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for Hotel Industry |
MCLEAN, VA (Jan. 6, 2005) – With so much to learn about
managing a hotel’s distribution channels, TIG Global, an Internet
marketing
firm, and the Hospitality Sales & Marketing Association
International
(HSMAI) have released a just-completed Special Report designed to
“de-mystify
distribution” in the hotel industry. It is a comprehensive guide that was
developed in response
to a need in the industry to better understand how to take advantage of
the new
and growing distribution network for hotel services.
“De-Mystifying Distribution” can be ordered
at www.hsmai.org. “We are extremely pleased to put forth this
comprehensive
report on hotel distribution strategy, in order to bring clarity to the
distribution landscape and help hoteliers navigate the increasingly
dynamic
Internet environment,” said Frederic W. Malek, chief executive officer
of TIG
Global. “As the industry leader in
assisting hoteliers with more effective and efficient distribution
strategies
that ultimately will benefit the hotel’s profitability, TIG Global is
also
committed to developing the industry’s most advanced knowledge base
regarding
distribution strategy.” TIG Global elicited the support of HSMAI for
publishing and
distribution of this important report because of the extensive industry
network
that HSMAI maintains with both its membership and worldwide
affiliations, and
its leadership role in sales and marketing issues. “In publishing this report, it became clear
that our
industry’s knowledge of the Internet distribution landscape has been
fragmented,” said Robert A. Gilbert, CHME, CHA, president and CEO of
HSMAI. “Those who deal with central
reservations and GDS are experts in that area, and those who manage
hotel or
brand websites also know this area very well.
However, many hotel general managers, directors of sales
and marketing
and executives in ownership groups, management companies, and brands
have only
cursory understanding of how certain aspects of distribution affect
their
hotels. In response, TIG Global has
taken a leadership role in distribution strategy and wants to see the
industry
move beyond the silos of knowledge that have evolved to improve
everyone’s
grasp of this crucial subject.” “The three main areas that hotels need to
focus on are
effectively utilizing their technologies, managing their own websites,
and
mastering revenue and channel management,” said Cindy Estis Green, the
report
author and immediate past chair of the HSMAI Foundation.
“And, the three areas the hospitality
industry as a whole must address are market segmentation, better use of
business intelligence, and ensuring the hotel organization and
budgeting
process supports their distribution strategies.” TIG Global took on the task of defining and
de-mystifying
distribution because the “financial realities of high distribution
costs and
lack of control by hotels is driving the industry towards an education
about
managing distribution,” said Estis Green. Estis Green predicts that “some implications
of changes in
the distribution arena will trigger dramatic shifts in branding,
technology
infrastructure and market intelligence.
There is still a lot to learn about managing a hotel’s
distribution
channels.” The Special Report was written for
executives within
individual hotels, ownership groups and corporate offices of brands and
franchise groups in order to: Outline the implications of changes in
distribution
strategy.
Explain the infrastructure and marketing techniques needed
today.
Expand upon the dynamics created by the changes so industry
executives can better focus their internal dialogue to improve their
distribution planning. “During
the last five years, the hospitality industry witnessed one of the
fastest
changing marketing environments in its history, driven by unrelenting
worldwide
changes in technology and communications,” said Gilbert.
“These issues will impact hotel executives
both internally in their own companies and externally as these factors
change
the travel behavior of the consumers in the industry’s various market
segments. We applaud TIG Global for
seeing the need to fill the gap in information and understanding about
the
crucial issues of distribution facing the entire hospitality industry,
and we
expect that this study will lead to a clearing view for everyone
challenged by
the changing landscape.” Report
Summary Integration of systems and improved channel
management will
be the determining factors in how well any hotel or chain navigates the
turbulent distribution waters. Many of
the larger hotel chains are contracting to have direct connections to
the large
online travel agencies in order to improve rate and inventory
management and to
update related intelligence. These issues will cause different approaches
at the chain
and brand level, unit level and the ownership group level.
