Hotel Budget Season: Design Your Most Profitable Channel Mix Strategy in 2019

Travel customers have an unprecedented number of options to shop and book hotels, with new competitors constantly jumping into the distribution channel pool constantly. Determining what inventory to sell through which channels has become a critical component in operating a profitable hotel. The industry is seeing online travel agencies (OTAs) with market values higher than many hotel brands and commissions rising at twice the rate of revenue growth.1 Despite these intimidating numbers, intermediary distribution channels should not be looked upon with enmity, but rather as key players in your unique channel mix strategy – designed to bring you greater success and profitability in 2019.

KNOW YOUR GUESTS & WHERE THEY SHOP

Before you can determine the optimal channel mix strategy for your hotel, you must identify your ideal business mix. Perform a thorough analysis of your current customer segments, including demographics, source markets, the purpose for visiting, length of stay, and of course, which channels they’re using to shop for hotels. In particular, you want to understand the total guest value of each customer segment, moving beyond revenue per available room (RevPAR) or even net revenue per available room (NetRevPAR) – which accounts for acquisition costs. In addition, consider guest spend on ancillaries such as food & beverage, recreation, spa services, and merchandise. With this information at your fingertips, you can plan which higher-value customer segments you want to target in 2019, and through which channels you can best reach them.

DO YOUR DATA & INSIGHTS MEASURE UP?

With the current influx of big data, hotels are hit with a literal firehose of information to sort through. To create an intelligent channel mix strategy for 2019, you need more than just data – you need insights. The right technology and tools help you perform an accurate assessment of your performance in light of the overall business available in your market, allowing you to zero in on the actions necessary for achieving your channel optimization goal.

Channel Profitability

Acquisition costs have risen to up to 25 percent of guest paid revenue,2 and include commissions, transaction fees, and loyalty program costs, as well as property-level or franchisor sales and marketing costs. It’s important not only to evaluate each channel’s top-line revenue but also track the costs necessary to secure the revenue. Additionally, evaluate your proprietary website (brand.com) just as you would a third-party partner. Finally, you need to clearly understand which channels your highest-value guests are booking through in order to adequately value the ROI of each channel.

Attribution & Campaign Tagging

It’s important to track visitor statistics, hotel website navigation paths, and sales transactions from your booking engine. However, a guest’s purchase channel doesn’t always correlate with their shopping channel.3 In China, for example, despite high shopping activity on brand.com websites, more hotel bookings occur through OTAs. More than 40 percent of travelers say they bounce back and forth4 between exploring the details for one destination and then zooming out to reconsider all their options again. To address the challenge of accurately attributing credit to the myriad actions that result in conversion, a newer tracking tool known as “campaign tagging” identifies website traffic by source as well as by the promotional campaign and distribution channel that triggered their visit.

Ancillary Spend

Each channel’s ancillary revenue contribution must also be factored into the equation.5 On the surface, it may appear as if a specific hotel is gaining more business through a certain OTA versus direct. However, a deeper analysis may reveal that the brand.com customer is spending more than double in ancillary revenue and room rates than the OTA channel customer, while also maintaining longer lengths of stay and higher retention rates.

Marketing Results

Evaluate your marketing spend by channel6 to see if you’re getting enough return on your investment. Some channels may bring in better results during specific weekdays or seasons. Analyze different combinations in order to allocate your marketing resources to the right channels at the right time.

In-depth analysis of these factors, in light of your target business mix and KPIs will reveal your most profitable distribution channels in the truest sense. However, this is not a “one and done” scenario. Hotels must consistently monitor and reevaluate their channel strategy, determining ways to efficiently gain the optimal mix of traffic, and convert the traffic into the highest profitable transactions.

OPTIMIZE YOUR CHANNEL MIX FOR REVENUES AND ROI

In the past, when it came to managing channel mix, hotels rarely looked beyond revenues and occasionally costs. By only considering these metrics, you may believe it’s in your best interests to fill your rooms purely through direct channels. However, the goal is not to eliminate intermediary channels, it’s about creating your most profitable mix. And most hotels need a blend of demand from multiple channels.7

With so many channel options available, sometimes you can’t see the forest for the trees. Just because a particular channel is popular,8 or is working well for a market leader, doesn’t mean it’s ideal for you. It’s about strategy. Use your own data and be realistic in terms of your specific market demand drivers, location, and costs.

Set clear goals by channel, by day of week, and by season. Build your strategy, which may involve reducing or eliminating participation in some channels, while stimulating greater flow into others. The channel mix that brings you the greatest profitability is going to be unique to your hotel, involving an effective balance between direct, indirect, online, and offline channels.

Direct Online

Your proprietary website and Internet booking engine, outshines the results of OTA bookings9 in terms of guest loyalty, rates, frequency, and length of stay. Optimize it: With 40 percent of U.S. travel site visits coming from mobile,10 make certain your website is mobile-friendly. Take advantage of upsell and cross-sell opportunities, and build relationships to gain lucrative repeat business. Use market intelligence to create targeted promotional campaigns that are likely to convert.

Direct Offline

Voice is a particularly effective offline channel, with average rates and length of stay trending higher than many other channels,11 and even scoring points with Millennials.12 Optimize it: Like its online sister, offline direct channels also provide opportunities to upsell and offer revenue-maximizing add-ons. Make things easy for guests by incorporating seamless click-to-call capability.

