How to optimise your distribution channel mix

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.

Using data to create guest segments

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.

Ask yourself:

• What demographics are we looking to target? Where do my target guests live and how old are they?
• What is their reason for travel? Leisure or business?
• How do they book accommodation? What channels do they use? Do they book in the travel agent’s office or online?
• How long before their stay do they book accommodation? What is their booking window?
• How long do they stay with you? What is their average length of stay (LOS)?
• What days of the week do they tend to book? Weekdays or weekends?

Then, group your ideal guests into different segments depending on their motivations for travelling, their needs and buying habits.

Your PMS is the one source of truth

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?

Determine which channels to partner with

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:

• Regions that they have access to (eg. MakeMyTrip for India)
• Age groups that they have access to (eg. HostelWorld for millennials)
• Behavioural niches that they have access to (eg. HotelTonight for last-minute bookings)

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.

Keep offline distribution in mind

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.

• Voice reservations are still required in certain markets, and for certain age groups (they tend to be made by older generations).
• Bookings made directly at your property or by direct email allow you to control the relationship with your guest from the start. A great service offered by your reservation and front office teams paves the way for positive word of mouth and future reservations.
• Wholesalers and tour operators provide a steady influx of reservations, keeping your hotel at capacity. Margins for the hotel are low, but these bookings tend to require minimum effort from the hotel.
• MICE and groups have a big impact on your inventory, and can be forecasted to some extent. Make sure you have a way of tracking the events and holidays in your local area, which will help predict an influx of group business.
• GDS bookings made by travel agents or travel management companies are sitting somewhere between online and offline distribution. Their reach is expansive and they can target travellers you have no way of reaching on your own.

Don’t forget your direct channel

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:

• For the same price, throw in extras; for example, offer freebies like drinks, activities, amenities, shuttle pick-ups and drop-offs to drive more direct revenue and provide the best value offering to prospective guests.
• Ask for email addresses and reviews when OTA guests leave your property, so that you can send them promotions that will entice them to book direct next time around.
• Make sure you have an online booking engine on your site to make the booking process as convenient as possible. The booking engine should cater to international guests as well - allowing for currency and language conversion.
• Update your cancellation policy to be more flexible. For example, you could allow people to cancel up to 48 hours before the booking.

Keep an eye on rate parity

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.

Optimise your distribution channel mix strategy

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?

Review your distribution strategy 

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.