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special report: distribution                                                                              ly              ...
special report: distributionH          oteliers have been rightfully confused by          headlines about the changing lan...
special report: distribution                                                                          internet   we live i...
‘Fair share’ of the OTA channelThe direct online channel is up to 15 times     Case study #1:cheaper than the OTA channel,...
special report: distributionbrands in 2010, according to eTRAK.               Social media  Many hotels totally ignore thi...
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hotelsmag controllingdistributioncostsinhospitality_Max Starkov_april2011


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hotelsmag controllingdistributioncostsinhospitality_Max Starkov_april2011

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hotelsmag controllingdistributioncostsinhospitality_Max Starkov_april2011

  1. 1. special report: distribution ly sing l ncre a ok hote si mer o bo rs o nsu ne ls t o telie W ith c chan is on h new sure els ng e s h ann l usi e pr ch c ntro , th hi co st ays sta nd w ctive to un der st-e ffe to co ost ts. arem cos v bu tion St a rko d istri b yM ax d ib ute nt r Co24 HOTELS April 2011
  2. 2. special report: distributionH oteliers have been rightfully confused by headlines about the changing landscape of hotel distribution, from articles titled“Google will change your hotel’s distributionstrategy” and “Facebook as a commerce engine,”to “How to make Twitter sell” and “Mobile apps toimpact hotel distribution.” In other articles onlinetravel agents (OTAs) provide “free advice” on “howto grow your average daily rate without impactingoccupancy.” On a daily basis, hotel owners, manag-ers and operators are bombarded by far-fetched andoften conflicting messages and claims. There is no doubt hotel distribution has changeddramatically since the advent of the Internet. Onlinedistribution, social media and the mobile Webhave all changed how we connect with, engage andultimately convert customers. But the fundamentalprinciples of hotel distribution have not changedthat much. Hoteliers need to focus on distributionchannels that pass the litmus test; in other words,those that are cost-effective, generate the mostbookings, protect rate parity and price integrity andreach the targeted customer segments.Unintended channel share lossNot all bookings are created equal, and whenplanning their distribution strategy, hoteliersshould realize the existence of “The Law ofUnintended Channel Share Loss” which states:Any booking via a more discounted channel (suchas flash sales sites like Groupon, LivingLocal.comor is one less booking for thesame hotel via the hotel website, call center, GDSor OTA (in that order). April 2011 HOTELS 25
  3. 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: Hoteliersinventory 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 atially generate the most bookings, while downturn in 2008, a number of very promotional campaign simultaneouslypreserving rate parity and price erosion. important developments occurred that across all available marketing channels profoundly changed hotel distribution produces a compounded effect and farDramatic shift to online distribution and customer engagement in hospitality: greater returns than each individualVoice and GDS travel agent, the The hyper-interactive consumer: Over marketing format.traditional hotel reservation channels, the past several years, a new breed ofhave experienced consistent declines hyper-interactive travel consumers who The direct online channelover the past 16 years. The eTRAK are today’s main hotel customers has Why aren’t hoteliers investing more inquarterly benchmarking report, which emerged. The advent of social media the direct online channel? In addition tosummarizes booking data from the top and the mobile Web has accelerated the the obvious reason that selling your hotel30 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 assumetraditional 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 overwhelmedbrands reached 56.9% of the total brand past, current and future hotel guests. by the rapid shift from offline toCRS bookings (eTRAK Report). This Mobile Web: The mobile channel online distribution and the sheerconstitutes a major share increase com- has become an important distribution dynamics of the online channel andpared 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 ofof GDS travel agent reservations have to respond adequately to this understanding that Internet marketingdipped to one of its lowest points — growing demand. is not an expense, but an investmentonly 19.6% of total brand CRS reserva- Channel convergence: Today’s hyper- with immediate returns at verytions. 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 thata major share decline compared to the channels. Now more than ever, there is the major hotel brands “take care of the2006 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
