Hotel distribution has changed a lot in the last 20 years. However, hotel revenue management practices haven’t. This is because the technology used hasn’t kept pace. Revenue managers want to do things differently, but they are held back by technological constraints.
Leading in technology and therefore leading the market are the two largest online travel agents: Priceline and Expedia. They can afford to A/B test and be more agile than hotels. The technological constraints faced by hotels make competing with OTAs a fairly daunting task. Throw in competitors from the sharing economy, such as Airbnb, and it seems there’s a lot racked up against them.
The figures don’t stack up too kindly for hotels either. According to Kalibri Labs, direct hotel bookings decreased by 40% from 2011-2015, while third-party commissions, such as those paid to OTAs, have doubled.
For hotels, ADR and RevPAR may be up, but the profit margins for owners are worse off now than they were just after the recession, because of the rising cost of distribution.
Something needs to be done.
Back to Revenue Management Basics
“Revenue management sells the right product to the right customer at the right time for the right price.” – Robert Cross, 1997
But today, hotels are only offering the right product at the right time for the right price. They are not finding the right customer.
They are not merchandising, just offering. Their efforts are price-led rather than selling the right value to the right customer.
Revenue managers are fishing in a small pool. The problem is, they don’t have the ability to fish in different pools. They have defined their customer and don’t have the technology or data to identify new customer opportunities.
Hotels need to increase the size of the pool and create more opportunities. They need to take a top of the funnel approach.