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Acquisition Cost vs Opportunity: What Hoteliers Need to Know About Distribution Channels Today
By Tracy Dong - Exclusive for 4Hoteliers.com
Tuesday, 27th March 2018
 

By Tracy Dong, Lead Advisor, APAC, IDeaS Revenue Solutions - Exclusive for 4Hoteliers.comExclusive Feature: When it comes to achieving higher degrees of hotel profitability, nothing provides more opportunity for financial growth than an intelligent revenue strategy.

Strategic revenue management is recognised as an important component to increasing asset value, attracting investors and improving overall operational efficiency.

The flow-through additional revenue that comes from strategic revenue management can directly impact a hotel’s bottom-line results, making it a valuable tool in increasing a hotel’s valuation. Increased revenue also leads to higher cash flow, which has a number of benefits from giving the hotel greater day-to-day liquidity to having money in the bank and generating interest.

For hotel owners looking to reach the highest profitability today, consideration must be given to the impact hotel distribution channel acquisition costs are having on a property and how to better drive profitability.

The importance of distribution in the hotel sector

The role of distribution in the hotel industry is one historically intertwined with the strategic function of revenue management. While a distribution strategy is nothing new for hoteliers across the region, there has been a significant evolution in the role it plays in driving hotel profitability – largely due to emerging industry data sources, channels and various types of technology.

Such is the complexity of prices, restrictions, add-ons, channel usage, technology and distribution costs that many hotel organisations have considered this function large enough to split off on its own, increasing job roles that develop, execute and measure their comprehensive and intelligent distribution strategies.

The complexity of hotel distribution channels and the impact an effective distribution program can have on a property's ability to grow revenue make it critical for executives to understand how the quality of this role increases their overall hotel profitability.

Hoteliers that don’t have the right staff, systems or strategies in place will struggle to realise their full revenue potential. Not properly managing or accounting for distribution costs directly affects the net revenue results hotel executives can expect from their property’s distribution channel strategy.

Look beyond OTAs for better revenue

Today’s costs for acquiring guests are significant. OTAs charge between 15 and 25 percent commission for every booking they secure, with hotels also paying hefty transaction fees to their selling systems if the reservation is received through them. These third-party costs influence the amount of revenue hotels can secure from each guest – ultimately impacting a property’s bottom line.

For many hoteliers, OTAs are an accepted part of the distribution toolkit due to their marketing power and high customer traffic. However, they should not make up the majority of sales or distribution. Prior to any hotelier engaging with an OTA, they need to fully understand the value and costs associated with working with the third party distribution platform.

Any relationship which is weighted in favour of an OTA to the detriment of a hotel’s ability to obtain satisfactory revenue outcomes should be reviewed. For example, in the past, many OTAs required a last room available guarantee for their channels, which resulted in hotels losing ultimate control on yielding of inventory.

Hoteliers currently using OTAs to secure bookings should also consider ways to use those platforms to better support their future business. To increase both business and return business, intelligent hoteliers are letting their OTAs handle the initial capturing of guests and then implementing strategies and incentives that ensure those guests book future reservations directly with their hotel – eliminating ongoing third-party booking expenses.

The most cost-effective online booking channel for a hotel remains its own website. How can hoteliers maximise direct bookings through their website? The first step is increasing web traffic from potential guests and attracting more ‘lookers.’ To do this, hotels need to understand more about those lookers. What dates are they searching for, where do they search and what is driving them to a particular market? Collecting this market intelligence provides data that can be used to develop targeted marketing campaigns that attract the right type of lookers, the ones most likely to become bookers.

Hoteliers can also increase direct bookings by retargeting past visitors and directing them to their website. When researching a location, potential guests may visit a variety of travel websites and OTAs before deciding where to stay. Hotels need to keep their property on the top of the consumer’s mind and influence guests to book on the hotel’s website. Technology that offers tailored adverts customised around visitor behaviour or website activity can help hotels achieve an estimated 10 percent return rate on website visits – increasing direct booking opportunities.

The direct path to asset profitability

Hotel owners are all too aware that in today’s competitive environment, every dollar counts when it comes to increasing the value of a hotel asset. Any competitive edge that translates into a stronger bottom line should be sought out, and every piece of hotel business is evaluated to determine its true worth.

With rising costs associated with acquiring new guests through third-party platforms, hotels need to consider their most effective booking channels and maximise direct business.

Written by: Tracy Dong, Lead Advisor, APAC, IDeaS Revenue Solutions

This is strictly an exclusive feature, reprints of this article in any shape or form without prior written approval from 4Hoteliers.com is not permitted.

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