Pick the right distribution channels to boost your profitability
OTAs, your own website, short break operators, wholesale, deal sites - there are so many distribution channels to choose from, it’s enough to make a hotel revenue manager’s head spin trying to choose the right one to focus your efforts on.
But a clear and defined distribution channel strategy can make all the difference to a hotel’s profitability. Picking the right strategy means you’ll gain maximum revenue for minimum outlay.
And of course, as hotels start to look towards recovery from Covid-19, every decision we take now could make all the difference to our ultimate revival.
First things first, what is a distribution channel?
The distribution channel is the route the hotel room or service takes to reach the customer. It is effectively a journey that can go through intermediaries and third parties like online travel agents (OTAs), or it can be a shorter journey, where rooms are booked directly through a hotel’s own system.
Each channel comes with its own costs and benefits, and careful management is needed to ensure optimum profitability.
Some channels may have better exposure to certain customer segments, while others may have greater market share in specific geographical locations. And, of course, there are offline channels to consider too, which may still appeal to local customers and those who are less technologically inclined.
The distribution channels involve relationships and partnerships with other businesses which then become a different facet of the broader revenue management profile of a hotel.
Revenue managers are now confronted with myriad complexities, such as different commission costs; promotional rate agreements; different set-up costs, kick-back and net rate agreements. This requires revenue managers to be continually reassessing the distribution landscape.
Each hotel will usually use a different blend of the available channels depending on a number of factors, including geographical location, position in the market relative to competitors, its reputation, or the particular services on offer specific to a hotel.
The way that rooms and services are allocated through these different channels is referred to as the distribution channel mix.
Strategies for managing distribution channels
Revenue managers need an intelligent strategy for managing the distribution mix. Every hotel theoretically has an optimum strategy for distribution – consequently, many hotels may be using sub-optimal or flawed strategies that may put a strain on margins and profitability.
Distribution channel strategy is about making the correct choices about which channels to use and how the costs and commissions will affect the underlying profitability. If this is the case, then the obvious question is – what should inform the revenue manager’s decisions?
Like other aspects of revenue management, distribution strategies can increasingly rely on data-driven insights.
As the distribution environment becomes more complex and evolves quicker, the data that can be used to inform strategies has also become more sophisticated, allowing revenue managers to understand what is driving sales across segments.
Understanding segments and demand allows revenue managers to yield different channels and segments when appropriate; the right strategic adjustments can have significant bottom-line impacts.
Challenges for distribution analysis
The complexity of the distribution mix can create some challenges for revenue managers in determining the exact profitability across segments.
Understanding the exact net ADR against the backdrop of differing start-up costs, channel management costs, commissions, participation costs, upgrades and loyalty programmes can all blur the clarity of the exact costs per booking.
Using the right tools and strategies to manage the distribution is more critical than ever for improving revenue as we try to move on from the impact of Covid-19.
Octopus Revenue is here to help. Read more about our outsourced revenue management services and bespoke training packages we offer, or get in touch to find out how we can tailor-make a revenue management strategy to fit your business.