How to optimize the distribution mix
04 April 2023
The optimal distribution mix for a hotel depends on the hotel's target market, location, size, and unique selling points. However, no one-size-fits-all answer exists, as each hotel must consider its specific situation and goals.
According to an article by STAAH, a New Zealand-based technology company specializing in cloud-based channel management and booking engine for accommodation providers, no set formula for an optimal distribution mix applies to all hotels. Every hotel has its unique channel mix that is affected by several things, including its position in the marketplace relative to its competitors, geographical location, reputation in the industry, and service offerings. Achieving the optimal distribution mix for a hotel is a complex task. It requires understanding the target market, analyzing data from various sources, mapping against online channels, setting up the website for booking success, building a loyalty program, and regularly reviewing the distribution strategy. The article emphasizes that distribution is complex and will not be uniform for all structures. Still, it is one of the most critical decisions hoteliers can make to improve profitability and boost reservations. Here are some additional considerations when optimizing the distribution mix.
Lack of information
In many hotel companies, marketing, sales, and revenue management work in silos and have specialist systems storing data where no one can find it except the person using it. Even siloed systems need more information because the information is fragmented without any relation to the big picture. For example, revenue management systems are about transactions, while a sales CRM is about communication and building relationships. Marketing systems collect information about guests, and the hotel PMS has all the information about the reservations, which reflects guest behavior. These systems never interact, which makes it more challenging to collect information into one system for analysis to create an optimized distribution mix.
Capturing the demand
Lack of information is also due to laziness from hotel staff members to add valuable information into systems for later analysis and more intelligent decisions. One example is when a front desk employee receives an inquiry for a hotel room that is fully booked; the employee will tell the guest that the hotel is fully booked and then do nothing else. As a result, valuable information about the demand for specific days is lost. It is even worse in hotels with extensive meeting spaces when employees tell the customer that the hotel is fully booked. They do not bother adding the inquiry and set it as a denial to capture the demand for the specific day. Finding the right distribution mix is only possible by knowing the demand for rooms and meeting spaces.
Guest/customer knowledge
Lack of information about guest/customer needs is also due to laziness from hotel staff members. Front desk staff needs to befriend the guests and ask polite questions about why they travel to the destination, where they come from, what they need, notice demographics, and register everything in the hotel PMS. The hotel can only optimize the distribution mix by collecting valuable information about the guest/customer.
Distribution channels
A long time ago, the only way to book a hotel was to contact the hotel directly. In the mid 1960ties, hotels started to use central reservation systems, but they were only for internal use. The potential guest had to call the hotel call center to make a reservation. The next step was additional hotel booking functionality in the GDS since travel agents wanted to serve their customers with all types of reservations for travel. In the 1990ties, online travel agents were born and grew rapidly when the Internet became helpful for ordinary people. It took hotel companies a while before they realized they needed to offer guests a way to make reservations with the hotel digitally. That was when the hotel booking engines started to emerge and grow. Over time, the analog booking channels decreased in popularity and will eventually vanish. The vast hotel call centers are already gone, and potential guests rarely call a hotel to make a reservation. A majority of all room nights are booked digitally today. The first step in optimizing the distribution mix over channels is understanding the audience the channel attracts.
Digital distribution channels
Here are three critical digital distribution channels to consider when creating an optimal mix.
Direct web bookings
Guests who use a hotel's website to book a room can come from various segments. However, some common types of guests who may prefer to book directly through the hotel website include.
- Loyal customers: Guests who have previously stayed at the hotel and have a personal relationship with the hotel or someone at the hotel may prefer to book directly through the website.
- Members of loyalty programs: Guests who are part of the hotel's loyalty program often book directly through the website to access member-exclusive rates and benefits and earn reward points.
- Guests seeking personalized experiences: Some guests may book directly through the hotel's website, believing it allows for more customized service or special requests. Guests would like to be able to reserve a table in the hotel restaurant and a spa treatment at the same time, but most hotel booking engines lack that functionality.
- Event attendees: Guests attending events or conferences at the hotel may book directly through the hotel website to access special event rates or room blocks if the hotel booking engine offers that functionality.
In addition, offering a user-friendly interface, special promotions, or packages is essential to encourage more guests to book directly through the hotel website. Forward-looking hotels should seize the opportunity to use AI to let potential guests build itineraries for their stay, including activities inside and outside the hotel.
Online Travel Agencies (OTAs)
Online Travel Agencies (OTAs) are popular among many guests, as they offer convenience, a broad selection of accommodations, and competitive pricing. Some types of guests who commonly use OTAs to book hotels include.
