Download How Shopping Analytics Can Optimise Hotel Distribution

WHITE PAPER
How Shopping Analytics
Can Optimise Hotel
Distribution
Table of Contents
INTRODUCTION4
1. What the fragmented landscape looks like5
1.1 Choosing where to sell – Getting harder to get right5
1.2 Monitoring Performance, Measuring RoI6
1.3 Distribution - A costly business6
1.4 Social does matter7
1.5 Google does matter7
1.6 So many channels - Choice, Chaos, Confusion8
1.6.1 Consumers8
1.6.2 Hoteliers9
2. What key elements are influencing pricing and bookings10
2.1 Price Setting10
2.2 Rate / Parity11
2.3 Speed and Responsiveness11
3. How does inventory distribution work12
3.1 Fragmentation12
3.2 Which Model - Push or Pull?14
3.3 Central Reservation System (CRS) under pressure15
3.4 Connectivity – the maze between guest searches and bookings16
3.4.1 Direct Connects16
3.4.2 XML - The Vital Dataflow17
4. Opportunities to overcome distribution challenges18
4.1 Inventory Allocations19
4.2 Real-time XML Data Environment19
4.3 Negotiation Strategies with OTAs20
4.4 Customer Segmentation20
FORWARD THINKING21
CONCLUSION21
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WHITE PAPER
Hotel Distribution Challenges – How shopping analytics
can optimise distribution
For many hotel companies, confidence that they are selling their rooms
through the best channels for maximum return remains the illusive ’Holy
Grail’. Why? Simply put, the pricing strategy for inventory and the choice
of distribution channel are inextricably linked, but the complete picture
that helps hotel revenue managers benchmark the relative contributions
of each channel to the bottom line is blurred or not available.
According to studies published by industry trade associations the cost of distribution is rising sharper than
revenue. This is not sustainable prompting hoteliers to look closer at their own performance metrics. Some
distribution channels can cost as much as 35 percent of the hotel room revenue. Such a compelling fact
should prompt any hotel to scrutinise their channel performance and contributions. Apart from financial
considerations, distribution also impacts marketing strategies and the technology required to manage the
shopping requests and bookings.
The hospitality industry, especially in urban areas and
popular resorts is highly competitive. This reality demands
that hoteliers keep a close eye on which channels deliver the
best returns, not only in room rates but also higher spending
customers, in order to be able to determine the true costs
affiliated with each channel revenue stream. Only when true
costs are known can channel selection be optimised.
The Internet has totally transformed the way travel products
are bought and sold. Airlines, hotels, and other travel
players use it to sell directly to customers in the hope of
reducing distribution costs. The travel sector’s ecosystem
is fragmented with suppliers and intermediaries often
competing for the same business.
This paper summarises:
• The challenges faced by hotel operators in determining a distribution strategy that meets profit objectives.
• How data-driven insight into channel performance (based on search and booking intelligence) can help
identify those distribution channels that are worth leveraging.
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Hotel Distribution Challenges – How Shopping Analytics Can Optimise Distribution
INTRODUCTION
The purpose of this white paper is to consider some of the key distribution challenges facing the hospitality
industry and to suggest ways that using search and booking analytics can help hotels to get a clearer picture
of the distribution channels they use. Armed with such insight, hotel revenue and distribution managers will
be better positioned to:
• Evaluate each channel’s contribution to its revenue stream.
• Negotiate terms with third party channels, referencing live data.
• Be responsive to real-time situations with rate or inventory adjustments.
The document offers specifically four perspectives:
1. What the fragmented landscape looks like
2. What key elements are influencing pricing and bookings
3. How does inventory distribution work
4. Opportunities to overcome distribution challenges
Hotel room distribution, one of the key parts of the travel ecosystem, is complex with many disruptive
influences transforming the landscape. By summarising some of the dominant forces driving distribution
technology and strategies today, we seek to demonstrate how search based analytics can give hotels the
insight needed to address their distribution pain points.
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Hotel Distribution Challenges – How Shopping Analytics Can Optimise Distribution
1. What the fragmented landscape looks like
The hospitality industry is characterised by an increasingly competitive, complex and costly distribution
environment. This section gives a short overview of the different routes and channels a travel buyer’s search
for a hotel room can take and some of the potential cost implications for hoteliers.
How much does it actually cost to acquire a customer? Although a key issue for marketing, it is also central
to revenue management and lies at the heart of inventory distribution. How much does it cost, especially in a
competitive environment, to:
• Attract the customer
• Secure the booking
• Promote loyalty and get them to return
Discussions are taking place in the hotel industry about the high cost of distribution. In order to manage and
contain these rapidly rising costs, they first have to be identified and ultimately measured and monitored.
Whether using third party distribution channels or not, the hotel largely retains the risk and loss of revenue for
any room that goes unbooked.
