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How Hotels Can Manage Distribution Costs in a New Way

by Ed Watkins, Contributing Editor |

Kalibri Labs CEO and co-founder Cindy Estis Green made a splash in the hotel distribution world last month with the release of initial results from a study of the so-called Billboard Effect. The preliminary conclusion of the study is that hotels can no longer count on consumers drifting back to their sites after flirting with online travel agency locations. This once-ancillary benefit from the rise of OTAs might be gone forever, and as a result hotels could see higher distribution costs.

“This study will make very clear that the OTAs are a go-to booking site, period,” she said during a recent phone conversation. “Consumers may have used them at one time as a search engine, but not anymore. There are plenty of other search engines out there. Now people go to the OTAs and book; they don’t leave.”

Green says full results of the study will be released sometime during the first quarter as part of a new book on hotel distribution. It will be interesting to see what other revelations are in the book to help revenue strategists plot their courses of action.

In the meantime, we had a chance to chat with Estis Green to discuss a wide range of hotel distribution, revenue strategy and cost-of-customer acquisition issues:

Cindy Estis Green, CEO and co-founder of Kalibri Labs

Cindy Estis Green, CEO and co-founder of Kalibri Labs

How has revenue management in the hotel industry evolved in recent years?

Estis Green: It’s expanded beyond just price optimization and inventory controls, which is essentially what is was in the beginning. There are hotels now working at all revenue streams. In some situations, revenue managers are learning about e-commerce and digital and having to deploy programs in those areas and are responsible for pulling levers in other disciplines other than just the price lever, which was the traditional focus on revenue management.

To move the needle it takes an integration of pricing decisions, inventory decisions—which channel, which vendor you should work with, how much inventory in each channel—as well as stimulating additional demand. Historically, revenue management has been very reactive and it still is somewhat more reactive than other disciplines. That’s opposed to proactive, where you just don’t wait for the demand to come in, you actually initiate it.

Do people in the C-suites of the hotel industry recognize the importance of revenue strategy?

Estis Green: What I described is what I call revenue strategy, as opposed to the traditional definition of revenue management. It is an inter-disciplinary approach to demand, where you don’t just take what comes and decide what rates to charge, but you actually help influence that demand from specific selected channels.

It’s evolving at the C-suite level. I’m not sure how well they understand the nuances. It’s still a little bit of a black box to them.

What is the key distribution challenge facing the hotel industry?

Estis Green: The number one challenge is the cost. It is not slowing down. Some of the big chains have negotiated lower commission rates, but they’re being paid on a wider swath of their business, so in absolute terms they’re paying more money.

Other pressing distribution issues?

Estis Green: There is the migration of more demand into aggregators—the big tech companies that have aggregated the demand. The more they do that the less control hotels or brands have over the customers in the flow of that demand. I have this concept of the booking brands and the stay brands. The stay brands are the traditional hotel companies. But there is this new class of brands I call the booking brands that have aggregated that demand. When they think of travel, consumers often think of the booking brands.

Once they determine their optimal channel mix, that drives a lot of decisions. Click To Tweet

Instant Booking by TripAdvisor, Book on Google and others have entered hotel distribution. What role will those approaches ultimately have in the business?

Estis Green: There is an opportunity where there will be a more direct connection between the consumer and the hotel.

On the other hand, there is just more business that is going to Google, which is often the first stop for a lot of travel shoppers. It empowers Google in a way that makes the duopoly of Expedia and Booking.com look like child’s play. There’s risk—it could be threatening if they get too much power, but there are some possible advantages and also some risks and threats.

How can revenue strategists best evaluate the plethora of distribution channels available to them? 

Estis Green: It’s worth every hotel to explore all channels that are available to see which ones are the best match for their product and which customer base is a better match for what they’re trying to do. A hotel needs to decide what its optimal channel is in terms of the demand in the market and knowing its advantages and competitive position in that market.

Once a hotel determines what portion of each faucet that is running, given the market demands and what they think they can take from that demand, then they should have a mix of business and might take some metasearch, some OTA, some through brand.com. They will have a mix and they will have to figure out what the right mix of each one of those channels is. 

What should drive their decisions?

Estis Green: They have to make those decisions in terms of their planning and overall strategy. Once they determine their optimal channel mix, that drives a lot of decisions that are important to make, like where they want to emphasize their product and their staffing and how much they should spend on promotions or market stimulation activities in each of those channels. If they decide they only want 15% OTA instead of 20% and want to get more through GDS, they need to make sure they’re well-suited for those customers and that they have an advantage to that customer base and that they spend money—sales and marketing and other customer acquisition dollars or pounds—to meet that mix.

Hotels tend to be pretty reactive. They think, “I can’t change what a customer does; whatever channels they pick are what they pick.” That’s not true. You have to look at all the demand available in a market and which ones you want to tap from each. You proactively make those decisions and spend your money accordingly. That way of thinking is new and is necessary in order to manage the costs and control issues.

 

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Ed Watkins, Contributing Editor

Ed Watkins, Contributing Editor

Contributing editor at Duetto
Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.
Ed Watkins, Contributing Editor
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Ed Watkins, Contributing Editor

Ed has been covering the hotel industry for more than 40 years. He was editor-in-chief of Lodging Hospitality from 1980 to 2012. He then joined Hotel News Now as an Editor at Large, until his retirement at the end of 2014. Ed still contributes to several publications and is a member of the advisory boards for the hotels schools at Michigan State and Penn State.