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. 

“All hotels, whether they are above or below the industry average, and whether or not they are affiliated with a branded chain, need to fully understand their options and capabilities relative to their distribution strategy and tactics,” said Estis Green.

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.

“If hotels don’t take the initiative on technology, their online travel agency distribution partners will, and the customer relationships will shift in favor of the most consumer-friendly systems,” Estis Green said.

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 Battle of the Brands is Underway

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)
       GDS Connectivity
       Internet Connectivity (third party sites)
       Hotel Website
       Branded Chain Website (if applicable)
       Web Booking Engine
       RFP Websites
       Group/Meeting Reservation Websites
       Sales and Catering Automation
       Property Management System (PMS)
       Revenue Management
       Rate Shopper Systems
       Channel Management Systems  
       Business Intelligence Systems (including CRM)

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.
    Improve the guest experience based on that information.
    Engage in future personalized communication.
    Display better content on their own websites to meet guest needs.

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 North America, Europe, and the Caribbean.  For more information about TIG Global’s service offerings, please contact Rachel Zendel at 202.465.3939 or [email protected].

 
About HSMAI

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 Americas region.

For more information on HSMAI, contact the Hospitality Sales & Marketing Association International, 8201 Greensboro Drive, Suite 300, McLean, VA 22102, phone (703) 610-9024; fax (703) 610-9005.  You can also visit the website at www.hsmai.org.