Evolution of Distribution

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June 01, 2012
John Burns - John@burns-htc.com.

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Not so long ago reservations from electronic channels – principally the global distribution systems – arrived routinely.  The process was one of rip and re-enter – typing bookings in the hotel’s property management system or in the manual future reservations file.  Weekday and weekend rates changed once a season, hotel availability was open or closed.  Terms like rate parity, channel management, last room availability and best available rate (BAR) were not in our professional vocabulary.  

Fast forward to the present and the world of hotel inventory management and pricing optimization is a much different place.  The most senior staff at the property is now closely involved in distribution and pricing decisions, the brand or hotel website is the preferred reservation creation venue, but it battles for users with online travel agencies.  Competitive rate shopping services and adoption of revenue management techniques (and sometimes revenue management technology) prompt near-continuous examination and frequent adjustment of each day’s room rates.  New sales outlets, many within the social media universe, demand evaluation and the investment of time, money or both.

In the midst of all of these options, activities and unrelenting performance pressure, hotel reservations and revenue staff still need to make decisions, fill rooms and meet their property performance goals. In this operating environment with its pervasive sense of urgency the objective I suggest, is fundamentally to strike a balance between the innumerable opportunities and the need to successfully control the hotel’s core asset – its guestroom inventory.  In essence the balance is between opportunities on the one hand and control on the other.

Opportunity comes in innumerable, ever changing and not necessarily “hotel friendly” forms. Opportunities demand identification, evaluation and selective use. One day's successful opportunities adoption might not be productive the next month, or even the very next day.   

In the real world of hotel operations, the central challenge is to reduce the number of activities, options and priorities to a manageable number.  Doing so allows effective prioritization, planning and execution.  With the Calliope of distribution channels crying for every hotelier’s attention, clustering distribution options can aid in that option rationalization.  Dividing them into three broad categories may be helpful: traditional, new but likely to endure, and probably transitory.

Traditional Channels
An array of long-established channels deliver reservations to hotels day in and day out. Many of these have been present for so long that they become largely invisible as hoteliers grapple with issues related to their websites, online travel agencies and social media.  These channels are naturally but unfortunately undervalued and overlooked in managing hotel and lodging brand distribution programs. 

The most significant of these low profile but still vital channels is typically referred to as the global distribution systems (GDS).  Consisting of Amadeus, Galileo, Sabre and Worldspan and used primarily by corporate travel agencies, these systems continue to deliver some 50 million hotel reservations annually. 

In the traditional channels category the GDSs are joined by wholesalers, legacy tour operators, and SMERF group organizers, plus callers to central reservation centers and to the hotels directly.  In total these sources deliver an appreciable portion of every hotel’s business. Their old shoe familiarity and reliable production has led to less attention being given to these sales channels – in many cases most clearly apparent in their out-of-date and insufficient descriptive information.  This disturbingly common overlooking of obsolete descriptive data has a silver lining.  That is the competitive opportunity gained by the hotels who assign a bit more attention than do their peers to these reservation sources.  The payoff is higher booking production volumes.

Hotelier Challenge
Ensure that GDS and other legacy channels’ descriptions of the hotel, its rooms, facilities and amenities are both up to date and appealingly phrased in order to maximize the potential of these still productive reservation sources.

New, But Likely to Endure
In addition to the traditional sales channels, a number of comparatively recent arrivals – adolescents in the distribution spectrum – vie for hotel attention and resources.  These are important additions to the lodging reservation landscape and merit thoughtful evaluation and attention.  Let’s begin with the most significant one, your own website, be it hotel.com or brand.com.

The hotel’s or brand’s website is critically important to the never-ending objective of filling hotels.  It is the best tool for developing an enduring relationship with the traveler. Recognition can be given through personalization, offers consistent with the frequent traveler’s status can be offered, and convenience tools (such as traveler profiles) can be provided.

Hoteliers should be positioning the hotel or brand website as a core sales asset. Finding examples of terse two line (rather than enticing five-to-seven line) room descriptions, the same photo used for several (or all) room types – or no room photos at all – or out of date information about promotions or activities months (or years) ago is fundamentally inconsistent with the site’s priority assignment.  Hoteliers regularly look at competitors’ websites.  With surprising frequency, that same diligence fails to be applied to their own sites.  While many hotel websites are very decent, a few stellar, there are too many where travelers reserve despite, not because of, the website’s presentation of the hotel.

