1. special report: distribution
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24 HOTELS April 2011 www.hotelsmag.com
2. special report: distribution
H
oteliers have been rightfully confused by
headlines about the changing landscape
of hotel distribution, from articles titled
“Google will change your hotel’s distribution
strategy” and “Facebook as a commerce engine,”
to “How to make Twitter sell” and “Mobile apps to
impact hotel distribution.” In other articles online
travel agents (OTAs) provide “free advice” on “how
to grow your average daily rate without impacting
occupancy.” On a daily basis, hotel owners, manag-
ers and operators are bombarded by far-fetched and
often conflicting messages and claims.
There is no doubt hotel distribution has changed
dramatically since the advent of the Internet. Online
distribution, social media and the mobile Web
have all changed how we connect with, engage and
ultimately convert customers. But the fundamental
principles of hotel distribution have not changed
that much. Hoteliers need to focus on distribution
channels that pass the litmus test; in other words,
those that are cost-effective, generate the most
bookings, protect rate parity and price integrity and
reach the targeted customer segments.
Unintended channel share loss
Not all bookings are created equal, and when
planning their distribution strategy, hoteliers
should realize the existence of “The Law of
Unintended Channel Share Loss” which states:
Any booking via a more discounted channel (such
as flash sales sites like Groupon, LivingLocal.com
or SniqueAway.com) is one less booking for the
same hotel via the hotel website, call center, GDS
or OTA (in that order).
www.hotelsmag.com April 2011 HOTELS 25
3. special report: distribution
internet
we live in a digital tV
information cloud Social
Media
the hype-interactive travel
radio
consumers are channel
and media agnostic
the
The travel consumer lbS Customer
has become: lbSn
n Media channel agnostic
Print
n Media format agnostic
The result?
Need for multi-channel friendS
customer engagement = Single faMily Mobile
customer engagement channel web
eMail
The main focus and priority for voice channel contribution amounted offline marketing channels.
any hotelier should be to sell as much to 23.5% of total brand CRS bookings, Multi-channel marketing: Hoteliers
inventory via the most cost-effective compared to 31.3% back in 2006. need to reach future and current cus-
distribution channels that can poten- Since the beginning of the economic tomers at multiple points. Unleashing a
tially generate the most bookings, while downturn in 2008, a number of very promotional campaign simultaneously
preserving rate parity and price erosion. important developments occurred that across all available marketing channels
profoundly changed hotel distribution produces a compounded effect and far
Dramatic shift to online distribution and customer engagement in hospitality: greater returns than each individual
Voice and GDS travel agent, the The hyper-interactive consumer: Over marketing format.
traditional hotel reservation channels, the past several years, a new breed of
have experienced consistent declines hyper-interactive travel consumers who The direct online channel
over the past 16 years. The eTRAK are today’s main hotel customers has Why aren’t hoteliers investing more in
quarterly benchmarking report, which emerged. The advent of social media the direct online channel? In addition to
summarizes booking data from the top and the mobile Web has accelerated the the obvious reason that selling your hotel
30 hotel chains worldwide, illustrates hyper-interactiveness of Internet users via OTAs is the “lazy man’s approach”
well the significant shift from and travel consumers in general. to distribution, some hoteliers assume
traditional to online channels: Social media: Engaging your custom- that selling through OTAs is “free.” (Case
Internet reservations: In Q3 2010, ers via social marketing has become study #1, right, proves that is not the case.)
Internet bookings for the top 30 hotel not only the norm, but is expected by Independent hotels are overwhelmed
brands reached 56.9% of the total brand past, current and future hotel guests. by the rapid shift from offline to
CRS bookings (eTRAK Report). This Mobile Web: The mobile channel online distribution and the sheer
constitutes a major share increase com- has become an important distribution dynamics of the online channel and
pared to the 37.6% level back in 2006. channel worldwide. Hotel guests are often fail to compete for their fair
GDS travel agent reservations: Share already mobile-ready, and hoteliers share of the market. There is a lack of
of GDS travel agent reservations have to respond adequately to this understanding that Internet marketing
dipped to one of its lowest points — growing demand. is not an expense, but an investment
only 19.6% of total brand CRS reserva- Channel convergence: Today’s hyper- with immediate returns at very
tions. So, there was a clear shift from interactive travel consumers are seeing high ROIs.
the GDS to the online channel. This is marketing messages across a variety of Franchised properties believe that
a major share decline compared to the channels. Now more than ever, there is the major hotel brands “take care of the
2006 level of 31.3%. a convergence of new and traditional Internet” for them, and they miss serious
Voice channel reservations: In Q3 2010, digital formats, of interactive and local revenue-generating opportunities.