1.1 Choosing where to sell – Getting harder to get right
Once upon a time, there were only a few intermediary distributers to deal with including the four Global
Distribution Systems (GDS). Travel agents for both business and pleasure tended to go through the GDS
network to request and confirm bookings. At that time centralised availability and reservation systems
could cope with the search levels and bookings. Then came the Internet and with it a proliferation of online
distribution channels as well as opportunities to reach the consumer directly. Distribution became more
fragmented while the demand for travel products grew requiring more connections to the various distribution
models. As a consequence centralised systems were put under pressure.
Today, hoteliers rely heavily on third party Internet Distribution Systems (IDS) such as OTAs and Metasearch
engines as well as the traditional GDSs to help shift rooms profitably before their sell-by date.
• Global Distribution System: Offline travel agents and Travel Management Companies (TMC) are still
heavy users of the GDS and hotel bookings through the GDS is still growing. According to Travelclick
in 2013, the GDS delivered 58 million hotel reservations, up 5 million from 2011. Considering these are
largely corporate bookings with higher spending guests, accurate merchandising on the GDS remains
an essential part of the distribution mix for most hotels, whether chains, independents or part of
representation companies (RepCos) that deliver services, infrastructure and often branding packages.
• IDS: Currently OTAs and metasearch actually represent 45-55% of all digital hotel bookings. In 2012,
the global online travel business skyrocketed to 93 million bookings, worth more than $300 billion
for the year. Expedia, Orbitz, Priceline and Travelocity are currently the largest OTAs, and each has
thousands of affiliates. So when using an independent or niche site, there is a strong likelihood that it is
powered by one of these big four.
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Hotel Distribution Challenges – How Shopping Analytics Can Optimise Distribution
1.2 Monitoring Performance, Measuring RoI
The Internet has brought price transparency while distribution fragmentation has also brought price friction.
Third party distribution charges are a hot topic. Rather than passively accepting business from any channel at
any cost, or without knowing what the true cost is, hoteliers need to get smarter at actively managing their third
party relationships, avoiding dependency on any one player and negotiating hard on commission levels. To
succeed in favourable negotiations, granular data on the performance of each channel is needed. Analytics on
search data in relation to bookings should be part of this mix.
Getting available inventory in front of the right customer at the right time with the right price while maximising
revenue opportunities shouldn’t be left to forecast data or crystal ball gazing. Hoteliers should use real-time
data connections to ensure their room rates, availability and compelling facility descriptions are up-to-date and
accessible in those distribution channels that deliver the most contributions to revenue. This means measuring
the performance of respective channels against key indicators. This requires some investment in building up
the bigger distribution picture.
1.3 Distribution - A costly business
Distribution management remains an emotive topic for many hoteliers faced with the high costs in commission
charges levied by third party distributers.
Annual revenues from online hotel bookings is in the region
of $35 billion. Nearly half these bookings come through
third‑party intermediaries such as the IDS, which retain
15‑30% of the price of the room. While distribution costs
continue to rise, hotel profit margins are being squeezed.
According to a report published in 2012 by HSMAI, it
is estimated that in 2010 the US Hotel industry paid an
estimated $2.7 billion in commission to OTAs and a further
$1.3 billion to retail travel agencies through the GDSs. The
trajectory for these numbers is set to rise sharply and revenue
and distribution managers are continually looking for ways to
redress the balance.
Although hotels complain about OTA commission costs,
visibility into those costs is not reflected in the P&L. OTAs
pay the hotels the rate minus the commission (e.g. 25%) –
but the GDS commission is an outgoing payment and does
appear in the P&L. The same HSMAI report cites that when
hotels don’t see the OTA commission costs as an expenditure
line item, then it can be overlooked when measuring OTA
channel performance in terms of revenue contributions.
Revenue Managers should look at net revenue per available
room (RevPAR) (less the expense of booking the room) to
retain a real perspective on the erosion of profitability.
Historically, hoteliers have embraced Global Distribution Systems (GDSs) and Online Travel Agencies (OTAs)
as convenient sources of obtaining business and leisure guests without much effort on their part. Today, these
same hoteliers are seeking to increase direct bookings and, thereby, to increase revenues and margins and,
importantly, to collect more information about the customer. But selling direct also requires investment and the
costs of digital marketing should not be underestimated.
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1.4 Social does matter
Social media is transforming not just how people connect and stay in touch but also how they plan, share
information and make decisions. Increasingly social media and review platforms play a role in influencing
travel decisions. Several studies (e.g. Expedia and Cornell) have identified the impact of user-generated
content in the form of traveller reviews on room rates and ultimately revenue. A bad review can lead to an
immediate dip in conversion.
So, while the focus of distribution used to be simply the
handling of the actual booking of the traveller’s plans, today
distribution in the shape of marketing can play a role in
customer engagement at every stage of the trip – from
searching and planning, to booking, to the actual stay and
post-trip evaluation. The transparency of evaluations makes
this stage very important for reputational management,
emphasising the need for the customer services to be
integrated into the revenue management perspective across
the lifecycle of the booking. Not only to deliver customer
care and fix things when needed but also to deliver quality
guest communications such as timely confirmations, prearrival welcome information, upgrade opportunities and
general customer nurturing. Hotels ignore social media
at their peril, and those who incorporate it into revenue
management strategies will gain competitive advantage.