Hotelier Challenge
Do not simply believe that the descriptive data on the primary website is as up to date, extensive and appealing as possible, but ensure this to be the case.

In a perfect world all Internet environment reservations would be created on the hotel or brand website.  Travelers would receive the recognition that communicates their importance as customers, offers would be suggested, add-ons proposed, customer service delivered and relationships cemented.  This perfect world is not reality and never will be.  Emerging in the same timeframe as hotel and brand websites, online travel agencies (OTA) would prove to be astute competitors to the lodging industry’s direct sales efforts.

Travelers are shoppers, and shoppers prefer different styles of purchasing, such as brand direct, in the supermarket, from discounters or from bundlers. And some travelers prefer different shopping styles for different trips; for instance, direct to brand for business travel and using a discount option for leisure reservations.

To be visible, available and at the end of the day, to fill the house, hotels must offer their accommodations not only through their directly managed websites but through a variety of other, sometimes seemingly competitor, websites as well. Hoteliers must select the most appropriate and productive websites through which to offer the guestrooms and then manage day-to-day participation in an efficient manner. This becomes an on-going exercise in recognizing, categorizing and evaluating the distribution options.

The most disruptive, perplexing and, from time to time crucial addition to the hotel distribution picture in the past 30 years has been the emergence of a new automation-based, Internet-enabled generation of wholesalers, now broadly termed the online travel agencies.  Arguably the hotel industry has been fortunate through the decades to maintain an environment where sales resellers’ services were gained in a retail business model for a 10 percent commission rather than in the much more common wholesale commerce model where required price reductions are substantially greater.  

An evolution of pre-Internet lodging wholesalers such as 1-800 Hotels, the largest online travel agencies gained visibility and first captured appreciable market share in the months and years following the events of 2001 and the 2002 recession.  They reminded a reticent public of the excitement of travel while convincing the lodging community that much-needed guests could be gained in exchange for significantly reduced room rates. A crucial element in the sales message collectively articulated by the OTAs was that they offered the best value (i.e. the lowest rates) for hotel accommodation as well as for other travel services.

The OTAs presented what became a continuing conundrum for hotels – offer those OTAs comparatively heavily discounted room rates and receive reservations, or attempt to go it alone.  This was an introduction to the tough and generally well-executed business style of the OTAs.  As marketing organizations, they realized early on that their livelihood depends on successfully managing two key issues: gaining access to other parties assets (rooms inventory) and negotiating advantageous (to the OTAs) contracts with those inventory suppliers.
Hotelier Challenge
Determine the role that the other Internet channel (the online travel agencies) can play in maximizing the property’s performance and manage use of the OTAs to place them in that specific role.

The online travel agencies have demonstrated their business acumen in understanding when during business cycles they have greatest leverage and using those periods to cement advantageous contract terms. Near-continuous room allocations and guaranteed last room availability are examples of their business focus and negotiating skill.  Particularly interesting is the manner in which the OTA community has reshaped the concept of rate parity to their benefit. 

Rate parity was devised by the hotel industry to prevent undercutting of hotel-determined room rates by online travel agencies.  Over time the OTA community redefined parity – and confirmed it in their agreements with hotels – as an assurance that hotels would not undersell OTAs – a quite remarkable re-adaptation of the concept.  The lodging industry convinced itself that it needs to have identical information – the same availability and rates – wherever the prospective guest looked for lodging.  To display different rates from sales channel to sales channel or to not be present and available in some channels when we were in others, we told ourselves, would undermine our credibility with travelers. 

Specifically, parity began as an exercise of control by the hotel industry.  However, it has evolved into a loss of that control.  Looking more broadly at commerce, are brands undermined by having their products offered at different prices in different outlets?  Is the Coca-Cola® brand weakened when a 12-pack of Coke is a different price in Walmart™ than it is in the neighborhood supermarket or at the corners store?  Or is price variety seen by consumers as a function, and a benefit to them of, a vibrant, competitive marketplace?

Hotelier Challenge
Hone your negotiating skills so that we enter discussions with OTA account management staff on an equal skills footing.  Prove wrong the OTA claim that theirs is the most satisfactory travel service shipping experience.  Additionally, reopen the conversation about the wisdom of rate parity.