26 HOTELS April 2011 www.hotelsmag.com
4. ‘Fair share’ of the OTA channel
The direct online channel is up to 15 times Case study #1:
cheaper than the OTA channel, yet OTAs
gained significant channel share during How to add us$750,000 to the bottom line
the recession. In Q3 2010, the OTA share on an annualized basis, there is a — US$700,800 — would go directly to
of the CRS bookings for the top 30 hotel significant difference in distribution the hotel’s bottom line. this is nearly
brands reached 37.5%, compared to 25.4% cost between the direct online channel $US750,000 added to the bottom line.
in Q3 of 2008. In 2007 the OTA share was and otas for a typical new york city (calculation based on 80% average
at an all-time low of 24.1% (eTRAK). 300-room hotel: occupancy rate, adr of US$220 and
Revenue leaked from hotels to n direct online bookings: cost = two-night stays; 40% of total bookings,
OTAs in the form of abnormally high US$105,120 at US$10 per booking, or 17,520 bookings, being made via
merchant commissions reached US$5.4 10,512 direct bookings (60% of the internet.)
billion in 2010 alone (HeBS research). online bookings) n the bottom line for hoteliers:
A scenario in which 100% of Internet n Ota bookings: cost = US$770,880 invest in the direct online channel.
bookings are made via the direct online at US$110 per booking (25% ota Hoteliers must carefully employ
channel is unlikely. OTAs and other markup), 7,008 bookings (40% of roi-centric initiatives including
intermediaries in the indirect online online bookings) website redesign, website optimiza-
channel do play a needed role in certain if the hypothetical 7,008 ota tion and Seo, SeM, email marketing,
situations — for instance, in dynamic bookings are instead made via the online media and sponsorships,
packaging (air plus hotel, or air plus direct online channel at $10 each, mobile marketing and proven social
hotel plus car) for leisure destinations. the bulk of the ota distribution cost media initiatives.
In pre-Internet years, approximately
25% of all U.S. hotel bookings came via
the indirect channel (travel agents, tour
operators and wholesalers).
What should the OTA fair share be What are the distribution costs per channel?
today? Sixteen years after the advent of direct online channel: on an average 25% merchant commis-
the Internet, the most cost-efficient distri- n Hotel brand websites: US$2 to US$5 sion, two-night stays and adrs from
bution channel ever, the OTA contribu- per booking. Since there is no publicly US$150 to US$300 per night.)
tion should not be higher than 25% from available data on the subject, these
all Internet bookings. What we should are expert assessments. Gds travel agent:
not be seeing is the current industry n independent hotels and resorts: n Hotel brands: US$24.50 to US$66
average of 40% OTA contribution. US$8.50 to US$12.50 per booking per booking. (based on GdS pass-
(HebS research, based on 250,000 through fees of US$4.50 to US$6, an
The voice channel bookings in 2010 via hotel websites average 10% travel agent commission,
Hoteliers are constantly underestimat- from a sample of HebS’s full-service two-night stays and adrs ranging
ing the power of the voice channel as hotel client portfolio). from US$100 to US$300 per night.)
“old-fashioned,” yet in 2010 23.5% of n independent hotels and resorts:
all CRS bookings for the top 30 hotel Voice channel: US$42.85 to US$74.50 per booking.
brands came from the voice channel, n Major hotel brands: US$6 to US$10 (based on GdS pass-through fees of
according to eTRAK. per booking. again, there is no publicly US$12.85 to US$14.50, an average
What is your call center conversion available data on the subject. these 10% travel agent commission, two-
rate? HeBS research shows conversions as assessments are based on call center night stays and adrs ranging from
low as 5% of reservation calls. Hoteliers statistics from other travel suppliers. US$150 to US$300 per night.)
who pay attention to this channel enjoy a n independent hotels and resorts:
conversion rate of 40% or higher. US$10 to US$15 per booking the direct online channel is by far
In addition, seven out of 10 mobile the most cost-effective channel — 10
reservations — bookings originating from Indirect online channel/Otas: to 15 times cheaper than the ota
mobile devices — are via calls to the hotel n Hotel brands: US$40 to US$120 per channel and four to 10 times cheaper
reservation office or call center. booking. (based on an average 20% than the GdS travel agent channel.
merchant commission, two-night the direct online channel con-
The GDS travel agent channel stays and adrs ranging from US$100 tributes to a significant number of
Though the number of travel agency to US$300 per night.) voice reservations, as much as 40% of
locations has decreased drastically, n independent hotels and resorts: additional bookings, as confirmed by
this channel still generated 19.6% of US$75 to US$150 per booking. (based industry research.
