What Will It Take For Hotels to Start Winning the Distribution Game?
By Rich Maradik, Founder
Articles in today’s industry trades read pretty much like they did five years ago. That’s because the biggest challenges hotels face have not improved. In fact, they have only gotten worse.
OTAs growing share at a faster rate than hotels, the difficulty of capturing direct customer revenue, undifferentiated digital marketing — or stagnant pricing strategies — aren’t these the same issues we’ve been trying to solve for years? Yet selling a room to a consumer keeps getting more difficult for hotels.
As with any challenge, the only way for hoteliers to improve the situation is by:
- Understanding the root cause of the problem
- Breaking free from traditional, formulaic answers
- Formulating a new approach as the solution
The “story behind the story”: Why is distribution so hard?
Winning in distribution is all about winning the customer. Hotels are losing distribution battles because the OTAs and other intermediaries are doing a better job connecting with consumers than they are.
There – I said it. Not to be critical, but to define the problem for what it really is.
The billions that OTAs spend on advertising and marketing annually (almost 35% of their revenues) really matter. They buy more Gross Rating Points on television than all major hotel chains combined, and outspend all hotels on Search Engines and Digital Marketing as well. This phenomenon has eroded the loyalty consumers have with hotels while driving up marketing costs that hotels incur to maintain or grow share.
Hotels are responsible for the complexity of the distribution landscape. They make distribution hard as a way to maintain some measure of perceived control over price, margin and their customers. This puts the quality of their hotel product as the main differentiator. Hotels do this because they have to – there are just too many intermediaries with significant influence over how consumers shop and purchase a hotel room today.
Why expect different results from the same approach?
The only way for hotels to ultimately win in distribution to do a better job connecting with consumers.
Intermediaries will continue to grow their influence – indeed, the typical leisure consumer will shop 20-30 times across 10-20 different web sites while making a hotel room purchase decision. Hotels cannot spend more to reach consumers in order to minimize the influence of intermediaries – it’s just not realistic.
The best way for hotels to connect with consumers is to understand them better. And then apply those insights into revenue and marketing strategies.
Yet, the hotel industry uses decades-old products to gain knowledge about travel consumers. This reinforces the same tired revenue and marketing tactics.
Historical performance reports have been around for 30 years. They are great, but one dimensional – benchmarking historic RevPar for a hotel versus its set of competitive hotels. The reports rely on self-reported data on what’s happened in the past, and provide insight on what to do about it.
Other solutions reveal a hotel’s performance within the GDSs, profiling only booked production within a data set that makes up less than 15% of most hotels revenue. And when these products look do forward beyond the GDS, the data has a narrow view that works only for the big Brands, showing how a hotel’s booked revenue by certain segments compares to other hotels in the market. This is still data based on what has already happened, booked and consumed in the past or booked in the past for future dates.
Most revenue management systems rely on a hotel’s own historic data to predict future demand. Why not look at future demand to forecast demand?!
If the above tools were adequate, then hotels would be winning the distribution battle. They just don’t hack it in today’s always-connected, hyper-dynamic consumer environment. That is why we need new tools to empower progressive revenue and marketing strategies.
Game Changer: the Future is Now
I don’t sugar coat it. I tell hoteliers that the only way they will be competitive in this cycle of hotel technology disruption is to get over the past. Know as much as possible about the consumer demand that’s available looking forward. See the future, as it’s unfolding – through predictive analytics and consumer demand forecasting – in order to make smarter decisions on marketing, rate, distribution and competitive strategy.
How can the industry achieve this transition? The only way this is possible is through leveraging new types of data to better inform basic revenue management practices like pricing and inventory allocation. Or to make ecommerce perform better using proven strategies with new perspectives, such as geo-targeting and persona-based content using active consumer shopping profiles, not last year’s survey data.
Hotels and the technology providers that support them should all be looking forward to:
- Future consumer demand to drive targeted marketing and personalization of messaging and content from social video to interest-based hotel packages. Let’s move past the preoccupation with historical consumer behaviors and preferences. They’re just one data point.
- Pricing based on consumer demand for future arrival dates in the market and how you stack up compared to hotel competitors in terms of future demand or travel intent – that’s different from today’s rate-based pricing strategies that are often a race to the floor.
- Inventory allocation and channel strategy based on consumer shopping behaviors by channel, comparing website traffic to OTA traffic with the goal of driving direct bookings. It’s a far cry from crossing your fingers for the billboard effect.
Yes – there is light at the end of the tunnel. Thanks to new technology, this type of disruptive, data-driven strategy has become available in a handful of new products launched in recent years.
The future does in fact look bright for hotels that embrace new approaches and data insights that show who and where guests are tomorrow. That’s how hotels will begin to win the distribution game, taking back share from OTAs and managing price based on future demand. It’s the only way to compete and re-engage with consumers for hotels on the path to owning their guest relationships.