1.5 Google does matter
Offering advertising opportunities is what Google does best and with its own metasearch offering called
Hotel Finder it is establishing an inventory distribution platform that is attractive to hotels and competes
directly with OTAs. It does this by delivering everything a consumer could possibly want in one place (prices,
availability, multimedia hotel information, ratings, reviews), but without the subconscious tactics used by OTAs
to persuade the traveller that he is getting the best deal. Hotel Finder lets the consumer choose the best deal
for him from the options offered, and to go direct to the selected hotel website to make the booking.
The jury is still out regarding the extent of Hotel Finders’
impact on hotel bookings. It is predominantly a pay per
click solution that will erode organic positioning. A number
of chains are participating by integrating the Google API
to their CRS to push their real-time prices, availability and
inventory descriptions into Hotel Finder. It is an emerging
metasearch channel that hotels cannot ignore.
Google’s well established search capabilities enables
the company to collect data on consumer interests and
habits. Combining this personalisation knowledge with
travel search would open up the possibilities of delivering
better targeted search results.
This differentiation could make Google a more compelling business partner for hoteliers. By giving the hotel
searcher a better online user experience and the hotelier a better online marketing experience, Google’s
ambition to become the most popular travel search engine (in much the same way as general searches)
could be about to be realised.
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1.6 So many channels - Choice, Chaos, Confusion
Oct 2013
Price and convenience are the two principal drivers of internet usage that is giving the traveller more choice
than ever to search for and book travel products across different channels and different devices. From online
travel agencies (OTAs) to metasearch engines (including Google Hotel Finder and Tripadvisor) to last minute
mobile options to brand.com sites, the choice for the consumer is overwhelming. When metasearch looked
like being the way of the future to simplify the choices, the big OTAs quickly stepped in and bought out the
emerging metasearch brands such as Kayak (Priceline) and Trivago (Expedia) to maintain market dominance.
Even technology companies such as Pegasus and Amadeus,
who deliver B2B services and connectivity to the suppliers
(e.g. Hotels and Airlines) have created consumer facing
travel sites, such as ‘www.hotelbook.com’ and ‘www.amadeus.
net’ with the aim of appealing directly to the consumer for
hotel bookings in exchange for lucrative commissions.
It’s the giant OTAs with mighty budgets such as Expedia
and Booking.com who have carved out the lion’s share of the
online distribution market predominantly across the huge
travel markets of US and Europe. But the Internet has shown
that consumers are in charge and market trends can change
quickly. As Google, Facebook and Apple invest in new
technologies and services – the traveller’s preferred point of
entry to search and book travel products can quickly change
and disrupt the market.
With so much choice also comes confusion:
• Among consumers – which travel site will give me the best value for my trip?
• Among hoteliers – where does responsibility for distribution actually sit?
1.6.1 Consumers
OTAs and metasearch sites quickly became popular among travellers because they simplified the search
and selection process. Studies show that today’s savvy Internet shoppers surf multiple sales and review sites
looking for the best deal. There is a perception that they will get the best deal via OTAs. This is often true
especially in the case of packages and opaque rates.
Such consumer behaviour is disrupting travel buying patterns and throwing forecasting based on historical
analysis into disarray. Real-time data insight, especially at the point of searching is becoming increasingly
relevant to competitive positioning.
Currently one of the major industry challenges is the inability to convert “lookers” into “bookers”. In January
2012 Pegasus Solutions, the hotel switch company reported on average around 4,500 availability research
requests made to reservation systems for every one booking confirmed. A high look-to-book ratio requires a
robust reservation infrastructure to cope with the high volume of searches.
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1.6.2 Hoteliers
Oct 2013
OTAs and metasearch have deep pockets for advertising. With their prevalence in search engine results,
extensive distribution networks, and access to niche markets or last minute travel bookings, OTAs can help
hotels, especially the independents with smaller budgets, to reach audiences that would otherwise not be
easy to find. With so many channels to reach the traveller, hotel distribution managers feel under pressure to
make their inventory available through as many sales channels as practical. Best positioning often involves
media fees to be visible as well as commissions when a booking is made. To be effective hotels need to
make sure that their descriptions and assets are as up to date as possible and constantly refreshed across all
selected channels.
Traditionally, distribution is split across three functions (and usually 3 departments).
• Technical distribution experts responsible for the complex connectivity
• Marketing team who handle the hotel descriptions
• Revenue management handling forecasting and price setting
But increasingly today’s fragmented landscape requires that distribution, marketing and revenue
management functions to be more tightly knit together, and even under the same overall management. This
is already happening in progressive organisations in response to the proliferation of distribution opportunities.
