In some ways, the evolving hotel distribution landscape is challenging hoteliers. But the basic principal remains the same: winning guest loyalty.
REPORT FROM THE U.S.—Different channels and booking platforms, such as TripAdvisor, Google and Expedia, are becoming more powerful in the shifting hotel distribution landscape.
But Chris Manley, COO of Denver-based Stonebridge Companies, said the biggest challenge with distribution isn’t “necessarily the new entrants;” it’s consumer behavior.
As more consumers become comfortable with a mobile-first strategy, either via booking apps or websites, “it’s given momentum to new players to enter the market,” he said, adding that a number of large players also are aggregating and consolidating.
“It may appear there are multiple different avenues or more avenues than there were two years ago, but at the heart of it, the largest players are just getting bigger and bigger,” he said.
New disruptors in the market have a unique advantage because they don’t have physical inventory like hotel companies do, he said, so their ability to “adapt and transform the user experience for a higher conversion is pretty darn impressive.”
How hoteliers are adapting
Manley said this change has forced him and his team at Stonebridge to become better hoteliers.
But one of the key things to remember is that many of the new, bigger players are here to stay, said Drew Salapka, SVP of revenue generation at Atlanta-based Hotel Equities.
Instead of labeling anything outside of a direct channel as the enemy, hoteliers should look to foster and maximize relationships, he said.
Salapka said in some ways distribution is getting more complex, and in other ways it’s being simplified because of channel consolidation.
“It’s actually made it a little bit easier for our properties to balance, (but) you’re always going to have this constant ongoing negotiation between the brands and the (online travel agencies),” he said. “Each side is getting a little bit bolder in their acts and trying to figure out a way to work well together.”
Manley said the “best distribution strategy is a diverse one.”
“You want to be available on more shelves for more customers when they’re shopping,” he said.
But that comes with challenges.
Jay Hubbs, SVP of e-commerce at Dallas-based Remington Hotels, said it’s hard to quantify if channels such as Google are helping the industry or hurting it.
He said he’s noticed organic traffic has gone down, but conversions have gone up with his hotels “because what we’re getting is arguably more qualified traffic, and we’re not getting people coming to the (brand) website (just) to look for the phone number or to look for the address.”
He said Google is doing a good job of putting basic hotel information (phone number and address) upfront, which makes it easier for guests looking to book. But a downside, he said, is that Google controls all of that content, including which photos of the hotels are shown.
“We can put images up, and they can pull it, but they might source an image for a hotel that’s 8 years old,” he said. “So then we have to fight with Google.”
Hubbs said he’s also had issues with Google incorrectly listing amenity information. One of his hotels is valet parking only, but Google was displaying a “free parking” icon. “In the span of a weekend, I had a rash of unhappy guests,” he said.
Though the platform can be frustrating, Hubbs said he recognizes Google is an “integral part of the landscape and it’s here to stay.”
He said the issues require his team at Remington to have their eyes on Google listings more regularly, just like how they look at listings from OTAs.
“It’s arguably becoming almost as important as my own brand website,” he said.
Leverage opportunities for mobile-first consumers
Mobile has become an integral part of how consumers shop, book and buy, Salapka said, “and that’s something that we have to stay on stop of.”
Hoteliers need to leverage social media to survive, Manley said. “If we’re not actively promoting ourselves, and more importantly encouraging our guests to promote our experience, we’re going to lose,” he said.
The digital experience needs to match the time and effort hoteliers put into creating an experience on-property to capture a guest’s loyalty, he said.
Cory Chambers, VP and chief revenue officer at Hospitality Ventures Management Group, said his company is keeping an intense focus on “social listening.”
“What are our customers saying about us in the social space … our reviews, ratings and rankings? What are the mentions on all of the social outlets?” he said, adding that it’s important to keep giving guests reasons to say positive things.
“One of the things that we know in our business is a positive and meaningful guest experience drives results,” he said.
Julie Walsh, area director of revenue at Benchmark Hospitality, agreed that a large part of adapting is enhancing the marketing strategy. She said one of the ways Benchmark does that is through private offers for their members, including perks such as 25% off valet parking during the winter.
“We’re trying to make sure we capture as much (of) the share as we can from the other channels,” she said.
