Direct Versus Indirect Business for Hotels and the Costs Associated With Each

October 22, 2015

As I write this article, I am working with a plethora of hotels and daily being asked to justify distribution. My background is revenue management based as well as hotel distribution through the Online Travel Agency side. I get it and understand where you sit. So without adding bias, I came up with the following points to help them understand where they should focus their strengths based on what they are capable of affording and managing.

First, let us define distribution as outlined for commerce in businessdictionary.com: The movement of goods and services from the source through a distribution channel, right up to the final customer, consumer, or user, and the movement of payment in the opposite direction, right up to the original producer or supplier.

Distribution in our industry is highly fragmented and costly. To bring this definition into the hotel business we have to review today’s options of channels, the cost associated with each one, and where the synergy of brand alignment lives within your marketing plans and finalized budgets.

You are the direct channel; however, in today’s world you cannot just live and expect to be found. There are efforts needed from various sources to bring awareness as well as convert lookers into bookers. So we have evolved from word of mouth to social media and independent reviews from various sites, mobile apps, relationships with the retail and wholesale and their billboard effects (think of how many times you need to see an ad before you recognize or buy something), SEO, SEM, Google’s ever changing rules, and the list keeps growing… Wait a second here, now these are blending into indirect channels.

Consumers today are savvy. They do their homework, so now your marketing plan and budget need to factor in the cost of the guest. The tug of war begins. Let us review in an informal way each category and the potential cost.

  • Social Media – while it is difficult to track the ROI of this channel, it is how your hotel and brand can engage the travel community.
  • Independent Traveler Reviews – each indirect site has them, many with different rules on who can post. Customers of our industry are using online reviews in place of word of mouth from a trusted source. These channels need to be monitored so your hotel and brand know in real time what is being said and most of all if there is an issue, how you are responding to it.
  • Press / Bloggers – While you can monitor your press releases, bloggers find ways to speak about you and influence the travel community. Many of these folks need to be guided properly so they can speak about your property with the same enthusiasm as your brand voice. While there are many bloggers, you need to determine whose voice has enough influence to engage the demographics you are looking to target.Your cost is either dedicated staff member(s) depending on the size of your property or taking this offsite to 3rd party company. Either way, this is the voice of your hotel and brand. How you engage with the travel community tells a future guest on what they should expect when they stay there. It also gives your indirect distribution channels a way to curate you and their desire and ability to send guests your way. Social media is today’s word of mouth. It has been said in many articles and seminars that this avenue is the largest way to build loyalty.
  • Mobile Apps – Users are booking more and more on their phones and tablets than on any other platform. Meaning this is the fastest growing platform for booking. Many indirect channels such as the Online Travel Agency, have mobile apps, so if your site is not mobile friendly , guests who prefer this method may be lost. On the flip side, if they are loyal to an intermediary, you may have saved the guest through them. So keeping your relationships with these partners can be an important lifeline. Your cost here is either having a webmaster make various versions of your site so you are compatible with Apple and Android platforms along with everything else they do for you or bite the bullet and have your Online Travel Agency partners be the leaders in the mobile space. There are various companies who can give you a cost analysis and from there you can determine what best fits your budget.
  • SEO, SEM, Google and the World of Search – PhoCusWright recently published a new Global Edition Report where they identify the US travel advertisers spent over $800M in keyword searches for 2013. While this includes retail travel conglomerates, how much of this came from your own budget? Is competing with the Online Travel Agency’s in buying your name costing you too much? Have you reviewed your contracts so they do buy your name and protect your budget?
  • Relationships, Commissions, Margins – This is a very blended space. The concept of ‘you have to spend money to make money’ lives here. Your sales team spends money to create relationships, so your hotel is in front of the meeting planners and travel agent. These relationships bring to you the groups with room and hopefully additional ancillary revenue such as meeting space, food and beverage revenue, etc. Commissions are paid to the travel agents to drive both corporate and leisure business to your hotel, and of course there are the necessary evil Online Travel Agencies. These work on either commission or margins and very few allow you to own the guest prior to arrival. Those that take a margin upfront, while they save you from having to process a commission check, never allow you to materialize your full rate. With commissions, this guest acquisition is self funded.
  • Billboard Effect – online, offline, TV and print all forms of media to give you brand recognition, but at what cost does this guest come to you. TV commercials need to be replayed many times, many of your Online Travel Agency partnerships, have TV Personalities that talk about travel and can mention your hotel when there is something to talk about. I can only speak for myself, but the only magazines I flip through are in waiting rooms. Most of the content in print media, many of us read on our tablets and phones. In essence this brings us back to our intermediary partnerships.

Previously in this article, I referred to the Online Travel Agency’s as a necessary evil. Recently, eHotelier published an interview with Michael Levie, founder and COO of CitizenM Hotels who does not have the love/hate relationship as many hoteliers do with the Online Travel Agency. Mr. Levie is of the school that all of these pieces above, while they are great to have, can be more costly than the Online Travel Agency billboard effect. After all, they do all the marketing, spend all the money to allure guests to your destination and hotels and keep you abreast of market changes. In his vision, this partnership, while it has its costs, allows you to see the ROI the relationship cultivated creates.

While some agree with Mr. Levie’s thought process, other hoteliers struggle with the cost of distribution. There are many industry reports that share analytics to help them have a clear picture. I recommend to all my hotel partners to not put all their eggs in one basket, because should it fail, they become desperate in capturing the lost business. This effect may cause a negative market cycle of distressed inventory, affects rate integrity and educates the consumer to wait because lower rates will come.

Today’s world has everything very blended; so in my conclusion, no matter how the guest finds you, they needed an indirect touch point, or in this case, various distribution channels to find your hotel, outlets and your brand. Keep in mind that your intermediary partners offer you the largest bill board effect to bring the guest to you. The topic of also consolidating Online Travel Agency partners comes into this category as well. Hotels have shared with me that they have too many distribution options. My response to this has always been, can you afford to do all of the marketing spend that these partners do for you? Is your marketing budget flexible enough to maintain the level that they do to keep your house full of the right guests? Can your marketing plan direct you to channel the guests to your brand? What partners allow you to do both, drive direct and indirect? Are those partners part of your plan?

Once you figure out all of the moving pieces of how your marketing plan, budget and partners align, your forecast will be easier attain. And others will want to mimic your revenue management strategies.

Reprinted from the Hotel Business Review with permission from www.hotelexecutive.com.