These days, an OTA or metasearch engine can offer a hotel more than just a source of bookings. They want
to provide the hotel with a media platform for advertising its brand as well as availability. OTAs transact
the booking either on a retail or merchant basis while metasearch sites deliver the travel buyer directly to
the hotel or OTA to transact the booking. Either way the hotel often ends up paying media fees as well as
commissions.
So the distribution channel has become mixed with marketing opportunity which has become central to
the online booking process. Who is in charge of this distribution channel—those in revenue management/
marketing or those in charge of facilitating bookings (e.g. distribution/operations)? Both need to work
together to optimise the opportunity.
Multi-channel distribution strategies and channel management requires a deep understanding how revenue,
cost of distribution and traveller buying behaviour interact together.
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2. What key elements are influencing pricing and bookings
This section addresses the three key areas that hoteliers need to get right in order to successfully secure
bookings across the available channels:
• Pricing setting - to get the best price possible
• Rate parity - same public prices across multiple channels
• Speed and responsiveness: critical to be competitive
2.1 Price Setting
Revenue Management has historically focused on determining the exact rates and stay patterns that generate
the highest total revenue. This has come to be known as demand management based on forecast data. Most
chains and urban hotels use competitive pricing data and market intelligence as part of price setting.
To drive maximum revenue opportunities, revenue managers responsible for distribution need to know the best
way to evaluate the true value of each booking and the real worth of each channel? These are crucial points
when looking at bookings within the context of their acquisition costs. Which channel is delivering what type of
traveller, in what quantities and how often:
• Global Distribution System (GDS)
- deliver fewer guests (often corporate travellers)
- who pay more for their rooms
- spend more during their stay
• Internet Distribution Services (IDS) including OTAs and metasearch
- deliver higher numbers of guests (usually leisure)
- discounted prices
- spend less during their stay
Determining an optimal mix of business by channel and calculating what that mix means in terms of
occupancy and revenue contributions set-off against customer acquisition costs will help a hotel determine
direct distribution cost implications. Knowing the relative return is key to striking the best balance for the hotel.
Reliance on third party distribution channels has pushed up costs while adding a layer between the hotel and
the guest. This search for lower cost options and direct consumer access creates a conundrum. On the one
hand the many distribution channels have driven business acquisition costs to record levels; on the other hand,
the opportunity to reach a larger, global audience through these channels remains and is the very reason why
these distribution partnerships were forged in the first place. Today’s reality is that most hotels use a broad
distribution mix, but lack clear visibility into performance across all channels in real time, and their insight into
the shopping journey on third party channels is almost zero. Monitoring and measuring searches as well as
bookings can arm them with the missing elements to join the dots and make the right long-term decisions.
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2.2 Rate / Parity
Rate parity is the industry-wide practice of hotel chains setting and controlling the “best available rates”
offered through various distribution channels. Under rate parity, most publicly available channels display
the same rate for individual hotels. Rate-parity clauses have become a stringent part of OTA contracts
that ensure that hotels provide them with rates that are on par with the rates on the hotel’s own websites.
But hotels and OTAs can, and do, offer different rates as part of packages and through agreements with
corporate clients, with opaque sites (such as Priceline), with loyalty groups and with mobile apps.
There is some debate and judicial reviews as to whether rate-parity has a long-term future because it
can also be viewed as a restrictive practice preventing competitive price setting. When OTAs charge high
commissions for selling the same room, this is becoming untenable. Channel manager platforms automate
the rate loading process. Today, advances in personalisation capabilities using data is enabling hotels to get
round rate parity restrictions by fine-tuning specific deals for certain guest categories.
A consequence of the demise of rate parity and a better understanding of distribution channel contributions
could be for hotels to opt to work in closer cooperation with fewer distributors. This enables distribution,
pricing and marketing to become more targeted. To discern the best channels for their rooms, hotels must
become much better in understanding where their business comes from and how/where/when they can
stimulate demand.
The challenge for hoteliers in achieving room rate consistency, or rate parity, is managing the varying
commissions and transaction fees associated with the various booking channels. Pricing also needs to take
into account any offers, different room types or features, and seasonal rates that change monthly or even
daily. Therefore, the management of rates and the allocation of inventory to contracted distribution channels
must be monitored on a continuous basis in order not to fall foul of rate-parity rulings.
2.3 Speed and Responsiveness
In the competitive world of travel, the speed at which shopping requests are returned back to the traveller
with accuracy and relevance is an increasing differentiator. The element that can help determine whether a
certain hotel gets added to a selection list at all. It can be the difference between clinching a deal and losing
potential revenue. So servers and connectivity infrastructure need to be performing optimally all the time.
Looked at from the perspective of the distribution channels, there’s a wealth of descriptive content, images
and real-time availability information available. The challenge for the distributors is to get hold of the
information when they need it, quickly and efficiently. As the rapid pace of technology evolution and adoption
continues around the world, consumers expect access to comprehensive information from every entry point,
whether that is browsing on an OTA or metasearch site, using a mobile application or through social media.
