There is no doubt hotel distribution has changed dramatically over the past 16 years since the advent of the “commercial” Internet. Online distribution, social media and the mobile Web have all changed how we connect with, engage and ultimately convert customers. But the fundamental principles of hotel distribution have not changed that much. Hoteliers need to focus on distribution channels that “pass the litmus test” i.e.:
- Are cost-effective
- Generate the most bookings
- Protect rate parity and price integrity
- Reach the targeted customer segments
The Law of unintended channel share loss
Not all bookings are created equal and when planning their distribution strategy, hoteliers should realize the existence of “The Law of Unintended Channel Share Loss” which stipulates the following:
Any booking via a more discounted channel (i.e. Flash Sales Sites like Groupon, LivingLocal.com or SniqueAway.com or an OTA site like Expedia, etc) is one less booking for the same hotel via the hotel website, call center, GDS, or OTA (in that order).
The main focus and priority for any hotelier should be to sell as much inventory via the most cost-effective distribution channels that can potentially generate the most bookings, while preserving rate parity and price erosion.
Case Study: How to Add a Cool Three-Quarter of a Million Dollars to the Bottom Line
On an annualized basis, there is a significant difference in distribution cost between the direct online channel and OTAs for a typical New York City 300-room hotel:
- Direct Online Bookings: Cost = $105,120 at $10/per booking; 10,512 direct bookings(60% of online bookings)
- OTA Bookings: Cost = $770,880 at $110/booking (25% OTA markup); 7,008 bookings (40% of online bookings)
- If the hypothetical 7,008 OTA bookings are instead made via the direct online channel at $10 each, the bulk of the OTA distribution cost, namely $700,800 would go directly to the hotel’s bottom line. This is nearly three quarter of a million dollars added to the bottom line.
(Calculation based on 80% average occupancy rate, ADR of $220.00 and LOS two room nights. 40% of total bookings or 17,520 bookings being made via the Internet. Industry average 60:40 direct vs. indirect online ratio)
The bottom line for hoteliers: Invest in the direct online channel. Hoteliers must carefully employ ROI-centric initiatives including website redesign, website optimization and SEO, SEM, email marketing, online media and sponsorships, mobile marketing and proven social media initiatives.