Using discounting in a targeted and strategic manner

Changing a hotel’s market mix does not happen overnight even as one reacts to changing market conditions.

Published: 04 Dec 2009

Changing a hotel’s market mix does not happen overnight even as one reacts to changing market conditions.

Therefore, like any business decision, it is important to understand the risks and rewards of taking such actions both now and in the future.

The way this year has gone so far, it is quite interesting to assess whether those suppliers, who have been focusing on going direct to consumers, have lost out on indirect channel partners.

From Expedia’s perspective, its director - market management, Lee McCabe, says its never too late for a hotel to enhance or expand its distribution strategy, but hoteliers that have not considered expanding beyond their own direct channels for distribution are simply missing a tremendous opportunity.

“Expedia views own multi-brand, international marketplace as complementary to hotel direct channels. Our partners also share this view. They see Expedia as a very efficient and effective channel to reach a global audience, most often comprised of incremental customers they would not have otherwise reached on their own,” Sydney-based McCabe told EyeforTravel’s Ritesh Gupta.

McCabe spoke about the customer decision making process, the role played by the OTAs and other issues. Excerpts:

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. However, price targeting has become increasingly difficult. How do you think OTAs have played their part in today’s environment?

Lee McCabe: There are a lot of influential variables in the customer decision making process. A reality of the Internet Age is that consumers now have much greater ability to comparison shop across online channels, and so hotel pricing has become much more transparent. This has required the entire travel industry to evolve the way it approaches pricing and targeting.

OTAs have helped consumers by making it easier to find and book the travel options that are right for them, for instance by providing tools that help them discover value as a function of the benefit that matters to them. We provide the ability to filter and sort by leading qualitative indicators, including price, but also including star rating, distance from a landmark, and guest rating. Traveler reviews have also made a huge impact on the decision-making process, becoming a major influence on the final purchase, so we now include that content in our store for the benefit of our customers.

In addition, Expedia offers its partner hotels tools to help them dynamically target customers in specific geographies and adjust rates to more generally stimulate demand for specific periods of need.

It is being said that many hotels have been forced to cut back on their marketing and advertising budgets and so have come to recognise the value of mere exposure on OTAs. How do you assess the situation?

Lee McCabe: Media exposure is one of the many benefits OTAs, and Expedia/hotels.com in particular, provide to hotels. The “Billboard Effect” – the benefit to direct bookings of exposure on OTAs - is something we have long suspected, and there is in fact industry research that quantifies the benefit hotels receive to direct bookings as a result of their exposure in the Expedia channel. The Center for Hospitality Research at Cornell University recently released a report that quantifies this impact, and it shows that hotels receive anywhere from 7.5% to 26% more direct bookings when they are listed on Expedia than when they are not.

It is said that Rate Parity and Best Rate Guarantees have contributed to the commoditisation of the hotel product. In today’s environment, how do you think OTAs have contributed, positively and negatively, to a hotel’s distribution strategy?

Lee McCabe: The transparency of the online channel, and consumers’ desire to comparison shop online for travel product, make rate parity a necessary part of delivering a good consumer experience. Very simply, it ensures our customers’ confidence that they will find the best available prices on our sites, which also benefits hotels given the tendency for some consumers to browse on Expedia/Hotels.com and book on hotels’ direct sites.

From a distribution perspective, with online channels more responsive to discounting, how do you think online channels impact ROI and CPA?

Lee McCabe: Online channels allow hotels to be more dynamic in fast-acting in their rate management strategies. The very dynamic nature of online channels does make them the most effective channels for quickly driving demand and occupancy via pricing strategy flexibility. Discounting, when applied in a targeted and strategic manner, should positively impact occupancy and revenue. OTAs are all too often associated with “last minute” production. However, most of our partners have strategies spanning 365 days a year, making use of our channel to secure a base of occupancy at longer booking windows - our current average booking window for Australia hotels is above 30 days. This allows them to yield up the last rooms on high demand dates.

Do you think it’s time to consider profit parity as opposed to price parity? What do you think are the main challenges in doing so?

Lee McCabe: Interesting idea! I think if we were able to integrate all key dimensions of the value brought by a channel in a holistic profit metric (e.g. for Expedia: free marketing/exposure, savings on SEM/SEO investments, billboard effect, revenue management advice, global reach enabling a balanced high/low season production, value of customer, length of booking window, length of stay, and finally actual net revenue from bookings), then it would probably show that we offer a very competitive channel, as illustrated by the growing number of hotels who partner with Expedia on a worldwide basis.

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