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Looking or booking? Will mobile really drive new revenues?
Hotel companies have little choice but to continue to expand their reservation options as consumers continue to embrace new mobile devices.
It is easy to see why. Not only is the industry using mobile as a channel to fill last-minute rooms but booking solutions are starting to pay off too. By mid-2011 InterContinental Hotels Group had seen revenues from mobile rise from $1 million to around $10 million in just 12 months. And by the end of the year it said mobile revenues would exceed $130 million.
For a revenue management (RM) specialist, however, it is important to assess factors like booking curve and price integrity but also consumer behaviour. Moreover, it is essential to understand which mobile channel is most likely to drive bookings. Here EyeforTravel’s Ritesh Gupta gets the low-down from Frederic Deschamps, Vice-President for Revenue Generation at Carlson Hotels.
EFT: What do you make of mobile-related options from RM perspective?
FD: As customers migrate to mobile platforms, our technology follows the customer to maintain or increase ease-of-use. It’s not clear yet on when mobile will overtake desktop for booking activity, but when it comes to ‘looking activity’ we’re already headed there. Part of hotel industry’s challenge for mobile is to be able to display all the available options, which is important for the hotels to generate ancillary revenue.
From a revenue management standpoint, there is no marked difference in approach just because customers are on a mobile platform. But what could have an impact is that if more price discounters emerge on the mobile platform to compete with traditional online travel agents (OTAs). If this happens then the availability of rates may become selective on mobile platforms, or conditions could be tightened around mobile rates to maintain demand segmentation.
EFT: When it comes to mobile bookings, what are your recommendations for inventory management?
FD: It depends what impact, if any at all, mobile distribution will have on the shape of demand and the level of the rates. If, as many suggest, the impact could be that mobile will shorten the booking curve and will increase discounting, then we may see a differentiation of rates on mobile and desktop platforms – for example with advance purchase restrictions and/or instant payment requirements. However, it is not a given that we will end up there, because many of the mobile players also have desktop distribution so excessive discounting or compression of demand on mobile will dilute their revenues on the desktop. Certainly, I would expect the web brands to go through this reasoning and optimise revenue across all online channels.
EFT: How is the booking curve shaping up?
FD: To the extent that mobile facilitates impulse buying, for hotels as for any other goods and services, then the mobile booking curve could be materially different to the desktop. However, so far that remains to be seen. Consumers are fairly savvy about shopping around and will go to the channel that offers them the best rate and availability. If they have to book in advance in order to obtain this then they are likely to do so. What’s implicit in this argument is that there will be more deeply discounted rates on mobile that are not available anywhere else, and so far we are not seeing that.
EFT: Hotels have a significant same-day need to fill unsold inventory, so what should one take into consideration when going for the mobile channel?
FD: Targeted discount rates can be made available on brand websites, traditional OTA’s as well as mobile, so in that sense this is not a new channel. What deep discounters are counting on with mobile is that consumers will be as impulsive about hotel purchasing as any other goods. They may well if that is how they obtain the best combination of rate and availability, but at this point there is no difference between mobile, the a brand’s website or the OTA’s. Our view is that the best product (rate, availability) will prevail in the consumer choice set, and not channel of distribution.
EFT: Consumers seem to want to know that they’re getting the very best deal before they book. What do you make of this?
FD: I would agree entirely that the best rate and availability combination usually prevails in the consumer’s mind. We do nothing to discourage this since that is a rational basis for the consumer to base their purchase choice on.
The challenge consumers and hotels alike run into here is that rates and availability are set based on the information on hand at the time they are set. As this information changes, so do rates and availability, up or down. So from time to time rates drop after consumers have made their booking (but they also increase from time to time). So the consumer still has to assess if they need the time value of money to make the booking now or preserve their cash and take a risk that the rate might increase later. This is something each consumer needs to decide and we do not provide any guidance on that aside from our published rate structures which do contain advance purchase type rates that offer a discount for earlier booking.
EFT: Where do you foresee mobile distribution in the next 12 months?
FD: We believe mobile distribution will continue to grow steeply for ‘looking’ and also but at a slower pace for booking. Again this is because displaying all of the options conveniently is a challenge on a smaller screen. The growth of tablets my well be the key driver for hotel booking growth rather than smart phones, since they do a better job of displaying multiple options with their larger screens.