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At the Crossroads of Marketing and Technology: Why is Distribution Important?

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June 01, 2008
Distribution | Special Report
Cindy Estis Green - cme25@cornell.edu

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© 2008 Hospitality Upgrade. No reproduction without written permission.

One has to start with the simple financial reality that distribution costs can be as much as 35 percent of hotel room revenue. This compelling fact should prompt any owner or manager to undertake an immediate investigation of his hotel’s approach to distribution.

Besides financial impact, distribution also dramatically affects the marketing function as well as the technology required to execute its related strategies. The distribution discipline emerged in the 1990s as the technical task of keeping the shelves stocked with appropriate inventory. Distribution platforms have evolved to serve as much (and sometimes more) as media platforms than booking engines. Beginning around 2006 they have been undergoing a further transformation to platforms for customer engagement that also serve media and booking functions. Sometimes they are direct booking tools, other times they facilitate or influence the booking, but there are many hybrid players in the distribution space that need to be factored into the distribution plan.

How does this affect marketing strategy? A responsible hospitality marketer will build a branding and communications strategy around a core of electronic distribution rather than view it as an external add-on to the traditional marketing mix of product, pricing, promotion and packaging. This is a significant departure from the approach taken by many hospitality chief marketing officers. Traditionally, distribution (because so much is now electronic) is handed over to technical experts to make sure all the connections work, while the brand marketing team carries on the core marketing work (largely communications related) in parallel. In the new environment and in more progressive organizations, these functions will be tightly bound with all other tasks that stimulate and manage revenue into one strategy. There may not be two media teams or two plans. There most likely will be one. Some forward-thinking organizations are even migrating a chief marketing officer role to one called chief revenue officer.

The proliferation of hybrid distribution channels and hybrid marketing opportunities along with consumer shopping and buying behavior are driving this change. What would you call a Web site that your consumers visit for information, refers consumers to your products and provides you a media platform to promote your brand? This is a classic example of a hybrid distribution channel—it may or may not allow for actual booking, but it is central to the booking process. Who is in charge of this distribution channel—those in charge of media (marketing) or those in charge of facilitating bookings (distribution/operations)?

This may be Kayak.com or TripAdvisor, it could be a local newspaper’s Web site, a city/state destination Web site, TravelZoo or a trip planning site. Given how many of these channels exist and the number launching daily, the role of distribution itself becomes a melding of many disciplines that did not exist in the role as recently as 2005. Besides the basic job of managing the mechanics of rate/inventory/hotel information management, the new requirements of distribution include many functions that are historically considered marketing and IT functions.

Most hospitality entities do not have an organization structured to handle this new mix of tasks. Fewer have a senior C-level executive who can manage—or has the authority to manage—the disparate resource decisions to effectively operate in the new environment. Resources as far ranging as IT infrastructure, media deployment related to brand management, revenue optimization, customer engagement and sales relationships do not typically reside under the same tent. What used to be called distribution really was an industry shorthand for booking distribution, whereas now it means booking and media distribution.

To further complicate matters, each unit-level hotel will have its own full range of online distribution channels (booking and media) to manage that are too small and too fragmented for a corporate or regional office to manage directly. The corporate offices and third-party marketing organizations (that support independent properties with reservation and sales services), will have to provide a new toolkit and an educational platform so local management can effectively handle local relationships. This isn’t just signing up for yellow page listings or selling local corporate accounts anymore.

Most types of feeder business will have an electronic component that needs to be connected technically for appropriate availability and/or hotel content. These feeders may be local attractions, directories, newspapers, online travel agency magazines, group planning sites or social networks that attract the type of business that suits a hotel. And each will need to receive fresh updates of syndicated content so they are current with the most compelling impression of a hotel to attract the audience in that channel, which means there needs to be a way to keep track of all this content, removing the old and delivering the new. If bookings are involved, they have to get plugged into the booking infrastructure, and if it’s a media channel, are there economies of scale that can be gained in negotiating a CPM (cost per thousand impressions) rate? And what about making the decisions as to which feeder channels are worth connecting to or worth providing syndicated content to update regularly?  The demands push well beyond those of the 1990s or early 2000 era.

Not only does distribution respond to consumer behavior, but it can influence it; this is a concept that most in the hospitality industry do not readily consider. The way a brand manages its distribution can alter or modify the way consumers go about their information gathering and booking, and it will shape, define and refine the brand image in the minds of all who are plugged in (which by most accounts is close to 75 percent of the adult U.S. population). This is consistent with TIA studies that show almost nine out of every 10 travelers (88 percent) use the Internet for at least part of their travel research. According to Forrester’s 2007 North American Technographics Benchmark Survey, in 2007 the broadband penetration at 52 percent in the United States is expected to serve over two-thirds of the adult population (68 percent) by 2012 and is growing at a similar pace around the world. This has been the enabling force feeding the insatiable, and newly discovered, consumer hunger for rich content.

The distribution players that build out their sites with vibrant content and a high level of interaction will be in a strong position to ride this wave, but they will need a clear strategy to take advantage of the opportunities, an organization to make it happen, and the technology infrastructure to sustain their presence in a dynamic and complex environment.

Cindy Estis Green is the managing partner of The Estis Group. She can be reached at cme25@cornell.edu. This excerpt is from her new book, “Demystifying Distribution 2.0,” just released by the HSMAI Foundation. It can be ordered at www.hsmaipublications.com.

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