- Leisure travelers: OTAs offer leisure travelers an easy-to-use platform to compare and book hotels based on various factors like price, location, amenities, and guest reviews. They can filter options based on their preferences and find deals and discounts.
- Last-minute travelers: OTAs often have real-time information on hotel availability and rates, making them an attractive option for last-minute travelers looking for accommodations.
- Budget-conscious travelers: OTAs often feature special offers, discounts, and promotions, appealing to budget-conscious travelers who want to find the best deal possible.
- International travelers: OTAs often provide multilingual options and support multiple currencies, making it easier for international travelers to book hotels in their preferred language and currency.
- Independent and small group travelers: OTAs cater to independent travelers and small groups who plan and book their trips without the assistance of travel agents.
- First-time visitors: Guests unfamiliar with a destination may find it helpful to use OTAs as they offer an extensive selection of accommodations and in-depth information on each property, making choosing a hotel that fits their needs easier.
OTAs are typical "Do It Yourself" (DIY) channels and are superior to booking directly in terms of convenience in finding hotels and information about hotels. Today in our busy lives, time is money, so potential guests highly rate convenience. OTAs also offer loyalty programs where guests can redeem their points from more hotels than from only one mega-brand.
Global Distribution Systems (GDS)
Guests who typically use the Global Distribution System (GDS) to book hotels are often business travelers, corporate clients, and travel agents. As a result, the majority of GDS bookings are business travel related. Here's why these groups tend to use GDS:
- Business travelers: GDS allows business travelers to access various hotel options, compare prices, and book accommodations quickly and efficiently. Business travelers often have specific needs, such as proximity to meeting venues, and GDS can help them find suitable hotels based on their requirements.
- Corporate clients: Companies frequently use GDS to manage their employees' travel arrangements. It provides a centralized platform to book hotels, flights, and car rentals, streamlining the process for corporate travel managers. In addition, GDS often integrates with corporate booking tools, making it easier for companies to monitor and manage travel expenses.
- Travel agents: Travel agents use GDS to access real-time hotel availability and pricing information, allowing them to efficiently search for and book accommodations on behalf of their clients. GDS offers a comprehensive database of hotel options, making it a valuable resource for agents to serve their clients better.
The conclusion is if your hotel is located in a typical business destination, including the GDS in the distribution mix is a must.
Analog distribution channels
Analog distribution channels are slowly disappearing. Investing in marketing that promotes an analog distribution channel is a waste of money. Today, calling and emailing the hotel is considered an analog distribution channel that is very costly for the hotel. There are a few exceptions. Here are two that will likely stay analog since it involves site inspections.
- Weddings and social gatherings: The wedding is a milestone for everyone, and there is a need to go through all the details once or several times.
- Group bookings and events: Hosting large meetings or conferences also need site inspections to sort out all details and assure the potential customer that the hotel will deliver according to expectations.
The key to finding the right distribution mix
Please look at the following steps to determine the best distribution mix for your hotel.
- Could you look at your target market and understand their booking behavior?
- Could you assess the performance of your current distribution channels?
- Could you identify any gaps or potential opportunities in your current distribution strategy?
- Allocate resources to the most effective channels based on your analysis while considering potential costs and commissions.
- Please monitor and evaluate your distribution channels' performance to ensure they're effective and make adjustments as needed.
These steps are straightforward, but each step is a massive undertaking for most hotels. The reason is the need for both target market information and real-time information to monitor and evaluate each distribution channel's performance and cost. This explains why only a few hotels find the right distribution mix. All the others are blindfolded and have yet to determine if their combination is optimized.
The problem of "How to optimize the distribution mix" is one reason Demand Calendar was developed. The system has the following functions to help hotels find the optimal mix.
- Analyzing target markets/segments: By examining different target markets' booking behavior and preferences, Demand Calendar provides insights into which distribution channels are most effective for attracting specific guest segments. This allows hotels to prioritize and allocate resources to the channels that cater to their target audience.
- Monitoring channel performance: Demand Calendar tracks the performance of each distribution channel in terms of booking volume, revenue, and customer acquisition cost. This data enables hotels to evaluate the effectiveness of each channel and make informed decisions about where to focus their distribution efforts.
- Calculating customer acquisition cost: Demand Calendar identifies the most cost-effective channels for acquiring new guests by determining the customer acquisition cost per distribution channel. This information can guide hotels in adjusting their distribution strategies to maximize revenue and minimize expenses.
- Adjusting distribution strategies: Demand Calendar allows hotels to regularly review and adapt their distribution strategies based on data-driven insights. This continuous evaluation ensures that hotels maintain an optimal distribution mix that caters to changing market conditions and guest preferences.
Hotels need a system like Demand Calendar to find the most profitable distribution mix.