Trends in distribution management - the operator's perspective

I had a chance to catch up with Eoin Furlong, Director of Revenue Analysis for Hilton World Wide last week.  Eoin’s team sits within the Revenue Management group at Hilton and is responsible for managing relationships with the third party Online Travel Agents (OTAs).  They act as a consultant and partner to the property revenue managers, and advocate for them with the OTAs.  They handle any connectivity issues, as well as provide reporting and auditing tools for the hotels.  He told me that his goal is to make managing the OTAs and measuring their effectiveness as easy as possible for the property revenue managers so that they can focus on managing streams of business that might be more profitable for the hotel. I was encouraged by the careful and measured approach Eoin takes to the third-party relationships.  It was good to be reminded that there can be benefits, if you understand where to look for them. I’ve categorized the general questions I asked with his responses below.  You can also hear him answer in his own words through audio clips from our conversation.

Do you believe hoteliers have given up control of their inventory?

Eoin was particularly passionate when I asked him if hotels have given up control of their inventory.  He thinks it’s a misnomer to say that.  He pointed out that relationships change with the ebb and flow of the economy.  Obviously during a downturn when you need the demand, you’ll make more concessions to get it, but he reminds hoteliers that now that the economy is swinging back up, we can take some of that power back in the negotiations.

He also pointed out that hotels discount in many areas, including tour, wholesalers, and even groups – and that it would be interesting to analyze levels of discounts offered to these groups and compare that to the level of discounting that takes place through the OTA channel.  In other words – OTAs may be the most visible, but they are certainly not the only culprit.

His final point, which was an excellent one, is that as much as the share of demand that is being booked through the OTAs is growing, brand.com represents a much larger share of bookings for most of the major hotels, and that is a highly profitable channel.  And he doesn’t want to forget about the more traditional channels like travel agents, GDS and voice.  Nurturing the personal relationships you have through these channels can result in a much higher rate, he says, if you have the right message and the right people to deliver it.

What are some best practices for working with the OTAs?

Eoin reinforced many times that the OTAs represent an opportunity for the hotels to fill rooms, but that the use of the channel and the pricing strategy should be evaluated in the context of the goals and strategies of the company, and needs and characteristics of the individual properties.  Ultimately, it is up to you, as a hotel company, to determine which channels are the most productive or profitable. You should understand if there are differences by geography, hotel type or other factors, and bring all this information to the table when you are negotiating terms.

Are there differences in the way that global markets leverage the OTAs?

Eoin’s team has global responsibility so we spent some time talking about the differences between markets globally.  He made the point that markets in Europe and Asia are much more dependent on wholesale or tour group business than the US.  This business is static, negotiated far in advance, and definitely deeply discounted.  In some of these markets, the floating discounts used on the OTAs might actually be more profitable, and could help these hotels to break their dependence on the static wholesale business.  He also pointed out that as the emerging markets, um, emerge (my words, not his), hotel companies have a huge opportunity to learn from what’s happened in the US market – through the two recent economic downturns and the emergence of the OTAs – and start out from the beginning with the right mix of business.

What about discounting?

We talked a lot about the temptation to discount, and the conflicting messages about dropping rates to steal share and maintaining rates.  In today’s climate there are many opportunities for hotels to offer deeply discounted rates through niche channels like mobile apps or flash sales.  Eoin cautions that if a hotel has a sound revenue management strategy in place, these channels shouldn’t be necessary.  When you find the need to push a lower rate into the market, he suggests, why not offer it through as many channels as is feasible, and then test to determine whether it actually helped drive the results you needed.  In fact, he recommends (and I emphatically agree), that hotels remember that you don’t always have to offer a discount to get consumers’ attention.  Offer driven messaging like partner opportunities or a local event can serve to remind guests why they want to stay with you just as effectively as a discount.  I think that a fallout of the recent recession is the industry’s focus on deal seeking and discounting, as opposed to value or benefits driven messaging.  Why proactively seek bad business when you can nurture your most profitable relationships?

What does the future look like?

Eoin is closely following the activity within the search space.  He sees that hotel companies are beginning to more proactively seek ways to compete in search.  There is an opportunity to capture the customer at the beginning of the search process before they find you through a non-proprietary site, and he sees the  industry actively seeking ways to monetize this channel.

Trends in pricing and distribution management are also featured in the New Pricing Strategies for Hospitality and Gaming webcast sponsored by SAS and the Center for Hospitality Research at Cornell University’s School of Hotel Administration.