As the distribution landscape becomes increasingly complex and fragmented, hoteliers in all segments are faced with the need to measure net contribution from each channel, and make the right revenue management decisions in order to optimize channel mix and overall profitability.
The recent consolidation among the major OTAs is understandably causing concern about potential increases in already high commission levels. Simultaneously, burgeoning vacation-rental availability has started to impact leisure demand for hotel rooms, especially in major markets. There is a distinct need for new automated tools that allow savvy hoteliers to optimize their pricing and manage their distribution mix at increasingly granular levels with a positive impact on their top and bottom lines.
LodgIQ algorithms apply machine learning to extensive hotel and external data sets, and automatically optimising business mix based on net channel contribution and profitability. While hotel direct channels such as their own website and call centers tend to have the highest profit margins, luxury travel agencies are a very desirable channel for most hoteliers, not only for their moderate commissions but also their ability to deliver high rates and quality customers.
Generally speaking, travel agencies provide lower room distribution costs to hoteliers than the commissions charged by the major OTAs and the various middlemen that support 3rd party distribution to the OTAs. Further, guests who work with luxury travel agencies are more likely to be less price-sensitive and seek managed experiences, and are thus less likely to experiment with a peer-to-peer vacation rental. For hoteliers whose product is in the four- and five-star range, luxury travel agencies such as Virtuoso and their affiliated companies who are experts at selling the value of the experience of the stay, often provide much higher room rates at significantly lower commissions. Further, assuming the hotel delivers the promised experience, these guests represent a significant opportunity for repeat, high-revenue business.
With all of that said, the hotel’s own website and call centre are definitely the most profitable. Experienced hoteliers that have already invested in a quality web experience and wholly-owned or outsourced voice support can take advantage of the low cost of direct distribution through a variety of marketing techniques but the decision to buy direct will always come down to the prospective customer being offered the “optimal” price per room that fits his or her buying behavior and specific price-elasticity, which is only feasible through a sophisticated, automated Revenue Management system.
The best solution for hoteliers is to offer a combination of rates, often with right place/right time promotional offers that match the precise buying signals of each traveler, better and faster than the competition. Revenue management systems, such as LodgIQ, that provide data on historical demand and booking patterns, channel optimization, awareness of local events and competitors’ pricing, and a real-time scan of vacation rental demand in the immediate vicinity, give hoteliers the power to best balance their channel mix without sacrificing occupancy or ADR opportunity.
The changing ecosystem requires hoteliers to take more control of their commercial practices, specifically in terms of offering the best price – on their own terms – to the market via the channels that allow them to realize the best mix of high occupancy, high rates and high profit margins. And, in this new world, it’s more important than ever for sophisticated revenue management tools to push the boundaries of data science-based pricing optimization and channel mix management to achieve optimal profitability per available room.