If the rise in visibility and reservation process influence, as well as the reservation production, of the online travel agencies has been impressive, the speed and breadth of their evolution has been equally so.  Looking back 10 to 12 years, the norm was a merchant model-style arrangement with 15 percent to 25 percent (or more) discounts off of rack rate.  As a fallback when merchant model inventory was depleted, OTAs additionally accessed retail lodging rates.  Succeeding years have seen addition of an array of variations and permutations.  The opaque sales niche, (“Name your own price”™) was defined by Priceline.com™.  Auctions, last minute sites for distressed inventory, private sale sites, niche sites (luxury, adventure and much more) have been most recently joined by flash sales sites and guaranteed refund sites.  By the time this article goes to press, still others may be battling for hotelier’s attention and inventory.

Hotelier Challenge
Monitor the ever-evolving online travel agency community to select the websites that hold the greatest potential to deliver reservations for need periods at acceptable rates. Implement automated links with those sites in order to maintain their property-related availability, rate and descriptive information.

Probably Transitory Channels
That the simple, vague term social media has evolved to include such a wide variety of website types is remarkable. This evolution has often been a stealth process, with in many cases sites becoming established and influential before we accurately recognized them.  Equally often the evolution has been a study in quick emergence, a race to the peak and then swift, sometimes abrupt decay and disappearance. 

As with broad label of online travel agencies, the expansive social media category must be segmented into small divisions before it can be assessed its production potential on behalf of a hotel or brand for.  Five divisions are evident.  The first consists of the traveler review sites, exemplified by TripAdvisor.com™.  The next contains the community sites, such as Facebook.  Next include locality sites such as FourSquare, Yelp and CitySearch.  Fourth are the chatter sites like Twitter.  And finally there are sale sites like Groupon and LivingSocial.

While there is considerable leeway in the category definitions and assignment of sites to each, a clustering process like this eases the option evaluation process.  Using the familiar return on investment evaluation approach (which may in some cases take a defensive form, such as in responding to negative reviews), every opportunity can be assessed in terms of its direct likelihood to generate bookings, to engender a positive perception, or to stimulate complimentary conversation. 

The hyperactivity in the social media environment, if not the length of its presence on the travel sales front, suggests two lessons.  Remaining mindful of them is useful when completing a website participation value evaluation.  Those lessons?  The first: size – real or apparent – does not equate to longevity.  High profile sites can be unexpectedly short lived.  These sites can appear huge and their use urgent – for a moment.  Then they can fade as quickly as they blossomed.  Remember MySpace?  The second lesson: These sites are generally less impactful and less productive than the pundits predict. 

The past has taught us to avoid extensive commitment and to remain agile.  It has taught us to participate lightly, to expect and require results, and to promptly discontinue use of those that do not produce. 

Hotelier Challenge
Categorize social media websites as they emerge.  Differentiate those likely to benefit the hotel from those less likely or unlikely to do so. Allocate resources to the ones that are impacting you the most (like major review sites) and a select handful of promising new emergents.

Going Mobile
New Access Devices Change the Game
So far this article has focused on the message rather than the medium for that message’s delivery.  Until the arrival and widespread adoption of sophisticated mobile technology, the delivery medium was immaterial.  That has changed. Also changing must be how we offer information about our lodging and the processes to reserve it. The popularity of mobile devices and that these devices require a departure from what have become regular and routine e-commerce processes requires consideration of not simply presentation reformatting but rather of the basic expectations of mobile device users. 

Mobile devices have fundamentally changed the world’s attitudes of information access and product/service accessibility.  Society’s desire to achieve uninterrupted connectedness – continuous access to people, answers and products/services – has been achieved with remarkable swiftness.  This transition has far reaching implications for the travel industry.

The ubiquity of mobile devices, especially smart phones and tablets has changed how people think about purchasing everything, including travel services. With a mobile device in hand, products and services are available for consideration and purchase anytime, and at a moment’s notice. 

This new degree of accessibility brings with it a price, even a threat, to suppliers.  Quite simply, much of society has moved to the mindset that if it is not accessible and easily obtained, it is not in my universe.  We expect it to be clearly and sufficiently presented and procurable on our device.  If it is not, it’s no longer part of your world.

