Solving Distribution — Part 2: Revenue Management

By Timothy R. Wiersma, Vice President of Revenue Management, Red Roof Inns Inc., and a member of HSMAI’s Revenue Management Advisory Board

At this point, it seems you can’t talk too much about distribution. This big, knotty, industry-spanning issue was the subject of last month’s Revenue Management Advisory Board (RMAB) discussion, but our members still had more to say, so I moderated another conversation about distribution on our most recent call. (HSMAI’s Marketing Advisory Board also tackled distribution on their latest call; you can read about their discussion here.) Here are six of our takeaways: 

1. Success with Airbnb — without rate parity. “Specifically for independent properties, when Airbnb opened up their API [application program interface] to work with distribution partners to list hotel inventory for boutique and independent properties on their site, we were an early adopter,” one RMAB member said. “We ran a beta test, and what we found is that, despite a lot of focus on our side of the fence on rate parity, that really didn’t seem to matter to the customer — because of different fee structures, different composition on pricing, etc. We’ve really seen success with vacation rental sites and selling our top-tier inventory — premium suites, presidential suites, and up.

“What was interesting was, it wasn’t rate parity,” the member said. “If you would have booked the same suites on our own websites, the rate would have been 5 to 10 percent lower than what customers booked on the likes of Airbnb or VRBO.”

2. An opportunity to upsell. “One of the things that is a bigger opportunity — or we just have to make it a bigger focus — is using this technology to allow for upselling,” an RMAB member said. “We’ve had mixed success with it. What we’ve found is that the hotels that make it a focus tend to see decent results, albeit all incremental. Using these platforms to take advantage of using upsells to drive incremental revenue is something that we want to see some improvement in.”

3. The rise of Google. “More than the OTAs being a concern, the I think Google’s continued expansion into the travel space is what we’ve earmarked as one of the biggest potential disrupters,” an RMAB member said.” Even though they never want to be the merchant of record and they say they’re not ever going to be an OTA, they continue to make strides to impact hotel business — including being able to book directly on Google, and the merging of hotel ads and Google ads, and all their testing of additional travel elements. That is going to be the more interesting thing to watch.”

4. Cracking down on parity violators. “They can’t onward-distribute B2C rates to B2B partners if you don’t give it to them,” one RMAB member said. “We’ve been very diligent in drawing a line in the sand and saying, ‘Okay, you’re cut off.’ They’ll say, ‘We can’t control the 75,000 partners that we onward-distribute to.’ Well, if you can’t control your business model and it’s affecting mine, then we can’t work with you. Because the long-term impact of undercutting your brand website and losing the faith of the consumers that are loyal to your brand and to your company far outweighs a couple of rooms you may lose through that channel.

“We’ve started building language into our contracts that penalizes the tour partner,” the member said. “If they’re caught undercutting and we have best-rate-guarantee violations, we bill them. If we do test bookings and we find them, we bill them. So, it’s a step forward.

5. Static vs. dynamic rates. “From the brand side of things, the directive is very clear: It’s going to be all dynamic,” an RMAB member said. “If you have to do static for selective operators, stick to our contract templates, which are stringent. Employ a three-strike policy, and go 100-percent dynamic when possible.”

Another member added: “We have very minimal static contracts out there, and they’re mainly for the B2C provider, which means the provider talks and sells directly to the customer and they don’t have much of an online presence.”

6. Direct booking with brands. “I like the direction that the brands have been going in with reducing OTA reliance and putting more effort into booking direct,” one RMAB member said. “It’s a lower-cost channel for the hotels; it’s more profitable. We’re encouraging the brand partners that we work with to spend more in marketing on direct booking and having those campaigns offering different options for when a guest does book direct. That way you can differentiate some value for booking direct. And we like the 7-percent commission on the group side — doing these things as an industry to reduce customer acquisition costs, which have just been ridiculous and are hurting our business.”

In addition, brands are thinking creatively about their inventory — including which room types they are deliberately not selling online. Among other things, they are reserving specific room types for their most loyal guests and making them reservable only on their site.

Categories: Revenue Management, Channel Management
Insight Type: Articles