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The Distribution Dilemma: Competing in an Environment “Fraught with Risk”
By Ritesh Gupta
All hotel companies are faced with distribution challenges but for independent hotels it is particularly tricky.
In the complex and fragmented distribution environment, independent hotels are faced with many challenges. Thanks to the Internet, the number of distribution channels has grown exponentially over the past few years. So independent hotels need to be in all the places where consumers are shopping including online travel agents and other third-party channels.
One way of doing this is to work with a company like Great Hotels of the World (GHOTW), which provides global hotel reservation, sales and marketing services for an exclusive portfolio of primarily independent properties. GHOTW believes that all channels are important and as such it focuses on optimising both direct and indirect channels. A system it has developed enables hotels to manage their rates and content across all channels from one place.
"We designed ‘evolution' to optimise distribution for direct and indirect channels because that is what independent hotels need today in order to effectively compete in a digital marketplace," says Peter Gould, chief executive officer of GHOTW who says independent hotels will forego revenue opportunities if they ignore indirect channels.
EyeforTravel's Ritesh Gupta found out more.
EFT: What role does the representation industry play today and how does it need to shape up going forward?
PG: The role of traditional representation is becoming obsolete as customers increasingly book through new and emerging electronic channels especially direct channels. Consequently, the once powerful influence of representatives and soft brand alliances as demand generators has waned.
These changes notwithstanding, representation companies still play a vital role, especially for independents. Distribution has always been at the heart of representation and in our view will continue to be although with changes. As we know, the distribution landscape is ultra-complex, dynamic and fraught with risk, especially for independent hotel operators.
The market is dominated by the mega and meta-search giants such as Google and Kayak as well as OTAs like Expedia. These companies stand as the ‘gatekeepers' to the $250 billion online travel market. Many independent operators lack the resources, knowledge or economies of scale to effectively compete in this digital marketplace.
We see our role, as a next generation representation company, as helping independent hotels succeed and thrive in the digital marketplace. We have the knowledge, expertise and vision to do so. We are also uniquely positioned to leverage the aggregate power of hundreds of independent hotels to open the doors of these ‘gatekeepers' to create marketing opportunities for hotels that would otherwise not be available to them.
EFT: How does a member hotel benefit from the association?
PG: The typical modus operandi of a hotel representative is to channel as many reservations as possible through the distribution channels they control. That is how representation companies typically get paid. However, it is not always in the best interests of the hotel.
We think differently. We believe that a representative should use their best efforts to drive business through all channels, most importantly, directly to hotels' own websites. We have built our new business model around this principle, which focuses on:
1. Increasing top line revenues by extending hotels' marketing and distribution reach across a broader spectrum of the distribution landscape.
2. Improving operating efficiencies by simplifying rate distribution management
3. Optimising one's channel mix to optimise yields
4. Reducing distribution costs
5. Price leadership
EFT: How can one reduce distribution and representation costs in today's environment?
PG: The key to reducing distribution costs and improving profitability depends on how skillfully one can align one's marketing strategy with the right technology, to reach the right customers, in the right place and at the right time.
Technology drives the business today. Great Hotels is the only major representation company that owns its own technology. Our competitors outsource their technology to third parties, which makes them ‘technology middlemen'. There is no middleman with Great Hotels. We leverage ownership of our technology to drive our business strategy and to provide lower cost distribution solutions for our members.
We offer multiple pricing options to suit a particular hotel's individual circumstances and needs. However, the option that is capturing the most interest is our subscription based pricing model where one low annual fee includes all sales and marketing services, plus all distribution is free, regardless of volume. We have found that this option can reduce distribution and representation costs by 40% or more.
EFT: How can you help your member hotels extend their marketing and distribution reach?
PG: Through our proprietary technology solution, our hotels can distribute through an unlimited number of channels and manage all rate distribution from a single screen (GDS, OTA's, booking engine, mobile as well as social).
This means that they do not have to manage separate systems, which is complex and time consuming, especially with the growth of the digital market space. By using our system, they can be on all channels and to the hotel it would be like managing just one of their current systems. This gives the hotel numerous possibilities...
We also assist our member hotels with their digital marketing strategy. One of our companies is a full service digital marketing agency that provides hotels with bespoke solutions across the entire spectrum of the digital marketplace. We provide website design and development, online marketing services such as PPC, banner campaigns, social strategy and execution. In essence, the sum of our services enables members to capture a larger share of business from the digital marketplace.
EFT: How should hotels manage rate fluctuation and value parity across all distribution channels?
PG: There is much debate with regards to whether hotels should practice rate parity across all channels. Although strategically it makes sense to offer the best rates and exclusive offers on the hotel's own website or a selection of preferred channels, the reality is that there is added pressure from OTAs and other channels to force hotels to comply with rate parity. Furthermore, the price for not doing so can be very high.
Nevertheless, hoteliers continue to find loopholes that allow them to offer a different range of prices and packages according to the demand and market segments in which they wish to attract. Unfortunately, the ‘big players' are quick to react and penalise hotels for such actions, so many hoteliers are not willing to risk damaging existing relationships and partnerships.
Rate fluctuation makes sense. It proves to maximise revenues when applied under a coherent strategy. In an ideal world, hoteliers should have the freedom and flexibility to offer different pricing across channels, especially when some channels are so much more expensive than others. But our reliance on third parties to maximise exposure and fill base occupancies and lower demand periods is not going to go away anytime soon and neither is the pressure to practice rate parity. So for now, we just need to ensure that we manage distribution across all channels in the simplest, most effective way possible.
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