Every hotel has an optimal distribution channel mix - meaning that channels are selected and managed in such a way that they will drive optimal profitability for the hotel in the long run.
Each channel mix is unique, and varies from hotel to hotel. They depend on a myriad of things that affect the hotel’s position in the marketplace relative to its competitors - its geographical location, its reputation in the industry, and its service offering (think packages, amenities, and terms and conditions).
It’s quite a complex science - and while it may make the job of a distribution or revenue manager increasingly difficult, it’s the only way to drive occupancy and revenue in the long run.
Here are our best tips on how you can get your distribution channel strategy right.
Before you start taking action, it’s important to analyse the data you have available at your fingertips. Use it to determine who you are trying to target, where you should be targeting them and when.
Then, group your ideal guests into different segments depending on their motivations for travelling, their needs and buying habits.
Guest and reservation data is recorded automatically via the connection with your channel manager, or manually by your reservation and front office teams. Don’t hold back on applying strict data guidelines here. A PMS containing clean and correct data is key if you’re looking to make strategic decisions.
If you don’t look to your data to draw conclusions, you won’t be able to make decisions with confidence. For example, should you hold a few rooms for your corporate business - who are willing to book at a higher rate, but often with a shorter booking window, or give it to the leisure traveller who is paying less, but with a longer lead time?
To ensure you are offering the most attractive and profitable rates available, it is important firstly to understand which channels travellers opt to book through. It is also important to understand why particular OTAs have retained their popularity over the years so you are best equipped to understand how to use them to maximum effect and for maximum return.
Start by examining each distribution channel’s customer mix so you can see if it matches the guest segment that you’re looking to attract to your hotel.
You might consider:
Then, consider the cost versus profit potential of each distribution channel. Typically, this refers to the amount of commission being charged per booking. In doing this, you have to remember that OTAs charge high commissions because they know that they can expand your reach to markets that you simply wouldn’t be able to gain access to on your own. They invest heavily in marketing your property (consider that Booking Holdings spent $4billion on marketing in 2016) and it works. In fact, in 2017, Phocuswright reported that approximately 70% of consumers book through OTAs.
Consider metasearch sites for a more affordable option - not only do they have the cost-per-click model (where you pay for traffic directed to your own site, instead of a percentage per booking), but TripAdvisor and Google are charging a lower commission for bookings made on their site (around 12%, compared to an average of 20%). They also offer a cost-per-click model, which could be beneficial for your property. The caveat here is to ensure your own rate is the lowest available rate, or in parity with your rates on the various distribution channels displayed on the metasearch site.
Offline reservations are in a steady decline since the rise of the internet and especially the growth of OTAs, but should definitely not be forgotten.
It’s risky to rely solely on third party booking channels to drive business - which is why diversifying your mix of paid channels is just as important as strengthening your direct online channel; that is, your hotel’s website. But how do you entice travellers to book direct, when the OTAs you partner with work hard to run attractive promotions and loyalty programs?
Here are some tips:
Maintaining parity can be difficult when you have dozens of distribution channels to manage. This is why hoteliers are turning to parity analytics tools such as Parity Insight, which can help you monitor and enforce rate parity by allowing you to uncover discrepancies across your channels.
For example, many lesser-known booking sites can (and do) buy hotel inventory at a wholesale price from a reseller, and undercut the hotel when they resell the rooms. Metasearch sites such as Trivago or Tripadvisor pick these rates up and display them alongside your own website and OTA rates. Without a business intelligence tool, it would be difficult to discover, manage and tackle such rate disparities.
Now, you should be armed with the information needed to set the online distribution strategy for your hotel - which guests you want to attract, when you want to attract them, and through which channels you want them to book.
For example, if you find that Chinese leisure travellers are your most profitable segment because they yield the highest average revenue per available room (revPAR), you should include Ctrip as one of the channels you want to partner with.
This is also the time to determine what percentage of business you want from each channel. What is the optimal mix that will result in the most revenue, and preserve relationships with distribution partners in the long-run?
Optimising your distribution channel mix is not a ‘set and forget’ activity, which is why you need to keep a pulse on market fluctuations. New business opportunities will arise, and source markets can change year after year. Look to your main KPIs - occupancy rate, average daily rate (ADR), and revenue per available room (revPAR) - and let those be your benchmarks.
Use a business intelligence tool like Revenue Insight to monitor your key business drivers and get insights in performance quickly. Otherwise you will be wasting valuable time - doing this manually is inefficient. By the time you’ve exported all your reports from your PMS, and compiled and cross-checked the key drivers, they may already be out of date.
Why not request a demo? You’ll see the tool in action, in a context tailored to the specific needs of your hotel.
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