2018 will be another busy year in the distribution space, as hotels and online travel agencies continue to dance and spar.
Furthermore, new entrants complicate the dynamics of the marketplace, and more available data puts fresh tools in the hands of everyone who plays.
At Fornova, we see three major trends in distribution in the coming year that all hotels should pay attention to:
- In a bid to create more value for their hotel partners, OTAs will continue to improve their tools and programs for hoteliers to help enhance placement and boost revenue - especially during low-occupancy periods.
- Focus on direct-bookings will continue, but emphasis will move from cost to ownership and Lifetime Value of guests. This trend will make hotels and OTAs rethink how they engage with each other.
- The biggest hotel brands and companies will use data and intelligence to be vigilant and collaborate more closely with their hotel level revenue and distribution teams to constrain promotions on OTAs, managing distribution more actively to ensure the direct price is always the best available.
The drive to encourage direct booking continues to dominate discussion among bigger players in the hotel industry, and in some respects, it should.
A core issue continues to be profitability across transactions, which has ripple effects on how hotels price their rooms, sell them and ultimately, deliver value for their guests.
Gradual moves
To an extent, the brands’ direct booking campaigns seem to have helped them make progress in reducing some of the cost of customer acquisition and these efforts continue.
But there is a ceiling on the progress: it’s become clear that distribution is not a zero sum game, under which hotels either get lots of booking revenue or none, depending on whether consumers go direct or indirect.
Instead, the picture is considerably more complex.
OTA budgets continue to outstrip hotel marketing spends by orders of magnitude. And global markets are forcing hotels to compete in markets where they have little or no marketing budget.
For one thing, prices are dynamic, not static: on December 31, 2017 at 6pm EST, a branded property in a major U.S. market could be selling at one price on one OTA website, at a different price as part of a wholesale package, and at another price altogether on brand.com.
The revenues a hotel leaves on the table by not understanding the contours and mechanics of a diffused, decentralized distribution environment are significant – and they need to be calculated into a coherent distribution strategy.
Tools are coming into view which make that possible.
Additionally, with more and more data becoming available, hotels consider not only about short-term costs and profits, but also Lifetime Value – including factors such as guests’ average spends while they are on property; repeat sales and the value of loyalty; the costs and benefits of retention strategies; and the gross margin of a guest relationship over time.
The more data a hotel can see, the more effectively it can market to travellers, including its valuable loyalty members, both in the short term and the long term.
But they need to remember this marketing does not happen in a vacuum.
Bigger picture
Dozens of intermediaries are crowding the space to reach the traveler, making it incredibly difficult to see what offers a consumer in any market is seeing at any given time.
OTA budgets continue to outstrip hotel marketing spends by orders of magnitude. And global markets are forcing hotels to compete in markets where they have little or no marketing budget.
Perhaps most important, OTAs are adapting too, continuing to introduce new ways for hotels to position effectively online, boosting revenue - especially during periods when hotels need to sell their rooms most.
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These partnerships can be tremendously valuable for hotels if used strategically.
But they cannot be used, or their implications really understood, without a new level of distribution intelligence to guide decision-making.
Hotels will be able to really compete effectively, when they make intelligence-driven decisions, and monitor manage their distribution actively and continuously.
While it’s clear that it will be another year of rapid change for the industry, the dance between hotels and OTAs continues – and the most important principle continues to be the ability to effectively and dynamically manage hotel distribution across both direct and indirect channels.