Analysis of China’s distribution channels
03 JULY 2014 5:51 AM
Hoteliers in China face an array of options for distribution. Here’s a look at the five main and emerging channels.
Aside from direct channels, hoteliers in China face an array of options for distribution. Some of the distribution tools are traditional, such as online travel agencies and metasearch engines, but there are relatively new ones, such as group buying sites and messaging apps, that have the potential to become significant distribution channels.
Below I take a look at the five main and emerging distribution channels in China followed by recommendations on how to approach distribution in China.
OTAs in China quickly gained a foothold in online distribution, accounting for 73% of online sales for hotels, according to Euromonitor International. Their early investments into online technology along with relatively low commission rates and post-pay model contributed to their dominance in online hotel sales, according to Billy Ko, e-marketing director at Langham Hospitality Group.
This distribution channel is likely to remain important for hotels. The two largest players, Ctrip and eLong, are in a price war to gain market share, which has lured guests away from booking directly with hotel companies. While the price war is not likely to last much longer, both companies are investing a great deal in their mobile apps by expanding supply, improving user experience and marketing extensively. Their dominance in mobile will ensure they remain an important distribution channel for hotels moving forward.
With 234.2 million Web users and 53.8 million mobile users in 2013, Qunar is at the forefront of metasearch in China. It’s the No. 1 (non-state owned) online travel website in monthly unique visitors, according to iResearch. Its popularity is due in part to the lack of rate parity enforcement, which means travelers in China can search on Qunar to find the best price available.
But Qunar’s model is evolving. Instead of referring travelers to other websites for the booking, it is now allowing the traveler to book directly on its website. This shift in business model is crucial for it to remain dominant in the mobile booking space because referring travelers to other websites on a mobile screen is cumbersome, and as a result does not have high conversion rates. It also allows the company to offer supply from companies who do not have online booking capabilities.
Given the company’s traffic reach, it will also remain a permanent fixture in the distribution landscape for hotels in China.
3. Group buying
Group buying, Tuangou, is rooted in Chinese culture, which has helped spread the practice. However, the low commissions charged by group buying sellers also contributed to its popularity as a distribution channel. Industry sources say that the main group buying company, Meituan, charges approximately 10%. In some cases, the commission for a group buy deal can be lower than an OTA. The low commission rate and inexperience with revenue management have made group buying an important distribution channel for budget hotels, which account for 32% of outlets in 2013, according to Euromonitor International.
The practice has been further entrenched by a fierce competitive environment in 2013 that saw OTAs investing heavily in the space, taking on Meituan. This distribution channel is likely to grow thanks to the fierce competition, although it will remain geared toward budget hotels. For example, eLong stated it wants to go from 28,000 deals in 2013 to 40,000 in 2014, and Ctrip is rumored to be in talks to purchase Meituan.
4. Taobao Travel
Alibaba Group Holding launched Taobao Travel in 2010 to capitalize on its popular marketplaces, Taobao Marketplace and Tmall. Hotel companies can set up their own storefront on Taobao Travel. Although there is a small commission for bookings, the hotel company is responsible for the maintenance and customer service on the website, which makes the channel a hybrid between direct and indirect bookings. It is likely a relatively small channel for hotels now, but it could be significant given that Alibaba reported it had 231 million active buyers in 2013.
Another emerging channel for distribution is WeChat, a messaging app launched in 2011 by Tencent. The app has grown to 396 million monthly active users as of the first quarter of 2014. To capitalize on that audience, hotel companies have set up their groups to interact with guests, and the fifth update, released in 2013, introduced online payments. Hotel companies, such as Vienna Hotel Group Limited, now accept bookings through their public accounts on WeChat. Although hoteliers may use the channel now for mostly customer service, promotion and news, the app’s reach and prominence in daily life mean there is significant potential as a distribution channel.
Evaluate all channels carefully
The direct channel will remain the preferred channel for hoteliers due to lower cost and the ability to develop a relationship with the guest directly. To drive direct bookings successfully, Langham’s Ko recommends hoteliers invest in mobile websites to capitalize on the growth in mobile bookings and in their loyalty programs to create promotions that result in direct bookings. Given the strength of OTAs and metasearch engines, enforcing rate parity rules is also a must for hoteliers.
Michelle Grant is the travel and tourism research manager at Euromonitor International, specializing in hotels research. In her role, Michelle is responsible for Euromonitor’s hotel industry research, which provides analysis and in-depth coverage of the hotel market in 211 countries worldwide. She works closely with hotel companies, providing insight into consumer trends and market performance to help clients make informed, strategic business decisions. Michelle is a respected source in the travel and tourism industry. She has presented at a variety of high-level conferences, such as the World Travel Market, La Cumbre and the Special Libraries Association and is often quoted in journals, national newspapers and trade publications. Previously, she was a research analyst for Latin America, covering industries such as financial cards and domestic electrical appliances. Michelle has a Bachelor of Arts in Economics and Finance from Washington University in St. Louis.
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