On the supplier side of the picture, hotels must be able to consistently display and distribute their hotel
rooms and features through a variety of channels, while at the same time retaining control and minimising the
impact on their technology infrastructure and resources. Robust connection and data exchange are essential.
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3. How does inventory distribution work
The distribution network is a complex web of direct connections and intermediaries each with a distinct role
to play in getting availability, price and inventory (ARI) information to the consumer. This section gives a broad
overview of the possibilities making the argument that real-time connectivity is key to understanding:
• Search traffic and therefore the customer
• Channel performance
• Actual inventories available
A real-time perspective presents the opportunity to make rate or distribution adjustments in time to make a
difference to revenue performance.
3.1 Fragmentation
When deciding which individual distribution channels to engage with a hotel has countless options across
four main categories to choose from:
• Own Brand
- Direct hotel bookings (walk-in or phone) who use the Central Reservation Office (CRO)
- Online web site / Internet Booking Engine
• Internet Distribution Systems (IDS)
- Online Travel Agents (OTAs)
- Metasearch comparison sites
- Last minute mobile
• Global Distribution Systems (GDS) servicing
- Travel Management Companies (TMC)
- Airlines
- Travel Agents
• Wholesalers / Aggregators servicing
- Travel Agents
- Tour Operators
- Online Travel Agencies
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Most hotel chains and hotel representation companies (Repco) need to use them all and provide fast access
to descriptive content and real-time rate and availability information using whichever connection method
the distributor requires. Independent hotel chains tend to be more selective about which ones they focus
on. Each channel has associated costs such as commissions and advertising fees as well as some IT /
infrastructure costs.
New channels are always springing up which hoteliers need to evaluate and potentially integrate into their
channel mix. Not only has Google’s Hotel Finder arrived, but also, same day mobile, flash sales and other
distribution options closely linked to social media. A mixture of diverse channels and price transparency
across various channels – makes the whole issue of getting the price right for the context (e.g. channel and
customer) very challenging.
The diagram shows the complexity of the landscape and how the various pieces interconnect.
Hotel Distribution Landscape
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3.2 Which Model - Push or Pull?
For each distribution channel that a hotel uses it has to decide, which model works best for its distribution
operation in order to distribute ARI and receive reservation requests. There are two main models, push or pull
and often sometimes a hybrid approach is implemented.
• Push requires hotels to push ARI to distributers to be cached – this protects the Hotel’s CRS from
the impact of high look to book ratios, but means the cached information is rarely up to date. In this
case the distributer is required to store large amounts of data
• Pull allows a hotel CRS system to provide ARI data on demand - the Hotel’s CRS infrastructure
will need to be able to cope with high volume of look to book, and responses back to the distributer’s
consumers may be a little slower than when cached.
Hybrid models can be established whereby, for example, some rates or date periods can be pushed while
others are shopped to help buffer the shopping request hits and act as a consolidation point.
Pull Model
Push Model
SOURCE: The HEDNA Connectivity Working Group (CWG) White Paper: Push and Pull
Connectivity Models for Hotel Distribution
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3.3 Central Reservation System (CRS) under pressure
The CRS is the backend office system of the booking engine and is the critical system for hotels to manage
rates and availabilities centrally as well as collate statistical data of all incoming bookings. With the larger
hotels it is often integrated with the revenue management system (RMS) which in turn manages pricing.
Besides the administration of the booking engines data the CRS is connected to the GDS and channel
management, enabling all distribution platforms to be controlled from one place. Having all bookings
from disparate sources in the CRS gives the hotel the necessary overview of the all booking performance
regardless of the channel that delivered the booking.
The proliferation of online travel websites each generating a high number of searches for rates and availability
has put the hotel’s Central Reservation Systems (CRS) under severe strain. Before the OTAs arrived the CRS
sat at the heart of a centralised view of reservations servicing the GDSs and the hotel’s call centre/front desk.
It was the definitive source of rates and availability in real-time. But the diversity of channels coupled with
the explosive growth in travel searches has given rise to channel management systems and booking engines
designed to help streamline rate uploads across multiple channels and maintain booking confirmations.
Today, the constant stream of rate changes, availability, confirmations, credit card details (PCI compliant) are
sent from one system to another in an endless stream of XML or indeed the older and less flexible EDIFACT.
All this traffic puts pressure on bandwidth and system capacity.
Rate and availability caching solutions are often used to minimize the volume of real-time availability requests
that a channel needs to make to the hotel CRS, by storing responses from those CRS and reusing that
response in subsequent searches. There are two challenges in caching rates and availability:
• The cached values are subject to change.
• Large volumes of data need to be cached because cached rates and availability can only be used in
response to exactly the same search criteria that generated the initial cached response.
So a search response based on that data may not be accurate.
The sheer volume of searches has its own complexity that needs closer monitoring. Some of the smaller
players can deliver the highest returns in terms of high value bookings, yet equally another site can stress the
system sending large volumes of search enquiries with few bookings or worse still few bookings of low value.
This is certainly a look to book issue that Hotel Wholesalers and OTAs need to deal with.
