Both direct and indirect channels are consumer requisites. The industry believes that all the five channels - hotel direct, voice / reservation center, 3rd party Internet, brand web and GDS / agency - still offer value. It really depends on where the customer chooses to book.

Published: 18 May 2011

Both direct and indirect channels are consumer requisites. The industry believes that all the five channels - hotel direct, voice / reservation center, 3rd party Internet, brand web and GDS / agency - still offer value. It really depends on where the customer chooses to book.

By Ritesh Gupta

Every hotel, regardless of how large or what type, should identify the cost of a reservation through each distribution channel. Hotels should then minimise the volume of reservations that come through the most expensive channels, and maximise the volume of reservations that come through the most profitable, or least expensive channels. The hard part of course is determining exactly how much volume is needed from each channel in order to achieve the optimal mix of business in the hotel.

Some hoteliers estimate this based on feeling, while others have sophisticated revenue management systems that use historical data as well as the current pace of reservations from each channel to make recommendations.

As highlighted in a report on EyeforTravel.com this year, unfortunately, some hoteliers still don’t understand this concept at all, and make no effort to control the volume of reservations that come through each channel. In this case the hotel typically leaves all channels open until the hotel is full which gives an advantage to the more expensive channels that may produce higher volumes of advance bookings. The OTAs thrive but at the end it is the hotel’s bottom line that suffers.

EyeforTravel’s Ritesh Gupta recently spoke to Janice Chan, Director Online Distribution & Marketing, Starwood Asia Pacific Hotels & Resorts, and Ricky Ang, VP Sales & Marketing, Hotel Equatorial Group about the distribution mix and new trends. Excerpts:

Both direct and indirect channels are consumer requisites and strategies for both should be aligned to maximise value. An expert told me key to this will be ensuring that you do not have disparate systems running disparate channel content and pricing. What’s your viewpoint regarding the same? Also, how do you assess this whole talk about suppliers enjoying a reversal of fortunes and the fickle balance of distribution power changing once again?

Janice Chan:

It is essential to maintain rate parity between an OTA and our branded websites (sheraton.com, westin.com, whotels.com, etc.). Our loyal customers will come and book direct with us. However, OTAs help us acquire prospective guests.

Ricky Ang:

Direct and indirect channels’ strategies should definitely be aligned to consistently present a singular message (and lowest pricing) for consumers.

There will however be unique channel content / capabilities that cannot be replicated across both indirect and direct channels. For such cases the channel owners can and should offer unique differentiations as points of product distinction and advantages.

Examples of this would be something like loyalty/ repeat usage programmes employed by hotels as well as OTAs independently.

Lowest pricing should always be on parity across channels however bundled packaging - so long as they are priced higher than the unbundled “lowest price” (i.e. BAR) can have limited distribution in selected direct channels only.

As far as the relationship between suppliers (hotels) and 3rd party distributors (OTAs) is concerned, it is certainly a dynamic one and however the shift, it is doubtful that it will affect the strategy and directions - at least not in the near five-year term for most suppliers.

Changes to market mix need to be viewed in both tactical as well as strategic sense. Changing a hotel’s market mix does not happen overnight even as one reacts to changing market conditions. Would it be right to say that those suppliers, who have been focusing on going direct to consumers, have lost out on indirect channel partners?

Ricky Ang:

Quite possibly. Suppliers with an overzealous focus on gaining direct bookings at the expense of sacrificing continuous partnership with indirect booking channels will naturally lose out from booking contribution through these indirect channels.

This however may not necessarily be bad in the business sense for the supplier. Neither is it definitively good. It depends largely on the factors and circumstances like inventory count, seasonality, market environment, competition etc.

Janice Chan:

Changing market mix does require time and resource; however it is never too late to invest the efforts to develop a strategy to change the market mix if that is the objective.

New travel intermediaries are emerging, in the form of room database and search engine, last minute booking sites, exclusive members-only travel club, or existing players like Kayak adding direct booking options. How do you think the face of online travel industry is changing at this juncture?

Ricky Ang:

I think there will be various new online business models introduced over the course of time - some of which will achieve longevity and many will not - similar to offline business models.

Suppliers should adopt a philosophy of working with as many as practically possible as opposed to being too selective and inadvertently limiting themselves from being part of a successful model.

Janice Chan:

New sites and services keep things interesting for everyone in the industry. We need to adapt quickly and develop strategies for all new partners.

In case of hotels, customers are purchasing more than just a convenience. Customer decision making is influenced by a mix of tangible and intangible benefits represented by the brand or the physical asset. For their part, OTAs say that they offer tools that help consumers discover value as a function of the benefit that matters to them. How do you think OTAs have played their part in today’s environment?

Janice Chan:

OTAs offer customers choice because they work with multiple chains and independents. Also with the marketing dollars invested by OTAs on travel, they are stimulating the entire industry.

Ricky Ang:

I think OTAs’ claims that they offer tools to help consumers match consumer’s requirement is limited at best.

Let's face it, from practical experience, we all know that OTAs don't necessarily provide the most accurate description of a hotel's strength (or weakness).

In many cases, OTAs tend to want to limit their liability by pretty much sitting on the fence about how good/bad a hotel is. This is something very different from the traditional brick and mortar travel companies. For example, a brick and mortar travel company will never allow hotels to have a “self rated” star system in their catalogue.

One of the new online travel venture launched recently matches room within a given hotel based on traveller’s preferences for view, floor, distance from elevator and connecting rooms. How do you assess the significance of transparency in booking at this stage? How do you think the industry is focusing on getting consumers closest to knowing what they are booking before they actually complete the transaction?

Ricky Ang:

The biggest challenge that suppliers face from a perspective of having such booking features is the inability to fulfill all the specified requirements of every consumer due to inherent product limitations.

The more specific the requirements are, the more difficult it will be for suppliers to guarantee availability.

For example, in the past it may simply have been a bedding and smoking preference. Sophisticated preference models could encompass a mix of bedding, smoking preference, floor levels, views etc. which a supplier may not typically want to guarantee in the past due to inherent limitations of inventory availability for such rooms.

My opinion is that it is a double-edged sword at best.

Hotels need to seriously access the merits of this before embracing it.

The nature of the lodging business is that there are always peaks and troughs of demand related to the supply available in any given market. This can be seasonal, development-related, or economic.. In this context, how do you think the role of OTAs is going to be always significant in the channel mix?

Ricky Ang:

I think the role of OTAs or rather, the OTAs’ business model occupy a niche that by majority (with some possible exceptions) transcends demand patterns of the lodging business.

OTAs provide a channel whereby consumers can easily and readily select an option that transcends the brand of a singular lodging business entity. No hotel chain can conceivably do that.

This alone ensures the longevity of the OTA business model.