1.
HotelDistributionCosts
andhow to tacklethem….
inanAggregationTheoryenvironment
Richard Adam

2.
1. Introduction andVolumes
2. AggregationTheory
3. OTAs: the two sides of the medal
4. Consequences
5. Conclusion
© Richard Adam - July 18, 2019

3.
1.
Introduction
andVolumes
© Richard Adam - July 18, 2019

4.
1.
Introduction
andVolumes
© Richard Adam - July 18, 2019

5.
1.
Introduction
andVolumes
There is a series of questions deriving from this development:
 What is the potential impact on business performance of
independent suppliers, service providers and operators in tourism
(hospitality, restaurants, transport, tours and activities etc.)?
 What are the consequences of digitalization and technology for
business and operational strategy?
 What are the consequences in management priorities,
organizational structure and hiring requirements as well as priority
KPIs?
© Richard Adam - July 18, 2019

6.
1.
Introduction
andVolumes
Share of Booking Distribution:
 Direct → phone, mail, website, walk in, …
 Indirect → OTA retailer and merchants (TOs) or other
agencies (MICE)
 Global hotel industry total retail value 2019: 570 bn USD
 Share of Americans with preference booking hotels online: 88%
(vacation transport 83%)
(https://www.statista.com/topics/962/global-tourism/, taken July 8, 2019)
© Richard Adam - July 18, 2019

7.
1.
Introduction
andVolumes
“…. In 2017 OTAs were capturing 39% of the US hotel booking market.
Forecasts expect this trend to continue, reaching 41% market share in
the US for OTAs in 2020…. Commissions can reach as high as 30%....”
(Source:Travel Daily News, Feb. 23, 2018)
“In 2017, almost a third of hotel bookings in Switzerland were
processed by Online-Providers with tendency strongly increasing…“
(Source: DerTages Anzeiger, Zürich, March 8, 2019)
„…. 25,2 per cent of hotel bookings in Germany in 2016 were
generated via OTA platforms …”
(Source: https://destinet.de/meldungen/themen-leistungstraeger/hotellerie-hospitality/5025-
marktdominanz-der-online-buchungsportale), taken July 9, 2019
© Richard Adam - July 18, 2019

8.
1.
Introduction
andVolumes
„Share of OTA revenue for some hotels is up to 40 – 60%, depending
on destination“
(Source: https://www.hotelier.de/lexikon/o/ota, taken July 9, 2019)
“20% of your direct bookings come from people who discovered your
hotel on an OTA…Per a recent Google survey, 52% of travellers will
visit your hotel’s website after seeing you on an OTA”
(Source: https://pebbledesign.com/insights/finding-the-balance-between-otas-and-direct-
bookings, taken July 8, 2019)
© Richard Adam - July 18, 2019

9.
2.
AggregationTheory
OTAs: A Category of “Aggregators”
In AggregationTheory, according to BenThomson, “the value
chain for any given consumer market is divided into three parts:
suppliers, distributors, and consumers/users.The best way to make
outsize profits in any of these markets is to either gain a horizontal
monopoly in one of the three parts or to integrate two of the parts
such that you have a competitive advantage in delivering a vertical
solution”
(Source: https://stratechery.com/2015/aggregation-theory/, taken July 8, 2019)
→ Old-Economy: businesses have controlled supply
→ New Economy: controlling or centralizing demand
© Richard Adam - July 18, 2019

10.
3.
OTAs:
The two sides
ofthe medal
© Richard Adam - July 18, 2019

11.
3.
OTAs:
The two sides
ofthe medal
3 Groups of hoteliers and other suppliers in their
positioning towards aggregators:
 Group 1 embraces them and becomes increasingly dependent
 Group 2 is trying to strictly avoid this kind of business
 Group 3 is trying to balance dependencies by actively improving
OTA business and enforcing direct bookings at the same time
© Richard Adam - July 18, 2019

12.
3.
OTAs:
The two sides
ofthe medal
Upsides of OTAs from supplier perspective
 Potential additional business
 Strong brands and premium ranking in search engines
 Review site as primary source of information
 Mature advanced booking and processing technology
 Additional marketing programs to increase hotel visibility and
ranking
 Analytical tools
© Richard Adam - July 18, 2019

13.
3.
OTAs:
The two sides
ofthe medal
Downsides from supplier perspective
 Commission from 15 up to 30 per cent of room rate
 Ownership and availability of data
 “best price” contracting
 Increasing dependency
 Non-supportive for added value positioning
© Richard Adam - July 18, 2019

14.
4.
Consequences
Cost factors for independent suppliers:
 Involvement of human resources
→ increase automated bookings
 Commission to third party
→ increase direct bookings
 Do independent hotels know their distribution costs and the
opportunity costs related?
© Richard Adam - July 18, 2019

15.
4.
Consequences
Strategic consequence:
→ AddedValue vs. Price
 Constantly optimize forecasting and pricing in OTAs via channel
management
 Review and adapt flexible cancellation policies
 Increase direct bookings via SEO/SEM, revenue management,
dynamic pricing and (net) conversion rate
 Utilize CRM data for personalized (automized) marketing and
upselling
 Optimize cost-based (contribution margin) pricing to identify
flexibility
 Monitor development of new technologies (blockchain based hotel
booking systems, seamless connectivity networks)
 Explore value adding aspects (brand, trust, services, upselling) to
conquer price dominating decision parameters
© Richard Adam - July 18, 2019

16.
4.
Consequences
Cost Consequences
→Transaction costs vs. fixed costs
 Revolving Investment in own booking system and channel
management devices
 Costs for training in channel management and pro-active revenue
management, upselling, CRM utilization of data, also for staff
retention
 Significant share of transaction costs will convert into fixed or
undistributed costs
 Marketing costs for SEM (not indicated as distribution costs)
 Cost transparency and KPIs for make-or-buy decisions
© Richard Adam - July 18, 2019

17.
5.
Conclusion
 Hoteliers and suppliers are recommended to shift resource and
attention to online distribution management (direct and indirect
bookings)
 Shift in required competencies
 Demand for distribution cost transparency and framework of
indicators to navigate pro-active pricing, cost-benefit analysis and
inventory decisions
 Suppliers need KPIs to distinguish the value and costs of direct
bookings vs. value and costs of OTA bookings by generating
applicable return-on-invest matrix
© Richard Adam - July 18, 2019

18.
Literature
Jagels M./Coltman M., 2008: Hospitality Management Accounting, 9th
ed.,Wiley & Sons, Hoboken (US)
Langford G./Weissenberg A./Gasdia M., 2019: USTravel and
Hospitality Outlook, Deloitte Publishing, Chicago
Lien C./ Wen M./ Huang L./ Wu K., 2015: Online hotel booking,The
effects of brand image, price, trust and value on purchase intentions,
Asia Pacific Management Review 06/2015,Taipeh
BCG (Ed.):Technology Investment inTravel Innovation, 2019:
https://www.bcg.com/publications/2019/innovation-travel-must-put-
traveler-first.aspx
Aggregation Theory (in a nutshell):
https://anujabrol.com/an-introduction-to-aggregation-theory-
589b360ac373
https://stratechery.com/2015/aggregation-theory/
© Richard Adam - July 18, 2019

19.
Contact
RichardAdam
 contact@trendtransfer.asia
 www.trendtransfer.asia
Stay tuned on LinkedIn:
 https://www.linkedin.com/in/ceotourismdevelopmentb2b/
© Richard Adam – July 2019 - contact@trendtransfer.asia