Today’s hoteliers grasp the importance of segmentation – understanding which guest segments comprise their total customer base in terms of metrics like demographics, average booking window, market segment, purpose, and length of stay. However, in order to budget for profitability effectively, you must also determine which distribution channels those guests book and use that information to establish your optimal distribution channel mix.
Are You Using the Right Distribution Channels?
Industry news is filled with articles promoting the need to push for more direct bookings. Hardly a surprise with online travel agencies (OTAs) like Priceline and Expedia claiming increasingly larger chunks of market share, and commissions hitting up to 30 percent. A Skift article reported that hotel companies with less than 50 properties may be paying even higher levels of commission.
But unless you’re a major brand, this doesn’t mean you should focus all your energies solely on growing your direct channels. For the majority of hotels, the most effective channel mix includes a strategic blend of online, offline, direct, and indirect channels. But how do you know which channels are best for maximizing your hotel revenues? The answer to this all-important question can be found in tracking and analyzing the right information.
Are You Tracking Meaningful Information? Two Truths and a Lie
Hotels now have a treasure trove of data at their fingertips. But to hit your 2019 profit goals, it’s essential you concentrate your analysis on the right information. In this regard, let’s examine “Two Truths and a Lie.”
Truth: It’s Important to Track Your Channel Spend
Accurate analysis of your channels means you must account for acquisition costs and expenses associated with each one. This should be tracked across all of your distribution channels. These costs should include OTA commissions (both merchant and hotel collect), travel agent commissions, GDS pass through fees, CRS costs, PPC marketing, to name a few. In addition, consider opportunity costs. Certain bookings may be more profitable coming through different channels. For example, by analyzing the marketing spend necessary to reach your top international feeder markets, you may learn it’s actually more cost effective to let the broad reach of an intermediary channel do the work for you.
Truth: Ancillaries Impact Channel Margins
Channel costs should never be looked at in isolation. You must also determine which channels bring in your highest-value guests. An advanced revenue management system (RMS) not only facilitates tracking average daily rate (ADR) and revenue per available room (RevPAR), but also analyzes which channel’s guests are spending more in non-room revenue centers, such as in your restaurant, bar, or spa. By evaluating the profit margins of each channel, you can rebalance your mix in favor of the channels that will drive the highest revenue growth in the coming year.
Lie: One Size Fits All
You need to understand when it comes to your channel mix strategy, one size does not fit all. Savvy hoteliers don’t jump at using the “latest and greatest” channel, simply because it’s a hot new trend. Nor do they use channels because their competitors do. Set your goals and follow your own data, understanding that even across sister properties you may end up with a different optimal channel mix at each.
Track Future Production
Once you have a feel for what each channel costs and which are most profitable, can you track your production? Without the ability to understand what you have on the books into the future, even relative to pace, you can’t truly understand how this will impact profitability. Plus being able to see what’s on the books will allow you to effect change while there is still time to do so.
The distribution landscape is in a constant state of flux. Even within your market, your channel mix will be impacted by changes in supply and demand, as well as by local events or the economy. You must continuously track, analyze, and rebalance your mix of direct and third-party bookings to achieve optimal results. A strong business intelligence and forecasting solution lets you quickly transform channel performance data from disparate systems into a proactive strategy that ensures you’re filling your rooms through the very best channels to maximize your profits in 2019.