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HotelDistributionCosts
andhow to tacklethem….
inanAggregationTheoryenvironment
Richard Adam
1. Introduction andVolumes
2. AggregationTheory
3. OTAs: the two sides of the medal
4. Consequences
5. Conclusion
© Richard Adam - July 18, 2019
1.
Introduction
andVolumes
© Richard Adam - July 18, 2019
1.
Introduction
andVolumes
© Richard Adam - July 18, 2019
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
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
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
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
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
3.
OTAs:
The two sides
ofthe medal
© Richard Adam - July 18, 2019
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
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
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
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
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
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
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
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
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

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richard adam - OTA bookings and online distribution for independent hotels and tourism suppliers - 08/2019

  • 2. 1. Introduction andVolumes 2. AggregationTheory 3. OTAs: the two sides of the medal 4. Consequences 5. Conclusion © 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