all CRS bookings for the top 30 hotel
www.hotelsmag.com April 2011 HOTELS 27
5. special report: distribution
brands in 2010, according to eTRAK. Social media
Many hotels totally ignore this chan- Let’s set the record straight: Social Reservation sources
nel. Often hotel websites do not even media is not a distribution channel in
pretend to position the hotel as “travel hospitality. Social media is a customer for major hotel brands
agent-friendly.” Frequently hotel and engagement channel. Top hotel Share of CRS Share of
brands’ CRS reservations - total CRS
room descriptions on the GDSs were There is no doubt that social media hotel bookings Q3 2010 reservations
last updated in the previous century. has changed how travel consumers
Internet
Many hotels do not have any travel research and plan travel, access travel (online channel) 56.9%
agent marketing initiatives. information and perceive its cred-
Including:
ibility. Internet users are increasingly Direct: brand
Flash sales sites influenced by social networks and peer website 62.5% 35.56%
Flash sales sites such as Groupon, reviews. With a comprehensive social Indirect: OTAs 37.5% 21.34%
LivingSocial or SniqueAway are not media strategy, hoteliers can create GDS travel agent 19.6% 19.6%
a new and revolutionary distribution social media “buzz,” target receptive Voice 23.5% 23.5%
channel, and many believe flash sale audiences and stimulate hotel website
Total for CRSs 100.0% 100.0%
sites are a recessionary phenomenon. visits, interactions and bookings.
Source: 2010 eTRAK, HeBS (reservation sources
To participate, hotels are required to Social marketing is becoming a
for transient business and leisure travelers for the
sell rooms on these sites at more than a larger component of hotels’ marketing top 30 hotel brands and chains)
50% discount. A recent Groupon sale mix and part of the comprehensive
for a Hyatt Regency in Chicago offered a direct online channel strategy.
discount of 62%. In addition, flash sales Naturally, it is important to use the
sites charge fees from 25% to 35% from the right ROI metrics to measure the suc-
already discounted rate. For example, for cess of social marketing efforts. Social Case study #2:
a hotel with a best available rate (BAR) of media and social marketing initiatives ROI from the direct
US$200, a typical 50% discount promo- should be reviewed within the context
tion on Groupon works in this fashion: of the impact of a hotel’s multi-channel online channel in 2010
marketing strategy. the following case study, based on
Member rate 50% of BAR = US$100
HebS’s full-service hotel client port-
Groupon gets 35% commission = US$35
Hotel net = US$65, or 67.5% discount from BAR The future of hotel distribution folio, clearly shows that investments
Today’s travel consumer is exposed to in the direct online channel pay off
With travel demand rising, the quality and engaged by so many snippets of handsomely:
of service providers using flash sales sites information coming from all directions n Return on ad spent (ROas):
today has deteriorated immensely, consti- that they live in a perpetual “digital 2770% (28:1)
tuting massage parlors, yoga studios, salsa information cloud.” Consumers no n total return on investment
dance classes and desperate restaurants. longer keep track of where exactly they (ROI):2237% (23:1)
have been exposed to information or (Based on HeBS’s full-service client portfolio. Full-
The mobile channel marketing content. They no longer service defined as website design, SEO, SEM, email
HeBS research and other industry care what format the information or marketing, social media, mobile marketing, online
sources show that in 2010, 1.5% to 2.5% media, etc.)
content they have been exposed to is in
of visitors to hotel websites came from (email, tweet, Facebook post), and they
mobile devices. Last year travel sup- no longer differentiate between media
pliers and OTAs reported a dramatic channels and content formats. As a Hoteliers must find a way to dominate
increase in mobile bookings, and result, the travel consumer has become the digital information cloud with their
Google saw a 3,000% increase in hotel channel- and format-agnostic. own marketing message and customer
mobile searches compared to 2009. In other words, the convergence of interactions, or the OTAs and the com-
In 2011, independent or franchised marketing/media channels and the petition will control the conversation.
hotels and resorts as well as multi- new hyper-interactive travel consumer In 2011 hoteliers need to invest in
property hotel companies should focus has lead to the emergence of one single technologies and expertise to better
on enhancing their mobile websites, customer engagement channel. execute multi-channel marketing and
improving mobile user experience, This new channel demands a distribution strategies, the antidote to
increasing “discoverability” via mobile completely new approach to hotel the current silo approach.
search engine optimization (SEO) and marketing and distribution. Mastering
search engine marketing (SEM) and the direct online channel and all of its Max Starkov is president and CEO
making their mobile sites more interac- segments — traditional Web, SEM, of Hospitality eBusiness Strategies
tive via mobile social media initiatives, SEO, email, social media, mobile Web (HeBS), a full-service digital marketing
sweepstakes and contests. — is a crucial step in this direction. and direct online channel strategy firm.
28 HOTELS April 2011 www.hotelsmag.com