I have covered the importance of Business Mix in the hotel business in previous articles. Continuing on the same mixing subject, I would like to look at the other end and cover one of the most important goals of any hotel; achieving an ideal distribution mix.
If you plan properly to achieve the ideal distribution mix, it’s greatly benefitted the bottom line and therefore, it is one of the main building blocks of a successful revenue management strategy.
The role of every revenue manager is making sure that using all the techniques, technology and tools to sell every room in our hotel every day with the highest rate possible. Every unsold room is the loss of a potential revenue opportunity and when the day went past, there is no turn back.
Ideally, our goal is to sell every room in our hotel every day because a room is a perishable product, meaning every unsold room is a revenue opportunity irrecoverably wasted. This is also called a perfect sell. To achieve it, a hotel management team benefits from different sources of business and different systems that all add up to create the distribution mix.
Let’s look at the elements of the distribution mix.
1. Foundation: Heart and Brain of any Distribution System; PMS and CRS
To be able to effectively manage direct reservations you need to establish two systems in place;
PMS (Property Management System): PMS keeps all of the reservations, guest information, room inventory, availability and rates in its system and allow you to manage it in great synchronisation like your heart regulate and manage your body harmoniously.
CRS (Central Reservation System): CRS works like our brains, establishes a real-time data bridge between PMS and other distribution channels. It distributes rates, room types and availability to a number of different internal and external distribution channels simultaneously.
2. Direct Bookings:
Direct business is the most preferred and effective for hoteliers. Hotel’s don’t pay commission for reservations booked directly to their hotel. There are three categories you could get direct business; online reservations through your hotel website, phone reservations handled by the hotel and/or reservation teams and walk-in guests, who literally just walk into the hotel looking for a room.
In today’s world, most of the direct bookings come through online and therefore, hotels need to invest both user-friendly website and a good and reliable CRS system. It is also advisable to allocate a decent marketing budget to boost the visibility of your website as well as increase direct bookings by adapting search engine ads or retargeting ads. You can monitor your success by utilising the metric called ROAS (return on ad spend), you can find the details of ROAS in my previous articles or contact me on email@example.com to arrange a meeting to discuss further to explore collaborative working opportunities.
3.OTA (Online Travel Agencies):
OTAs are the most complicated and costly distribution segment especially for independent hotels as their marketing budget resources are limited, visibility and usage of their websites are non-comparable vs OTAs wide customer base and efficient websites.
Hotels should be smarter managing their OTA distribution as their commissions vary 15-30% per booking. Ideally, you should allocate 17-25% of your inventory for the OTA segment, if you go above this point you will risk your profits vanish. You could still use them in your advantage by converting their guest to your loyal direct booking guests. Please check my previous article on “direct bookings” for further information on https://www.hospitalitycode.com/blog/5-tips-to-promote-direct-bookings.
4.GDS (Global Distribution System):
Galileo, Amadeus, Worldspan and Sabre are the known travel agents which provide bookings for both leisure and business travels of corporate employees via GDS distribution system. You still pay commission for these agencies however, it is considerably lower than OTAs about 10-15%. The percentage of leisure or corporate bookings mostly depend on hotels’ location, size, facilities such as meeting space.
This segment has its own positives and negatives; less commission vs OTAs but still expensive vs your own booking direct channels. It is important to find a balance, 20-30% GDS business in city centres considered a good balance.
These rates are pre-negotiated corporate rates therefore, it is important to keep an eye on allocations, LRA, Non-LRA inventory arrangements especially high seasons and peak demand dates. Therefore, shoulder night coverage and DOW arrangements are crucial. Otherwise, you might end up selling your rooms at very low rates during high season/demand dates and suffer badly on shoulder nights.
The last segment I will cover is not necessarily a distribution system part but it is a crucial part of our hotel management puzzle. Groups are varying inside the segment itself, however, in general, it consists of more than 10 rooms per night and books far in advance, 3-6 months prior to their arrival date.
Their rates are generally much lower than publicly available rates and give the advantage to fill the gaps and have a greater potential to use hotel outlets and meeting & event spaces which provides additional incremental revenue for your hotel. Due to their strict cancellation policies and guarantees, it is one of the more reliable revenue sources and therefore, it is called the base business or backbone of the hotel business.
So far, I have covered five main distribution segment you need to focus and find a good balance to operate a successful hotel. Each of these segments has their Pro’s and Con’s and depending on your hotel’s location, size and other factors, there is no basic formula to apply. Even if you think you find the balance, it could change quickly with changes in your market, economy, CompSet and events. I have drawn a simple structure to show today’s changing Hotel Booking Sequence for your benefit below.
The key takeaway here is other than direct bookings each segment requires a different level of commission or demand for low rates and therefore, every percentage of business shifted from each channel (especially OTAs) to direct bookings represents greater incremental revenue and better profit conversion.
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