The issues will also require changes to the
organizational structure, as well as to changes in compensation and
incentive
plans. These issues will echo loudly for
the industry for many years to come. Over the next few years, Distribution
Management will be
viewed as the most potent component of a marketing strategy employed by
hotel
executives. At one time, communication
tools like advertising or direct sales were the primary tools of
hospitality
brand power and marketing supremacy. In
2005 and beyond, it is clear that marketing will succeed or fail based
largely
on its ability to create and execute distribution strategies. Distribution strategy has quickly become the
function in
hotel marketing that can have the greatest impact on profitability. The
revenue
at stake and the costs of distribution bring this issue into sharp
relief. The online market for hotel reservations was
quite
substantial in 2004. What started as the
new venue for the larger chains has now evolved into a much more level
playing
field, where chains and independents alike vie for the attention of
consumers’
lucrative mouse clicks. In 2000, about 20 percent of all bookings
were made through
GDS and Internet sites, and of that total, about 90 percent came from
GDS
systems. This equates to about 2 percent of all bookings coming from
Internet
sites in 2000. PhoCusWright projects that hotel Internet
gross bookings
will total $15.5 billion for 2004, representing 20 percent of all hotel
revenue
booked. By 2006, PhoCusWright expects
that online hotel sales will reach $24 billion, which will be 27
percent of all
hotel revenue booked. These numbers are average representations. There are independent hotels and smaller
chains that regularly report that more than 50 percent of their volume
comes
from electronic sources. With their predictions already exceeding the
overall
estimates for 2003 and 2004, it is likely that their online volume will
continue to grow into a significant majority of their business. Building a technology infrastructure is not
a tactical
issue, but actually a strategic issue.
It needs to be comprehended beyond the Information
Technology (IT)
department. Operations, finance,
marketing and senior executives need to understand the technology
underlying
the new distribution networks and the necessary integrated solutions. The details of this technology are what make
the difference to hotels’ success in this environment. Players
Staying in the Game Travel agents will not be going away anytime
soon, or will
GDS systems, online travel agency websites, and call centers. These
players may
morph into other entities and evolve to survive and thrive in the new
marketplace, but they will continue to be a part of the scenery. The There is brand value for both hotel owners
and consumers,
and hotels will have to reinvent the product and service offerings that
constitute the central tenets of their brand value. The third party intermediaries have had an
advantage in the
last four years by taking the consumer market by storm.
InterActive Corporation (Expedia, Hotwire,
Hotels.com, Travelscape), the largest of the online travel agencies,
spent $600
million in annual advertising for 2004, which is a sheer display of its
market
enormity. But in this type of market,
size may not be the only factor. Business
Intelligence Will Make It or Break It In the 1980’s and 90’s, hotels depended on
basic market
share information such as the Smith Travel statistics.
Despite their appearance of simplicity, this
data brought a much higher level of sophistication to hotels’ own
metrics. These enhanced metrics include
RevPAR
(revenue per available room) and RevPAC (revenue per available
customer), both
moving the industry considerably along from its old average rate and
occupancy
barometers. One day soon, a trend will emerge where
business
intelligence through online channels will be used heavily for customer
relationship management and retention.
Today, customer clicks and eyeballs are the “Holy Grail”
of
distribution. In the future, owning the
customer relationship will become the new “Holy Grail.” The
Paradox: Consolidation with De-centralization The booking opportunities for hotel rooms
are being
consolidated into less electronic channels and the few companies
controlling
these channels are getting larger, while demand continues to
decentralize and
grow in a very dispersed way as more consumers and businesses choose to
make
hotel selection decisions electronically. Over 90 percent of the Internet hotel volume
through online
travel agencies is produced by only eight websites, and only five
companies own
these eight sites. Attracting business
volume to any single hotel website in a landscape where tens of
thousands are
visible is another job in itself. Technology
Infrastructure for Distribution Now that this distribution network has
become more complex
as it matures, electronic bookings with their assorted channel costs
can vary
greatly. There are many areas of technology that need to be better
understood
in order to build an infrastructure within a hotel, chain or management
company
to manage a distribution strategy:
Central Reservation System (CRS) There are hundreds of
niche sites, directories, travel search engines and affiliate partners
that can
deliver significant revenue to a hotel.
It is the responsibility of each hotel to determine which
sites within
the online distribution landscape can benefit their specific property’s
business. The most important website is probably a
hotel’s own website
or a property page off a branded site.
