BALTIMORE—As the hotel distribution landscape continues to evolve, search engines appear to have little to worry about. The online-travel agencies, on the other hand, might need to batten down the hatches.
New innovations in social and mobile could begin stealing share from the likes of Expedia, Travelocity and Priceline. And then there’s the 800-pound gorilla, Google, which is making more aggressive strides into the hotel space.
“Search will continue to be important. The guys that are probably at the greatest risk in the social and mobile space are OTAs,” said Scot Hornick, partner at management consulting firm Oliver Wyman.
Hornick was one of three panelists addressing the roles of search, social and mobile in hotel distribution during the opening session of HSMAI’s Revenue Optimization Conference.
“Nobody has really come up with anything that’s going to take away search,” said Gareth Gaston, senior VP of global ecommerce at Wyndham Hotel Group.
If search didn’t have a role, Gaston asked, then why would OTAs spend hundreds of millions of dollars on search to drive bookings?
Perhaps a better question: How much will search evolve to address the hotel space specifically?
Gaston offered Google’s Hotel Finder as one particularly apt service that shows hints of what’s to come.
But it’s not just search that is evolving, Hornick said. The entire distribution space has changed with the proliferation of countless new channels and applications, each claiming to offer consumers the best way to shop and book hotel rooms.
None has perfected the task, however. “Search doesn’t answer the question very well these days,” Gaston said.
Yes, search can point consumers in the right direction, but that direction often is fraught with hundreds of forks in the road, the panelists said.
“Nobody wants 400 hotels as the answer,” Gaston said. “You want one. Nobody provides that today.”
The analysis paralysis isn’t just limited to search results, however. Seeking out the right search tool can be just as complicated, panelists agreed.
The market is more fragmented than ever before, Hornick said. That means each channel will have a harder time building scale. And more importantly for hoteliers, distribution is more complicated than ever before.
Hoteliers in need of help
Faced with an increasingly fragmented, shifting and complex distribution space, hoteliers must buckle down and address the problem head on, the panelists agreed.
Focusing on reservations across a variety of channels is just as important as focusing on lobby renovations and breakfast offerings, they said.
“You can’t throw your arms up and say, ‘This can’t be done,’” Gaston said. “It has to be done.”
To begin doing this, the panelists advised attendees to start by looking at costs.
The first cost is quite simply the cost of booking, whether that be commission, share of revenue or referral fee.
The second is the full cost of booking. An OTA that charges a commission of 25%, for example, does not just provide reservations, said David Levine, director of business performance at Travelocity. It also provides marketing, international reach, fraud risks and so on.
Likewise, a booking made on brand.com is not free, the panelists said. Franchisors pay fees for the service.
“You’re going to pay whether you’re part of a brand, hire a consultant or do it yourself,” said Cindy Estis Green of Kalibri Labs, who along with Lalia Rach of the NYU Preston Robert Tisch Center for Hospitality, Tourism and Sports Management, co-moderated the session.
The third and final cost is the opportunity cost—or the lost revenue of distributing inventory on one channel versus another. Perhaps, for example, a guest would have paid more on one channel versus another. Perhaps he or she could have been upsold. Perhaps there were packages the guest could have booked or maybe there was a way to extend length of stay.
When added together, those individual costs will provide revenue managers with a better sense of the return on investment for each channel, Estis Green said. Only then will they be able to discern the best possible channel mix for individual properties.
“I suggest that revenue managers really need to evolve and become profit contribution managers,” Estis Green said. “It’s not the revenue that matters as much as it is the profits.”
Are those costs and profits easy to identify? Certainly not, Estis Green said. But even rough estimates are better than no data at all.
“It’s difficult to assess,” Gaston said. “The costs are all over the (profit-and-loss statement).”
Rate parity
If only to complicate matters further, the panelists foretold of the inevitable demise of rate parity.
“It already is a thing of the past in some markets (such as Europe),” Hornick said.
Revenue managers should be able to strategically set different types of rates on different channels, Gaston said.
Ultimately, it depends on the economy, Hornick said. “If demand is soft, then rate parity will survive another round of contracting,” he said. If, however, the economy turns around, hoteliers might end the practice.
Many of Hornick’s clients are prepared to do so, he said. Almost all of them have a plan in place if the opportunity presented itself.
The onus to do so is on the major chains, the panelists agreed.
“The brands have really put a lot of marketing efforts behind parity and best rate guarantees in the (United States),” Travelocity’s Levine said.
“The argument has been more a question of whether we continue to give the OTAs the opportunity to achieve rate parity with brand.com,” Hornick said.