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3.4 Connectivity – the maze between guest searches and bookings
The primary types of connections between Hotels and their distribution partners are via:
• Industry Switches (such as Pegasus, the industry
leader) that connects hotel reservation systems to
the GDSs, some OTAs and other online channels of
distribution. Often used when there isn’t critical mass
to justify a direct connect.
• Channel Managers that enable a hotel to update
from one place multiple connections to smaller third
party distributers.
• Direct Connects that connect hotel suppliers directly
to the GDS and larger OTAs are able to deliver realtime ARI and take bookings. Direct connects service
large data volumes and require hotels to be able to
technically support them.
Rising look-to-book ratios especially from the leisure traveller, is putting pressure on technology infrastructure
for hotel suppliers. The extremely competitive shopping environment requires hotels to pursue a dynamic rate
strategy, and to have the ability to handle an immense number of rate and availability requests. Technology in
the shape of switches, channel managers or direct connects need to be capable of returning the high volume
of requests within a 2-3 second timeframe.
3.4.1 Direct Connects
Direct connections are important for real-time data interactions. They provide a direct interface between the
hotel CRS and the OTA booking website or GDS. The integration provides a simple streamlined process for
all distribution updates between the connection points. Direct connects, usually XML (but not always) are
APIs that offer speed to market and accuracy as primary benefits. It is true that they are best suited to a
higher volume threshold.
With Direct Connects up to date rates are available at point of sale in the fastest and most accurate way
possible. They also support automated bookings by enabling the booking to be the integrated with the hotel’s
Property Management System (PMS) or CRS, or technology partner. This enables hoteliers to know exactly
how many rooms are sold and available, and then adjust the rate based on that information. Without the
direct connect automation, reservations from multiple sources would need to be manually uploaded resulting
in delays, errors and potentially incorrect inventory assumptions.
In the competitive world of online travel, being able to offer dynamic and accurate pricing is a competitive
differentiator, but does require dedicated infrastructure to support the shopping volumes, including multiple
redundant servers for each unique ARI function (availability processing and message transmission for
example).
The ability to integrate with the revenue management system and make rate setting decisions based on a
centralised approach and real-time data is a key benefit for hotelier.
Many OTAs, especially the larger ones, also appreciate the benefits of real-time direct connects in order
to be able to secure a guaranteed booking at a fixed price for their customer. They realize that revenue
management systems may be impacting rates not immediately reflected in a push of ARI.
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The widespread adoption of an open, standards-based approach based on XML is making it easier for
the industry to connect with APIs and interfaces. Technology and standards developments in this area will
continue to provide the right combination of speed, flexibility and future-proofing.
Having all of your data in a single, scalable CRS platform and using the appropriate direct connects from that
system will provide hotels with a consistent, easy to manage, global approach to reservation management
both today and into the future.
3.4.2 XML - The Vital Dataflow
The lifeblood of the travel industry is data sharing. This is done via Application Programming Interfaces
(APIs). Early on the industry adopted XML as the mechanism for sharing that data. XML was designed to
transport and store data, with focus on the content of the data. In search and booking transactions, XML
enables the sharing of:
• Real-time pricing and availability pushed into distribution for product positioning on selected travel
distribution sites.
• Supports hotel terminology including room types / rate plans, rate types, allocations, policies, etc.
• Handles bookings, confirmations, cancellations, etc.
In today’s marketplace, forward-thinking companies recognise that XML interoperability is a crucial
component of their travel systems as it provides the ‘information exchange plumbing’ among disparate
channels, based on open standards. Most importantly, customers are unique and hotels want to be able to
give their customers more options to customise their stays. Analysing XML search traffic holds the key to
flexibility and increased tailored responses to requests.
Each channel comes with its own distribution pros and cons and above all costs
OTAs
Metamediary
OTAs help hotels access global
markets, but charge high commission
per booking. Few market dominating
giants with big advertising budgets
often compete with brand.com.
Traditionally, OTA customer loyalty
has been weak, so now OTAs are
developing their sites to convert
visitors not just into customers for
hotels but into brand customers of
their own.
The name given to metasearch giants
that can disrupt the distribution
market by virtue of their scale. Google
is a metasearch with stated ambition
to become the preferred point of
search for global travel. Tripadvisor is
another as it extends its role beyond
reviews to metasearch. Apple and
Facebook are other tech giants who
are likely to play a big part in travel
planning and buying.
Metasearch
Price comparison sites that refer bookings to the supplier for a fee. Makes it easy for
travellers to look for and compare offers for travel products in one place, reducing
the need to jump across sites. Recognizing their popularity, larger OTAs have bought
metasearch engines, to complement their offerings and influence. Metasearch sites
control the ranking of OTA and hotel websites within the hotel search results based on
the value of bids each website has paid for the search keywords. The searches on these
sites have high conversion rates.
