Distribution has always dominated its relationship with the producer. Macy’s, Marks & Spencer and Amazon are what Tourico, GTA and, lately, Expedia are in the hotel industry. Meanwhile, the product’s owner, in our case the hotel, sees its profits increasingly reduced without knowing what to do about it.
The keys to the distributor’s success are not easy to replicate yet still simple:
- Volume or scaling to dilute fixed costs as well as gaining negotiating power to reduce unit costs.
- Large technological investment.
- Presence in the best showcases (visibility), something unreachable for producers.
- Constant pressure on its producers to increase their distribution margins and guarantee the inventory.
- Maximising income (retail price revenue management, playing with their own profits), for which being able to set the final sales price is key.
- Strong control that the product will not sell on another channel at a lower rate (parity check) and react in the event that it does happen.
Today, most producers depend on distribution to make sales. However, there are cases like Dell or Zara that show us otherwise, although this isn’t exclusive to large companies since there are many small brands who have also achieved it.
Also, there are many hotel chains who have managed to reduce their dependence on intermediaries and hundreds of independent hotels are following suit. They have fought and found a relationship with distribution which is much more balanced and profitable for their interests.
On equal terms, the big fish always wins
Many years ago, the hotel industry accepted the “inventory parity” and “rate parity” strategies in the online world. Back then it seemed reasonable and many people think it still is today. Everyone will face the same conditions and may the best man (or channel) make the most sales. What has happened since? Large OTAs and, in holiday destinations, large bed banks (who mostly sell on the Internet) ate almost the whole pie. What happened to profits? Weren’t hotels going to make more money with the arrival of the Internet? Where does that leave direct sales?
Hotels are still following the same path that small businesses took in their struggle against large-scale distribution and, of course, are obtaining the same results.