OTAs & Metasearch

In 2017, Phocuswright reported that And while the Billboard Effect may be dead,14 clearly, OTAs and metasearch sites remain an important part of your distribution channel toolkit. Their advertising budget affords them a much larger reach into emerging markets individual hotels can never hope to duplicate. This creates exposure to your brand you wouldn’t be able to achieve on your own. Optimize it: Develop a strategy to capture email addresses for OTA guests at check-in. Acquiring the email addresses of those who booked through an OTA will give you the ability to market to those guests in the future. Hopefully, you will be able to convert those customers from an OTA loyal customer to a “your brand” loyal customer

GDS

The Global Distribution System exposes your hotel to millions of travel agents around the world. Optimize it: Work with your GDS connectivity provider to make sure your listing is optimized. Consider GDS advertising or even possibly placement programs.

Wholesalers (Offline & Online)

While this business tends to be more influential in gateway cities and destination markets, it can bring valuable guests to hotels. These guests will likely be from markets many hotels do not have the ability to reach on their own. Additionally, this segment tends to have a longer length of stay which benefits the hotel’s bottom line. Optimize it: Make sure your profiles are consistent and accurate, filled with engaging descriptions and images designed to attract your target audience.

Competition is fierce in this hybrid-channel marketplace. And as the distribution landscape evolves in complexity, hotels must take a comprehensive approach to developing their channel optimization strategy. One that’s rooted in a solid foundation of analytics combined with accurate tracking of the right performance metrics. Your channel mix is crucial to your property’s ability to grow and achieve financial success. Once you’ve developed your strategy, you must continuously monitor and refine it – always keeping the goal of maximizing your profit potential top of mind. Hotels that create an optimal channel mix strategy, and pair it with the power of top-line technology, will find themselves well along the path to long-term profitability.

Kristi White will be hosting a webinar on the topic of “Are You Ready for 2019?” on 10/30 at 2 PM EST. Click here to register.

 

SOURCES:

1Green, Cindy E. “New Techniques, Legacy Models and New Entrants Spell Disruption for Distribution.” Mag.hospitalityupgrade.com, Hospitality Upgrade, 2016, mag.hospitalityupgrade.com/publication/frame.php?i=348147&p=116&pn=&ver=html5.

2Ibid. [1]

3“Channel Optimization in Hospitality: Secrets of Data-Driven Hoteliers.” Phocuswright, 20 Mar. 2017, www.phocuswright.com/Free-Travel-Research/Channel-Optimization-in-Hospitality-Secrets-of-Data-Driven-Hoteliers.

4“How Micro-Moments Are Reshaping the Travel Customer Journey.” Think With Google, Google, July 2016, www.thinkwithgoogle.com/marketing-resources/micro-moments/micro-moments-travel-customer-journey/.

5Green, Cindy E., and Mark V. Lomanno. “Distribution Channel Analysis: a Guide for Hotels.” Hospitality Net, American Hotel & Lodging Association, and STR Special Report, 2012, www.ahlei.org/Products_by_Language/English/Distribution_Channel_Analysis_A_Guide_for_Hotels/.

6Green, Cindy E. “The Quest for an Optimal Channel Mix.” HospitalityUpgrade, 1 June 2012, www.hospitalityupgrade.com/_magazine/magazine_Detail.asp?ID=728.

7Ibid. [5]

8Con, Jordan. “Optimizing Marketing Channel Mix For Revenue And ROI.” Bizible, 7 June 2016, www.bizible.com/blog/optimizing-channel-mix-for-revenue-roi.

9Hoisington, Alicia. “OTAs vs. Direct: Creating a Healthy Mix.” Today's Hotelier Magazine, 1 Jan. 2017, www.todayshotelier.com/2017/01/01/otas-vs-direct-creating-a-healthy-mix/.

10Ibid. [4]

11Ibid. [6]

12Kennedy, Doug. “Why Guests Still Call Your Voice Reservations Channel And What You Should Do About It - By Doug Kennedy.” Hotel Industry News by Hotel News Resource, 22 Feb. 2016, www.hotelnewsresource.com/article88025.html.

13Quinby, Douglas. “Hotels vs. the (OTA) World.” Phocuswright, 14 May 2017, www.phocuswright.com/Travel-Research/Research-Updates/2017/Hotels-vs-the-OTA-World.

14Ibid. [1]

15TravelClick Research and Data

 

About Rainmaker

Rainmaker is the hotel revenue and profit optimization cloud. The company partners with hotels, resorts and casinos to help them outperform their revenue and profit objectives. Rainmaker's cloud-based solutions for transient and group pricing optimization, forecasting, and revenue-centric business intelligence are designed to help hoteliers streamline operations, enhance revenue optimization processes, improve lead performance, and drive guest bookings. Recognized as one of the top privately-held companies in the United States, Rainmaker has been named to Inc. 5000's 'Fastest Growing Privately Held Companies' for the last seven years and to the Atlanta Business Chronicle’s list of '100 Fastest Growing Companies in Atlanta'. Rainmaker serves hospitality customers throughout the world from its corporate headquarters in Alpharetta, Ga., and from offices in Las Vegas, Singapore and Dubai. To learn more about Rainmaker and its suite of hotel revenue and profit optimization solutions, visit www.LetItRain.com