Manley cautioned against the strategy of using dialogue such as “cheap deals” and “last-minute deals” when advertising online. He said if your team is reliant on that strategy, “something has broken down in your distribution strategy.”
The only time that sort of marketing tactic should be used is if either the distribution strategy is broken or if the market conditions have changed, he said.
“The challenge with cheap deals or last-minute deals is two-fold: You now are becoming a commodity, and the risk of our business at the end of the day. If we become a commodity, we’re dead,” he said.
Manley said the other downside to that strategy is the consumers it attracts are not loyal. That consumer is not going to come back every time, and is not going to pay a reasonable average daily rate “because they’re looking for value, and that’s the only thing they’re making a decision on,” he said. “We can’t build a profitable business long term based solely on that demand driver.”
Chambers added that the last thing a hotelier should want to do is “condition a customer to think that the best deals are to be had last-minute.”
“Ideally, the longer the booking window that we can encourage, the better our ability is to maximize revenues and profits for our owners,” he said.
Property-level staff can also be champions in educating guests to book direct and join a brand’s loyalty program, sources said.
“At the end of the day, we have the ultimate advantage because we control the guest experience. At some point in this travel journey, we’re going to be able to have personal contact with (guests),” Manley said.
Loyalty, loyalty, loyalty
Hubbs said the brands are constantly reinventing their messages and are spending “millions of dollars” with branding and marketing firms, but a special focus should be placed on educating the customer on what Manley said the best channel is to book and why.
“Loyalty is everything,” Manley said. “Loyalty is why we enter into our franchise agreements with the big brand families like (Marriott International) and Hilton. We are buying loyal customers.”
He said if an OTA delivers a guest to one of his hotels, and he pays the commission but fails to wow the guest with an experience to convert them to a loyalty member, that’s a missed opportunity.
“That is incumbent on us to take each guest that comes in through an indirect channel and teach them the benefits of being a member because as soon as they are loyal to whatever brand.com it is, now we’ve got something we can build a business off of,” he said.
Costs and commissions
Andrew Rubinacci, SVP of revenue and distribution at Omni Hotels & Resorts, said he’s seeing a change in the size and scale of the mix of business transacted by third parties. For years, he said, it was very stable “at 10% to 20% revenue mix with 10% standard commission for most hotels in the U.S.”
But now the revenue mix of “intermediated business is ever expanding and impacting more segments,” he said, adding he’s seen the mix in some hotels exceed 90%.
“At the same time, commission rates moved from a standard 10% in the U.S. to anywhere between 10% to 25%,” he said.
Because of those changes, Rubinacci said it’s drastically affected the way hotels need to manage revenue and approach channel mix.
“With cost of consumer acquisition growing at (twice the amount of) revenue for the industry, distribution channel costs have gone from a stable afterthought to a primary driver of the revenue strategy for a hotel,” he said.
Manley said his cost per transaction has “gone down significantly” thanks to the brands.
However, he said, overall costs may be up for two reasons: If “you’re still relying more on these indirect channels” or if more money is being spent “in the e-commerce arena to effectively deliver our message in what’s a very crowded area.”
“We’re having to spend more money on paid placement and other avenues in order to make sure that our product is seen,” he added. “So those costs go up, but we can intelligently spend those dollars during times of need to produce roomnights.”
Walsh said her properties at Benchmark are seeing an increase in direct bookings, which is translating to cost savings. She’s also noticing this trend at the corporate level.
“While there are some (of our) hotels that do rely so heavily on the (global distribution systems) for corporate bookings, it is nice to see the direct bookings come in.”
Chambers said he’s noticed that channel costs with the brands, in some cases, “are increasing faster than revenue,” but where the brands have done a commendable job is “managing the third-party distribution costs,” making those fees “more attainable.”
Salapka said the brands in his portfolio are very adamant about driving costs down for the franchisees. In reality, costs can still creep, he said. His advice to owners is to “stick to your guns,” while “following your brand guidelines.”
Looking ahead, Manley said hoteliers need to prepare for future disruptors by controlling the guest experience and winning that guest. He said it would not surprise him if Google, Amazon and Apple fully enter the market as a distribution platform.
“We need to be prepared. … They’ve all got very loyal followings,” he said. “But at the end of the day, we control the guest experience; we control the product; and as long as we focus on doing that and delivering distinguished hospitality to our guests each and every day, we will ultimately prevail.”