The need – in fact the imperative – for hotel operators is to ensure that their properties are readily accessible, appropriately portrayed, and conveniently bookable on mobile devices.  These goals are not easily achieved.  As everyone reading this article is well aware, the display capabilities of smart phones are a subset of what is possible on a personal computer or laptop.  The display capabilities of tablet devices are confined as well, although less so.  The result is the need to match that confined display opportunity with reduced, distilled data.  The goal is to say all that needs to be said in fewer, but no less informative and persuasive, words and photos.

Initially the solution to effective lodging presentation was judged to be creation and distribution of downloadable applications or apps.  With the proliferation of apps and the growing awareness of app overload, attention has turned to achieving the needed presentation effectiveness through website optimization. This process leverages the ability of technology to determine the category of device requesting data to connect that request to the website designated appropriate for that device.  When the query is from a mobile device, that query is routed to a website containing a terser version of the descriptive data and in some cases, a pre-populated reservation path achieved through integration with the user’s guest profile.

The opportunity to effectively offer a property’s lodging to on-the-go travelers is worthwhile and significant in itself.  Addition of the array of social media applications and sites extends and compounds the opportunity.  Location-aware mobile devices enable a new world of proximity marketing – offering incentives and add-ons to those nearby.  Yes, an argument continues about whether a nearby prospective guest should be offered a lower rate as an incentive, or whether rate parity should apply.  Similarly, the debate over the effectiveness of proximity-based promotions continues. Overriding both of these discussions is the still emerging profile of the mobile device user to be a last minute booker bringing worthwhile incremental business.

Hotelier Challenge
Ensure that the individuals or services who maintain the Web presence for your properties have developed mobile-specific versions of your sites. Verify that the version is being tested and proven suitable for the spectrum of major smartphones and tablets. Ensure monitoring, reporting evaluation and adoption of worthwhile presentation/participation opportunities.

Electronic distribution has become more important to property success, more diverse in its opportunities, more obtuse in many cases in the value of these opportunities, and more time sensitive in its demands for evaluation, decisions and action. We are challenged to promptly complete the evaluations, make decisions and take action. Taking time to categorize the opportunities, define the likelihood of a return on investment, and ensure informative, persuasive presentation of the property – all the while ensuring that same informative, persuasive presentation continues in the legacy sales channels such as the GDS, and in fast-evolving mobile devices, is pivotal to achieving every hotelier’s goal of filling the house.

John Burns is the president of Hospitality Technology Consulting. He can be reached at (480) 661-6797 or at John@burns-htc.com.

©2012 Hospitality Upgrade
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8 Tough – and Important – Distribution Questions
1 Who is doing our day-to-day rate setting for the hotel? Are their actions accurately reflecting senior management’s inventory and rate management intentions?
2 When was the last time I looked at my hotel on our website?  Is the information as solid and appealing as it should and can be?
3 Is there an attractive, room type specific photo on the site for every one of our room and suite types?
4 Are the room descriptions on the website inviting?
5 Are we offering extra revenue generating add-ons in our website booking process?  Are we offering early check in, airport transfers, box breakfasts, box lunches, late check out, etc.?
6 Are we negotiating directly with OTAs? If yes, who is doing our negotiating?  Are we being tough enough?
7 Who decides the OTAs and social media in which hotel participates?  What are the decision criteria?  Do we periodically reevaluate our participation decisions?
8 Are we responding to every TripAdvisor review?  Who is responding and how quickly?  Are we learning from negative reviews and changing?

A Social Media Success
HeritageHotels & Resorts
(Sidebar written by Kylie McKlveen)

In the New Mexico Las Conchas wildfires of 2011, residents north of Santa Fe had less than an hour to evacuate their homes and find shelter for their families, pets and whatever personal items they had time to take with them. Three local Heritage Hotels & Resorts brand properties (Hotel St. Francis, Hotel Chimayo and the Lodge at Santa Fe) rapidly responded to their distressed neighbors through social media. “Using social media, we sent out a message that we were offering a special rate for victims or those that had evacuated their homes,” said Kathleen Cullen, vice president of revenue strategies for Heritage Hotels & Resorts.

Through tweeting and posting on its Facebook property pages Heritage shared that rooms were available at severely discounted rates for those looking for a place to stay, and word traveled fast. “We gave them a very low rate; we went as low as we could go without losing money,” Cullen said. “People were calling. They were booking by their smartphones, or they were just showing up in our lobby,” she said. In less than two hours, all three hotels were completely booked.

