Let’s be fair. Let me start by getting something out of the way: commissions in hospitality distribution are fair.
Before your blood starts boiling, let me also say, I didn’t say: "The size and amount of commissions are always fair."
This would be the topic of a whole other contentious article that I am not ready to write today. But the concept of commissions is a fair one.
Online travel agencies and third party travel sellers are generating demand and bringing hoteliers new guests.
They deserve to be rewarded for this, and the business model exists because consumers like it.
I would argue that you would have to spend a lot more on marketing to reach the same results as you get from many of your OTA partners.
I have worked in distribution and revenue management in some of the top OTA and hotel chains in the world over the last two decades and I know that there is value in having a diversified distribution mix.
But as you broaden and diversify that distribution mix, a new cost of distribution starts emerging.
Third party distribution is here to stay!
While it’s true that the hoteliers will want to focus on direct channels, and they should, the consumers will decide where they finally book.
The rise of Uber, Amazon and OTAs is proof that a large variety of consumers want choice and ease of booking. The two key things that are still missing in most direct channel efforts. In addition, the market place is becoming more complex.
The emerging travel markets like India and China are giving rise to niche OTAs that have huge outbound potential.
The millennials are exploring new destinations are increasingly becoming more brand agnostic. The so-called long tail of distribution is getting longer and more niche due to changing consumer behavior.
In this changing environment how can hoteliers not pay attention to the emerging and specialized channels?
The hidden cost of distribution
When it comes to working with and selecting third party distribution channels, we all know the big ones.
I don’t even have to mention them by name. You know who they are, and you know they’re likely the corner stone of your OTA distribution strategy. But that’s the thing, this is true for every hotelier.
So the savvy hoteliers will start looking at the long-tail of distribution and start crafting their distribution strategy and mix.
The distribution technology has not really evolved to the benefit of the hotelier or end customer much in the last 10 years.
Chinmai Sharma - DHISCO
They might be chasing German business travelers, Chinese leisure guests, or American last-minute shoppers, and there’s an OTA that targets each of these demographics.
Interestingly, there is also the emergence of other demand partners like loyalty companies (Jet Privilege), airlines companies (Air Asia), search engines (Google) etc. becoming OTA’s the complexity and competitive intensity is only poised to increase further.
Distribution leaders at hotel chains are most likely considering a mix and looking at multiple connections to achieve revenue, occupancy, and profit goals.
As the web of channels grow, so does the hidden cost of managing and maintaining these channels. Even if you’re connected via a switch or channel management solutions, you are not free from the work of managing these channels.
To start - you must contract with each, which may involve lengthy negotiations to arrive at a “fair” commission structure and legal language that works for both parties. Once that is done, lengthy implementations follow.
Each channel has to be mapped and configured before you can start selling all your room and rate combinations.
Once you’re live and up and running, you have a long road ahead of managing, maintaining and optimizing the channels for best results.
This might not seem so bad and may even seem a bit obvious until you consider that this is only one of maybe 10 channels that you wanted to target.
So, when you add all the work up, you have easily gone above what I would consider a full-time job.
And I know. I’ve been there.
Looking for guests in a haystack
Let’s also take a step back. Or, maybe, years back.
After being convinced that new distribution technology would make your life easier and you could connect to more channels, you finally got you hands on this shiny piece of technology.
You connected your existing channels and promised yourself you’d get serious about implementing an informed data-driven distribution strategy that would raise your occupancy rates and a nice increase in revenue.
But where do you begin? As you start looking beyond the big ones, they all say they will bring you more demand and more guests.
The millennials are exploring new destinations are increasingly becoming more brand agnostic. The so-called long tail of distribution is getting longer and more niche due to changing consumer behavior.
Chinmai Sharma - DHISCO
But how do you know? Your new distribution technology only tells you where your demand is coming from existing channels, and it takes at least a year to build up that data anyway to give you insight to act on.
Your competition obviously won’t tell you what’s working for them - so you’re left with trial and error. You, of course, have some idea of your target audience in terms of demographic and geographic origin.
You’ve researched and know some fast-growing travel segments and channels that attract them.
But there’s still a lot of guess-work and as I mentioned, and you know, for every channel there’s a long road and a lot of work related to contracting, set-up and mapping.
Like I used to, you just wish you had a crystal ball that could tell you how specific channels would perform for your specific property before committing to all that goes along with connecting to a new channel.
In addition, won’t you like to know how the existing channels stack rank against each other? What is the booking window, geo origin, LOS, room-suite type usage and on-site property spend for the guests by channel?
Does the channel bring in business during your need periods or do they send you lower rated business during your peak times?
Is it time to rethink?
So what am I trying to get to here? Or am I just trying to fuel the fire by adding another gripe about working with OTAs and other 3rd party channels?
I am a big advocate of a strategic and diversified distribution mix, so I’d never tell you connect to fewer channels.
Where I think some in the industry have failed hoteliers is making false and oversimplified promises that they will make distribution effortless while increasing revenue.
On the promise to save time and increase efficiency, it is true that the distribution technology tools out there save some time by consolidating the connections, availability, rates and inventory into one screen.
But that’s basic. As a hotelier you’re still stuck with a lot of the heavy lifting of contracting, mapping and monitoring the various channels.
Is there a real time way to monitor if the channels are selling your brand and room rates the way they are supposed to?
The distribution technology has not really evolved to the benefit of the hotelier or end customer much in the last 10 years. On the promise of generating more revenue, I call a bluff on this fallacy.
Connecting to more channels is not a direct or true correlation with more revenue. It has to be the right channels that are aligned with potential demand for each property.
As an example, a boutique property in up-state New York is unlikely to see much of an uplift from connecting to a travel management company who specializes in business travel.
So, the questions I want to leave you with are these:
- How is your technology partner helping you grow revenue, occupancy and ADR in an informed way?
- Are they providing solutions that give you actionable insight specific to your property, market and strategy?
- Are they able to monitor, alert and fix parity issues on the fly across distribution channels including platforms like mobile, desktop, geo points of sale and closed-user groups?
- What if there was a magic button to increase revenue and simplify distribution?
- What if hoteliers were able to "automagically" identify new demand, set up auto room-rate mappings and improve their time to market significantly?
Maybe it’s time to rethink in 2019. I wouldn’t call myself a crystal ball, but I can tell you help is on the way… at RateGain, we call it Smart Distribution.
Watch this space for more details coming up on this soon.