Global Distribution System
(GDS)
Four major platforms used by most
corporate travel agencies and other
agents to book airfare, hotel rooms
and car rentals. Offers chains and
independent hotels to display
detailed inventory descriptions, rates
and availability. Delivering generally
higher value bookings coupled with
moderate fees this channel can often
lead to profitable margins.
Wholesalers/Consolidators
Consolidators provide access to global
and specialised markets otherwise
difficult or expensive to reach.
Consolidators make a minimum
nightly room commitment to the hotel
in return for considerable discounted
prices from the published rate.
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Oct 2013
4. Opportunities to overcome distribution challenges
We have seen how the combination of traditional channels,
such as the GDS and voice and the diverse online channels
of OTAs, metasearch and social-media have made the
task of getting the most profitable distribution mix for the
property type more challenging than ever.
As a quick reminder of just how dominant the Internet
as a sales channel has become, figures from HSMAI and
PhoCusWright show that in 2011:
• 26% of total bookings for the top hotel brands came from online channels with
- 18% from Brand.com and 8% from OTAs
For independents, these percentages are even higher with
• 42% of bookings from online channels
- 32% from OTAs and 10% from hotel websites
But whether the hotel is owned, franchised or independent the primary objective for hotel revenue,
distribution and marketing managers remains the same: to sell as many rooms as available for the best
price possible to the right customers before the expiry date. To be successful, it is important that these
departments work together to manage distribution developments and understand how these can affect the
hotel’s revenue management, pricing strategy and ultimately profitability! Success also depends on investing
in two important ingredients:
• Real-time data environment (for ARI uploads and extracting business intelligence)
• Robust and scalable IT infrastructure and systems (whether in-house or outsourced)
Using a performance monitoring and business intelligence platform enables hoteliers to aggregate and
analyse data from a single application to manage the key areas of:
• Inventory allocation
• Real-time Demand Monitoring and Pricing
• Channel Performance / Negotiations
• Customer Segmentation
A dashboard can deliver decision-makers across departments with the relevant real-time metrics and
performance indicators they need to take action when needed.
So what are some of the key challenges facing hotel operators and how can real-time search monitoring be
used to address them?
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Oct 2013
4.1 Inventory Allocations
Working out how many rooms to offer through which channel and when
Hotel chains copied ‘yield management’ forecasting techniques from airlines to better manage their inventory
availability by using demand forecasts, based on historic data. These are used by hotel revenue management
departments to set allocations and to optimise the availability of different rates for different room types and
across various lengths-of-stays across different channels.
When demand is strong, it is easier to get the right distribution mix, and the cost impact of not doing so may
not be noticed. But at times of excess capacity getting a less than optimum channel mix can cost hotels
extra money in high commissions or even reduced prices, both of which impact profitability.
Opportunity:
Real-time monitoring of search traffic through major distribution channels
Revenue management and distribution management go hand in hand in search of selling the right product
to the right customer at the right time for the maximum price possible by the right channel! Real-time
monitoring of distribution channel performance, where possible, gives hoteliers an accurate view of their
inventories at any given time, enabling revenue managers to make appropriate rate setting and channel
selection decisions.
4.2 Real-time XML Data Environment
Establishing real-time demand & booking pace to help optimise pricing strategy
Competitive pressures mean hoteliers need to know demand patterns for their properties as accurately
as possible as it happens. Demand is a key influence on price, while at the same time price can influence
demand. Pricing is one of the most critical decisions hotel revenue managers make. Since the Internet
has introduced price transparency and empowered consumers to make competitive price comparisons,
developing the right pricing strategy based on demand is more complex than ever. Selling rooms for less
than the optimum price or indeed not at all can be very costly. So it is imperative that revenue managers
have the demand insight they need to price with precision keeping profitability in mind.
Market demand can change rapidly and hotels should have the flexibility to take advantage of that change (if
they can see it).
Opportunity:
Monitoring real-time search traffic for early warnings of high, low or abnormal demand flows
A real example can illustrate the point. In 2011, a US Airways held a 3-day promotion for bargain flights from
New York to Cancun in Mexico for a given time period. This air travel offer had an immediate impact on hotel
availability in Cancun - before anyone could change their pricing strategy. The ability to monitor real-time
search data (not just bookings) can alert hoteliers to sudden demand surges as well as capacity surpluses.
Search intelligence can help hoteliers optimise their pricing strategies and manage their inventories in time to
make a difference to profitability.
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Oct 2013
4.3 Negotiation Strategies with OTAs
Knowing which OTAs deliver the best customers, for the least price
When distributing inventory through OTAs hotels need to recognise that in conjunction with their affiliates,
OTAs are powerful marketing organisations with big budgets. OTAs know their success depends on effectively
gaining access to rooms inventory and negotiating advantageous contracts with those hotel inventory suppliers.
Opportunity:
Real-time search traffic translates into channel performance analytics
Hoteliers should use analytics to select the most appropriate and productive OTAs to work with and then
manage day-to-day participation. This can be done using intelligence derived from real-time direct connects.
The more a hotel knows about the actual performance of a particular OTA, the better the negotiation position
regarding contract terms and commissions.
