Profit Means Nothing to Potential Demand.
By Simon Carkeek
Tuesday, 12th May 2009
Exclusive: Assessing the true value of each distribution channel -

A hotel must be able to distribute its products to the widest possible audience in the most profitable manner.

A lot of people believe this to be different pricing through different channels.

If one is going to break the pricing parity rule, then there is a need for a value variance strategy (or product variance strategy) to be in place to justify the pricing variable.

Some RM professionals also believe that not all channels need to have the same products being sold through them. It is important to understand the true cost of each channel, and then selling products that appeal to the customers that can be reached through each of these channels, in order to drive maximum profitability from each channel.

A particular channel may appear to be more expensive due to the margins, commissions, etc. However, if it requires minimal direct marketing spend and can drive large volumes in times of need, then it would be actually ranked as a highly profitable channel.

Commenting on this, Shawn K. Jereb, corporate director of revenue management, Orient Express Hotels, Trains & Cruises, says, "I think this is an area we as hoteliers make a huge mistake in."

"We tend to put blinders on when it comes to cost and focus in on items such as room cost, commissions etc. and completely leave out costs such as labour management, marketing spend, participation fee's and sales deployment costs," said Jereb, who is scheduled to speak at EyeforTravel's Travel Distribution Summit in London.

"If you look at third party vendors in particular we rarely take into account the massive amount of money they spend to maintain cutting edge web technology, marketing spend, PPC and SEO spend etc. We just look at the higher margin. Versus a Consortia programme where we will pay a participation fee, commissions as well as deploy Sales resources against the account like sales calls, road shows, client events etc. but do not factor that into the overall cost of doing business with that source or channel," explained Jereb.

Jereb also spoke about sacrificing rate parity, profit parity versus price parity and much more. Excerpts from an interview with EyeforTravel.com's Ritesh Gupta.

Hoteliers try to push the consumer to book via the most cost effective, profitable channels. Do you think rate parity should not be sacrificed and different levels of added value for booking through certain channels is a preferable option?

Yes, I completely agree that rate parity should not be sacrificed via different channels. Though costs vary by channel and in an ideal world the majority of your bookings would be generated via the more cost effective channels, many of those channels will have loyal bookers to that specific channel.

As such moving them maybe difficult and if parity is not practiced you run the risk of losing those potential customers that are loyal to a channels brand over your own. In addition, if the channels are third party you run the risk of damaging the relationship or contractual obligations by potentially undercutting those channels and may lose future distribution opportunities as a result.

Last year, a RM head told me: it is time to consider profit parity as opposed to price parity. What do you think are the main challenges in doing so?

Profit means nothing to potential demand. Potential customers are not interested in buying products based on profitability, they purchase based on a need for your product and attached to that product a price that appropriately reflects that product's offering and value. When you look at the basic rules of pricing elasticity, demand conditions and market conditions in order to base your pricing decisions and if these conditions are ignored to use a profit based model to price yourself the challenge is converting that demand at an appropriate level.

Do you think dynamic and flexible pricing is exacerbating the problem and is it worth the time and resources to pursue flexible and dynamic pricing to the umpteenth degree?

No. While maybe the "umpteenth" degree is a bit severe, however the fact of the matter is having the ability to flex your pricing to changing demand and market conditions is a part of the hospitality landscape today.

While your pricing structure should be well thought out and a product of your due diligence into your market to understand what tools you will require to price yourself effectively in the majority of demand and market conditions so you do not go pricing crazy it is still a necessity of what is required to price a daily limited and perishable product.

Consumer centric planning and a thorough information management policy are critical for the success of any business initiative. Do you think the key to driving profitable customer relationship is an integrated RM and marketing approach as this improves the company's analytical capabilities, which in return will optimise business results?

Absolutely. Quite often, we view Sales, Revenue Management, Marketing, E Commerce and Customer Relationship Management as separate entities. However they are more of a chain of entities that require one another in symbiosis to be effect as none are effective on their own. The more you can integrate these disciplines and leverage their strengths together the more you will optimise your results.

Shawn K. Jereb will be joining the 80 other industry speakers scheduled to speak at EyeforTravel's 2009 Travel Distribution Summit, taking place on 19-20 May in London. For full event details, click here: http://events.eyefortravel.com/tds/online-travel-strategies/agenda.asp

Travel Distribution Summit Europe 2009

Shawn K. Jereb, corporate director of revenue management, Orient Express Hotels is scheduled to speak at EyeforTravel's Travel Distribution Summit in London (May 19-20).

For more information,

Or Contact:

Simon Carkeek
Executive Director
+44 (0) 207 375 7181
Global Brand Awareness & Marketing Tools at 4Hoteliers.com ...[Click for More]
 Latest News  (Click title to read article)

 Latest Articles  (Click title to read)

 Most Read Articles  (Click title to read)

~ Important Notice ~
Articles appearing on 4Hoteliers contain copyright material. They are meant for your personal use and may not be reproduced or redistributed. While 4Hoteliers makes every effort to ensure accuracy, we can not be held responsible for the content nor the views expressed, which may not necessarily be those of either the original author or 4Hoteliers or its agents.
© Copyright 4Hoteliers 2001-2024 ~ unless stated otherwise, all rights reserved.
You can read more about 4Hoteliers and our company here
Use of this web site is subject to our
terms & conditions of service and privacy policy