Do you remember what was Revenue Management before? When all it seemed to be good for was making decisions regarding the room types and the length of stay of our guests? In the late ‘80 this was what our GM’s and Owners would see our role as.
NB: This is an article from Aizhana Zhantuarov, Sales & Revenue Consultant at Hotelperformance
Fast forward to the second decade of the 2000. The Revenue Management rises above all the operations inside our organization. It directs and influences, if not all, nearly every aspect of lodging operation aimed at optimizing profits and enhance a value of physical assets.
This growth inside the organization was dictated by the fast-evolving distribution landscape. Almost every day we see a birth of new distribution channels, business models. To use them, we are required a deep know-how for evaluation of their profitability and contribution to the revenue and visibility of the hotel.
So, do you understand your distribution mix and its impact on overall profitability?
Do you know how to lead your profit to the top? Are you choosing the right strategy to put your room into the right channel?
Start by creating your spreadsheet where you enter all your distribution channels and attribute cost for every channel you use in the distribution. Can you notice a surprising pattern? Majority of the time even your direct reservation has an additional cost that could be ever higher that your intermediate costs.
Doesn’t matter if you are a big brand, a small chain or an individual property. The distribution lists will have one thing in common: it will be divided between direct and intermediated booking.
The first one could have you own booking engine, the mobile version of booking engine, brand booking engine, brand mobile, voice, CRO. Similarly, in the intermediated list could be present GDS Channels, IDS channels, OTA / FIT Channels, Metasearch Engines etc.
Every channel has an associated different product (the combination of room type and rate code) and your CRS will send them accordingly to your prosed ARI.
There is a big chunk of cost and information that majority of the hotels doesn’t track at all.
Now we will need to make assumptions about your average conversation ratio.
- Having dedicated call centers, that count average call time per reservation would be helpful.
- OTA per commission or margin
- The way of delivery (direct connect, channel manager) could be an additional charge and it is important to understand
- Metasearch sites very often go on commission-based model
- And, finally, your Hotel Direct costs are also involved in your distribution costs, so you need to consider them as well. By that, I mean costs of the reservation staff, reservation manager, reservation supervisor and so on (with their payroll and benefits) plus some additional costs that the front desk office could attribute to the distribution when they pick a call for the reservation after call center work hours and handle some little percentage of the reservations.
From the other hand, production statistics for every channel compared to the cost of distribution could easily give you the evidence of a revenue contribution for every channel and net rate (after cost breakdown) of channel as well.
Are your direct hotels reservations being still the channel that contribute most and cost you less?
If we don’t demonize the OTA channels, we can consider them as a tool and use them to market the hotel and gain the positioning among the competitive set. The cost we suffer through them should be implemented also to strategically drive the business. It is important to have a strategy in place on how you convert their customers to ours and allow them to book through you less expensive channel, i.e. hotel direct or brand site.
Make some assumptions after all these analyses how to move your high cost channels reservation through your lower cost channels and how it will impact to your room revenue, average room rate, total costs of distribution and net profit, after all.
How you can plan your strategy actions in order to support the shift in mix for achieve your above-mentioned goals?
Let’s understand customer journey when evaluate your distribution mix and consider a consumer purchase funnel with marketing department and stay informed about their marketing activity interactions, analyze incremental performance and evaluate results by calculating ROI by source, conversion rate and financial contribution.
Constantly changing roles of intermediaries, shift in travel experience demand, less-stress, seamless travel and informed recommendations… sounds familiar?
Metasearch and OTA’s integration with Trip Advisor’s instant booking, Google Hotels Ads Commission Program, Trivago’s Direct Connect.
Maybe it is a time for Hotels go beyond simple distribution and start to try every opportunity to “touch the customer” including metasearch as an opportunity to engage that customer and convert them on your own hotel/brand/loyalty site?
Actively manage content, image and relationship in line with your strategic market position so price consistently and transparent to customer.
Integrate your channel strategy with this missing part of the distribution puzzle and stop to waste the precious advertising money and miss much-needed incremental revenues.
Metasearch could be a way to optimize net revenue contribution by channel and help you to support and protect the brand, enhance your customer’s price response and promotional effectiveness by channel.
It is also a way to create a very effective team putting together a data-driven and very analytical revenue manager with intuitive and creative marketing people, marketing program efficiency and price&distribution integrity. Let’s put the “data islands”: PMS, CRM, CRS, Social Media, Web Analytics, Marketing Data, BI etc to a single view customer data with live data feeds from all touchpoints with the traveler.