Because the area’s fires were becoming too difficult to tame, there was no time frame given to residents trying to return to their homes. Cullen said, “We had a lot of people that were displaced for a week or 10 days.”
As a result, local news sources and media gained knowledge of Heritage properties’ provision to the community, and showed up to interview guests who had been displaced, as well as the general managers and hotel staff. “[Following the coverage] there was a lot of different companies or communities that were able to step in and help out those [who] were in dire need, and unfortunately, those [who] lost homes or could not get back into their homes,” Cullen said.

Heritage, and in particular the Hotel St. Francis, became a place for people to drop off donations such as clothing or canned food. The social media blasts continued to interact with and spread the word to the community.
Cullen cited the hotels’ immediate response to the crisis situation as the beginning of an interactive relationship with the local community around Santa Fe, N.M., and she credited social media for quickly spreading the word during a time of crisis.
For more information on Heritage Hotels and Resorts, please visit http://www.hhandr.com/index.php.

Travel Review Sites: Heritage  (Sidebar written by Kylie McKlveen)
Heritage Hotels & Resorts has learned to adapt to a variety of transitory channels, including travel review websites such as the dominating, loud-mouth traveler’s resource TripAdvisor. With reviews submitted in an honest, opinionated and unedited style, consumers are in control of a brand’s reputation. According to Kathleen Cullen, vice president of revenue strategies for Heritage Hotels & Resorts, how the property chooses to manage and respond to guests’ reviews is what makes the difference.

Cullen said, “Anytime that we have a customer (who) gives us feedback, whether it’s positive or constructive through TripAdvisor or Google, or any channel for that matter, we have a team at each hotel that watches those channels on a regular basis and will respond to the posts that are out there. Even if [the comments] are positive, we can thank them for their stay and for their time and feedback.” Conversely, if the feedback is negative, Heritage can use the opportunity to respond to the guest, inform them the comments are appreciated and taken seriously, and if it is appropriate, once resolved, Heritage may return to the review site and share the outcome. 

Heritage properties have found that responding to guests’ posts on travel review websites has not only bolstered their guest satisfaction and improved customer service, but has actually translated into increased bookings. “We [have found] that as long as we keep up with those user reviews, that booking through those different sources has actually increased,” Cullen said, “In the past, when they were left untouched,  we definitely saw an impact negatively on our booking pace,” she said.

Each Heritage property has taken a proactive approach to the impact of transitory channels by establishing a team to manage the comments and complaints they receive, and has found this to be extremely valuable. Heritage Hotels & Resorts believes that it is very important to make sure that comments are responded to appropriately. Cullen said, “Regardless if it’s positive or negative, you have to have a presence. Let them know that you’re listening.”

Keeping It Fresh at Heritage Hotels (Sidebar written by Kylie McKlveen)
Vice President of Revenue Strategies for Heritage Hotels & Resorts Kathleen Cullen understands the value of assigning attention to productive reservation channels. When she was hired almost two years ago, she became the driving force behind ensuring that the brand’s property information was consistently and continuously refreshed on online travel agencies (OTA) websites. The position had been vacant of a couple of months so when she joined Heritage she immediately focused on updating content and photos on the OTAs.

“In some cases it was just very small tweaks, and in other cases we [completely revised] our information or photos,” Cullen said. By dedicating a team member’s focus to updating their properties’ information and photos on third-party OTAs, Heritage retrieved quick results.

“We went from seeing on Expedia, Travelocity™, Orbitz and the other major players, in some cases ‘this hotel was booked three days ago’ to seeing ‘this hotel was booked two hours ago’. It was an immediate impact. Since then, the volume of reservations that we’ve received from those third-party sites has significantly increased,” Cullen said.
By updating all information across the board, shoppers browsing a variety of online travel agency websites could view the Heritage Hotel & Resort brand from a perspective controlled by the company, but in the format today’s shopping traveler prefers. By keeping content accurate and updated, Heritage guests get what they are looking for when they are looking for it.

“That’s really important. Customers want that content freshness,” Cullen said.

In a world of several social media outlets that can constantly be refreshed with new information, mobile websites and a reinvented travel shopping experience through OTAs, Heritage has found that updated, fresh content can ensure it stays current and appeals to consumers.

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