4.4 Customer Segmentation
Identifying customer categories
All roads start and end with the guest. While ‘Amazon-style’ customer intimacy and the ability to deliver 1-to1 personalised offers or recommendations is everyone’s ideal, including perhaps the customer, making this a
reality has a long way to go. Such personalisation requires a 360-degree view of the customer through greater
integration of a hotel’s Property Management System, (PMS), Central Reservation System (CRS), Revenue
Management System (RMS) and Customer Relationship System (CRS). This level of integration still does not
exist. While some of the larger hotel companies may be making some headway with the potential of Big Data,
most hoteliers will not have the expertise or the resources.
But there are many things hoteliers can do to better understand the consumer searching for accommodation,
the context of the search itself and the distribution channels being used. Insight into the nature of the search,
such as leisure or business, families, singles or groups can be derived from every search request made to the
CRS for price and availability.
Opportunity:
Use real-time search context to identify customer segment and improve offers
The lines between leisure and business are blurring, making customer segmentation more challenging.
Business travellers often look for value via an OTA or metasearch route rather than the traditional travel agent
(GDS), especially for short trips, while online travel agents can also get inventory from the GDS for their leisure
travellers. Such bookings make it difficult to identify the purpose of the trip. However, using search context
such as short midweek stays as business and double room bookings over the week-end as leisure is a starting
point, and can grow in sophistication. This allows an hotelier to recognise a variety of consumer groups with
offers that matches their needs and budget level.
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Hotel Distribution Challenges – How Shopping Analytics Can Optimise Distribution
Oct 2013
FORWARD THINKING
In the world of travel distribution airlines are embracing
ancillary sales opportunities and extending the choices
offered to the consumer in the search and booking process.
The fast-growing list of direct online offerings by carriers
ranges from baggage, seating choice, early boarding, Wi-Fi,
airport transfers, meal choices, etc. Airlines’ see this as a way
to win direct sales and build brand loyalty while competing on
more than just price. IATA’s New Distribution Capability (NDC)
is the XML – based platform designed to make these ancillary
offerings available through third party distributers too.
Hotels are in the same position of wanting to win back more sales to their own websites and become more
differentiated. Advanced search capabilities at the time of searching holds the key. As rate products and trip
requirements become more complex, such advanced search capabilities will be required to offer flexibility at
the right rate and availability match.
Currently it is not possible for a customer to search and assemble multi-night stays on different rates. For
example a 4-night stay where the first two nights are single occupancy without breakfast at the corporate
group rate and the following 2 nights are double occupancy at a cheaper package rate that includes
breakfast and dinner. Nor is possible to be selective about the room’s location. Lower floor, quite side, not
near a lift or a stairway. The best the guest can do to alert a hotel of preferences is to type in a special
request and hope for the best.
More choice will inevitably mean more complex inventory management systems for hoteliers to maintain,
but the Internet is empowering consumers to be more demanding in what they want, more mobile in their
searches and more social in their sharing.
Through the use of better profit metrics and more robust analytics the hotel industry will find better ways of
dealing with the ever-changing world of distribution.
CONCLUSION
Using real-time search and booking data analysis enables hoteliers to:
• Measure the cost of each channel in relation to the value that it delivers to profitability.
• Segment customers with a view to making offers more relevant to their situation.
• Recognise demand highs and lows – in time to adjust pricing and channels.
• Rely on systems and infrastructure to support real-time pricing updates (dynamic pricing).
• Monitor those systems for optimum performance and responsiveness.
• Collect performance reporting data to better negotiate contracts in the future.
These six capabilities can transform and strengthen a hotel’s inventory management and distribution strategy
with an additional focus on improving the customer experience.
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Oct 2013
About Triometric
Triometric is a specialist provider of XML-based business intelligence and
operational analytics designed to help online travel companies meet the
challenges and opportunities of today’s fragmented distribution landscape.
Triometric technology helps customers manage complex distribution dynamics
by giving them deep insight into their search and booking traffic. This actionable
intelligence enables them to improve their business performance by reducing
costs and increasing revenue.
Triometric Web Services Analyzer is a powerful end-to-end web services
monitoring and analytics platform delivering actionable intelligence and
operational management from raw XML feeds. We help meet the diverse insights
needed by travel companies including travel distributers such as hotel wholesalers,
online travel agencies, meta search engines as well as travel suppliers including
hotels and airlines.
The solution’s origins lie in enterprise application monitoring, but today any
industry using XML technology can take advantage of the Web Services Analyzer
to unlock the value contained in XML data. The Triometric Team comprises of
some of the most skilled computer scientists and analytic experts dedicated to
making a difference for our customers.
Triometric is a privately held company based in Surrey, United Kingdom.
Customers in the travel sector include GTA, Hotelbeds, JacTravel, SERHS Tourism,
Miki Travel and Bonotel.
For more information visit www.triometric.net or email [email protected].
© Triometric 2014. All rights reserved.
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