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Hotel
Budget Season: Design Your Most
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Profitable
Channel Mix Strategy in 2019
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By Kristi White, VP, Sales Engineering
at
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The Rainmaker Group
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Alpharetta,
GA – October 2018 / Newsmaker Alert / 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.
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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 approximately
22 percent of hotel gross bookings occur through OTAs.13 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. It is estimated that greater than 55% of the business
that books via the GDS is managed business. However, with annual worldwide
hotel room revenue production estimated at $8.5 billion dollars, there
is still a significant amount of business you can influence.15 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:
1.
Green, 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.
2.
Ibid. [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/.
5.
Green, 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/.
6.
Green, Cindy E. “The Quest for an Optimal Channel Mix.” HospitalityUpgrade,
1 June 2012, www.hospitalityupgrade.com/_magazine/magazine_Detail.asp?ID=728.
7.
Ibid. [5]
8.
Con, Jordan. “Optimizing Marketing Channel Mix For Revenue And ROI.” Bizible,
7 June 2016, www.bizible.com/blog/optimizing-channel-mix-for-revenue-roi.
9.
Hoisington, 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/.
10.
Ibid. [4]
11.
Ibid. [6]
12.
Kennedy, 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.
13.
Quinby, Douglas. “Hotels vs. the (OTA) World.” Phocuswright, 14 May 2017,
www.phocuswright.com/Travel-Research/Research-Updates/2017/Hotels-vs-the-OTA-World.
14.
Ibid. [1]
15.
TravelClick Research and Data
About
the Author
As
a twenty-four-year hospitality veteran, Kristi White has a wealth of knowledge
about hotel sales, marketing, revenue management and electronic distribution.
Kristi has advised hundreds of hotels around the world on their business
strategy, improving hotel performance and overall profitability. With TravelClick,
she created a world class service organization dedicated to providing personalized
attention to TravelCLICK’s iHotelier Central Reservations customers to
maximize each hotel’s transactions revenue through best practices in marketing
and distribution.
As
a recognized expert in her field, Kristi is a frequent speaker on revenue
management and distribution at industry conferences and hospitality schools.
She was a member of the Board of Directors for the HSMAI Revenue Management
Special Interest Group. Kristi has a B.A. in Political Science from Louisiana
State University and a Certified Hospitality Sales Professional and Certified
Hospitality Supervisor certification from the American Hotel and Lodging
Association.
About
Rainmaker
Rainmaker
is the hotel revenue management 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, demand forecasting, business intelligence
and market analysis are designed to help hoteliers streamline operations
and 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
management and profit optimization solutions, visit www.LetItRain.com.
Facebook
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Company
Contact:
Dana
Glaze
Marketing
Manager
The
Rainmaker Group
470-440-2041
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