Consumers can go to these sites to find detailed hotel
information or to
make a direct booking. In the first quarter of 2004, the ratio of
Internet bookings
was 40 percent direct to hotel sites, 42 percent to merchant model
online
agencies and 18 percent to retail online agencies, according to Thomas
Weisel,
an investment banking firm tracking hospitality. As has been the case for 20 years in hotels
with good
revenue management practices, the trick is to thoughtfully layer in the
highest
rated type of business available given the demand each day for and the
constraints on the types of business possible. The new Internet options are just another
method for these
practices. For those who claim it is just the same business coming
through
different channels, there are many smaller and independent hotels that
are
becoming introduced to new customers who only found them for the
enormous reach
of the World Wide Web. Channel
Management Managing rates and inventory when there are
dozens of sales
outlets is a daunting task. The lack of system integration makes it
more
difficult. Revenue managers need to be given the best tools possible to
manage this
function or a lot of money will be “left on the table” due to gaps
between
hotels and their sales channels. The revenue managers must be central to the
development of a
distribution strategy for a hotel. They
will know the limitations on frequency and timeliness of rate/inventory
updating. They will also be able to offer the management team their
assessment
of the optimal business mix for any given time period. Revenue
Management Similar to channel management, revenue
management has moved
from a little understood technical reservation function to a crucial
one for
distribution strategy and revenue optimization. More attention must be paid to this
discipline, and more
training must be conducted to lift the general body of knowledge within
the
designated hotel staff. Tools for
revenue management must be upgraded and funding allocated for system
integration and system development. The
Guest Experience Some points to keep in mind: Only a hotel
can make that
guest want to come back. No one will
return to a hotel solely because they enjoyed the booking experience;
they will
return because the product, service and location met their needs and
were not
perceived to be a commodity. Hotels can
succeed if they: Capture detailed customer information. The battle for who owns the customer
relationship will
continue for some time to come. Simply, whoever earns the right to own
the
relationship will be more successful.
Technology will play a role, but smart distribution
strategies on the
part of all players will strongly influence the outcome. Elements
of A Distribution Strategy Being “where the bookings are” will be the
mantra of all
hotel entities, although chains and independent hotels will approach
this
differently. A hotel property or chain
will generate bookings through its own site, as well as through its
central
reservation 800 number service, GDS, third party sites (online or
traditional)
and regional sales operations. The five
elements of a distribution strategy include: metrics, risk assessment,
branding, channel analysis and web strategies (internal and third
party). Summary
of Recommendations for the Industry Whether a hotel is big or small, chain or
independent,
resort or downtown, two or five star, it is the development and
execution of a
sound Distribution Strategy that will differentiate the winners in
hospitality
marketing for the next five years. Devise a distribution strategy to guide
online efforts. Invest in distribution related technology. Invest in staff training – general managers,
DOS/DOM,
revenue managers. Experiment with any promising new online
channels – consumer
and B2B. Determine your distribution costs as you
develop your
distribution strategy. Track all marketing efforts with ROI and
other metrics to
determine their efficacy. Stay connected to the industry to know what
trends might
affect you. Do not try to deal
with all distribution channels at once, start with a realistic goal. Pay attention to your own website – get it
working to its optimal
level. Take care of your customers.
No matter which channel brought them to you, their
experience in your
hotel will strongly influence if they return. Copies of the full report “De-Mystifying
Distribution” can
be purchased for $45 at www.hsmai.org. HSMAI members can receive one complimentary
copy of the report. About TIG
Global TIG Global,
LLC, www.TIGglobal.com,
is a full-service Internet marketing firm that provides turnkey web
presence
management for the hospitality industry.
TIG Global maximizes incremental online revenue by
delivering travel
consumers directly to a hotel’s website or property pages on a branded
site,
allowing hotels to build relationships with customers and increase
margins in
the growing Internet space. TIG Global’s
clientele comprises more than 250 hotels and resorts, ranging from
independent
hotels to branded and franchised hotels, operating in over 50 markets
throughout HSMAI is an
organization of sales and marketing professionals representing all
segments of
the hospitality industry. With a strong
focus on education, HSMAI has become the industry champion in
identifying and
communicating trends in the hospitality industry, and bringing together
customers and members at 15 annual events.
Founded in 1927, HSMAI is an individual membership
organization
comprising nearly 7,000 members worldwide, with 41 chapters in the For
more information on HSMAI, contact the Hospitality Sales &
Marketing
Association International, |
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Rachel Zendel - Sales Coordinator
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