Developing a well-balanced channel mix and distribution strategy holds the key to profitability when it comes to maximizing revenues at your hotel. And there’s no “one size fits all” when it comes to channel optimization. It’s a complex science unique to each individual hotel, and dependent on multiple factors, like marketplace position relative to competitors, geographic location, industry reputation, and more.
A healthy business mix through the right channels is the only real way a hotel can drive occupancy and revenue over the long term. And to create an optimal mix, hoteliers must consider the profit potential of each channel, establishing an effective balance between online, offline, direct, and indirect channels, and giving consideration to the costs associated with each.
First Things First: Your Customers
Before you can optimize your channel mix, you must understand the different guest segments who book at your hotel. Analyze guest data such as demographics, location, booking window, average length of stay, and especially reasons for traveling to your property, e.g. leisure or business.
You also need to know which channels your customers are booking through. Understanding the value of each segment via a revenue management system (RMS) will also help you with decisions like whether you should sell rooms to leisure travelers booking at lower rates but with longer lead times, or whether you should reserve some rooms for higher-paying last-minute business travelers.
While there are costs involved with direct bookings (e.g. website maintenance, call center staff, etc), with online travel agency (OTA) commissions ranging from 15 to 30 percent, more hotels are looking to maximize profits by focusing on increasing their direct bookings. These may come through your proprietary website, via phone reservations, and from walk-ins, those who literally walk through your hotel door in search of a room.
Direct bookings provide upsell opportunities, and allow you build relationships with guests that lead to valuable repeat business. Unless you’re an established brand, however, you’re unlikely to hit revenue targets based solely on direct initiatives. An effective channel mix makes strategic use of third-party channels as well.
Last year, Phocuswright reported that approximately 70 percent of consumers book through OTAs. And while there’s still debate over the so-called “Billboard Effect” – the theory that a hotel’s direct bookings increase by being advertised on an OTA site – OTAs are a key part of a healthy channel strategy.
One reason is because they expand your hotel’s reach into markets you can’t access on your own. For instance, a Miami hotel may not have the resources to focus on feeder markets in South America or Europe, so an OTA can help get inventory distributed to that target traveler.
GDS, DMO & Travel Agencies
Global distribution service (GDS) bookings made by travel agencies and destination marketing organizations (DMOs) fall somewhere between online and offline distribution channels. DMO dues and GDS costs are generally lower than those of OTAs, but higher than direct, with GDS commissions at about 10 percent.
These channels provide a steady influx of bookings with minimum effort on the part of the hotel. As with OTAs, hotels benefit from GDSs expansive reach, which give travel agents access to a hotel’s inventory for groups, leisure, and business travelers who would be otherwise inaccessible.
Just as the rule of diversification holds true when it comes to successful investing, diversification is also critical for a successful channel mix. You want a strong direct channel as well as an optimal mix of paid third-party channels based on your specific market and target audience. In addition, market fluctuations and new business opportunities will arise. So, be sure to consistently re-evaluate your channel mix, driving revenue growth by ensuring that your largest share of reservations always comes from your most profitable channels.