  4. 4. ‘Fair share’ of the OTA channelThe direct online channel is up to 15 times Case study #1:cheaper than the OTA channel, yet OTAsgained significant channel share during How to add us$750,000 to the bottom linethe recession. In Q3 2010, the OTA share on an annualized basis, there is a — US$700,800 — would go directly toof the CRS bookings for the top 30 hotel significant difference in distribution the hotel’s bottom line. this is nearlybrands reached 37.5%, compared to 25.4% cost between the direct online channel $US750,000 added to the bottom Q3 of 2008. In 2007 the OTA share was and otas for a typical new york city (calculation based on 80% averageat 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 viamerchant 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 employchannel is unlikely. OTAs and other markup), 7,008 bookings (40% of roi-centric initiatives includingintermediaries 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 socialhotel plus car) for leisure destinations. the bulk of the ota distribution cost media initiatives.In pre-Internet years, approximately25% of all U.S. hotel bookings came viathe indirect channel (travel agents, touroperators 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 frombution 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, theseall 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$66average 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, anThe 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 ranginging 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 ofaccording 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 fromlow 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 farIn addition, seven out of 10 mobile the most cost-effective channel — 10reservations — bookings originating from Indirect online channel/Otas: to 15 times cheaper than the otamobile devices — are via calls to the hotel n Hotel brands: US$40 to US$120 per channel and four to 10 times cheaperreservation 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 ofThough the number of travel agency to US$300 per night.) voice reservations, as much as 40% oflocations has decreased drastically, n independent hotels and resorts: additional bookings, as confirmed bythis channel still generated 19.6% of US$75 to US$150 per booking. (based industry research.all CRS bookings for the top 30 hotel April 2011 HOTELS 27
  5. 5. special report: distributionbrands in 2010, according to eTRAK. Social media Many hotels totally ignore this chan- Let’s set the record straight: Social Reservation sourcesnel. Often hotel websites do not even media is not a distribution channel inpretend to position the hotel as “travel hospitality. Social media is a customer for major hotel brandsagent-friendly.” Frequently hotel and engagement channel. Top hotel Share of CRS Share of brands’ CRS reservations - total CRSroom descriptions on the GDSs were There is no doubt that social media hotel bookings Q3 2010 reservationslast updated in the previous century. has changed how travel consumers InternetMany 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: brandFlash 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 thesell 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 comprehensivefor a Hyatt Regency in Chicago offered a direct online channel of 62%. In addition, flash sales Naturally, it is important to use thesites 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 directUS$200, a typical 50% discount promo- should be reviewed within the contexttion 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 investmentdance 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, emailHeBS research and other industry care what format the information or marketing, social media, mobile marketing, onlinesources show that in 2010, 1.5% to 2.5% media, etc.) content they have been exposed to is inof visitors to hotel websites came from (email, tweet, Facebook post), and theymobile devices. Last year travel sup- no longer differentiate between mediapliers and OTAs reported a dramatic channels and content formats. As a Hoteliers must find a way to dominateincrease in mobile bookings, and result, the travel consumer has become the digital information cloud with theirGoogle saw a 3,000% increase in hotel channel- and format-agnostic. own marketing message and customermobile 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 and resorts as well as multi- new hyper-interactive travel consumer In 2011 hoteliers need to invest inproperty hotel companies should focus has lead to the emergence of one single technologies and expertise to betteron enhancing their mobile websites, customer engagement channel. execute multi-channel marketing andimproving mobile user experience, This new channel demands a distribution strategies, the antidote toincreasing “discoverability” via mobile completely new approach to hotel the current silo engine optimization (SEO) and marketing and distribution. Masteringsearch engine marketing (SEM) and the direct online channel and all of its Max Starkov is president and CEOmaking their mobile sites more interac- segments — traditional Web, SEM, of Hospitality eBusiness Strategiestive via mobile social media initiatives, SEO, email, social media, mobile Web (HeBS), a full-service digital marketingsweepstakes and contests. — is a crucial step in this direction. and direct online channel strategy firm.28 HOTELS April 2011