Demystifying Distribution 2.0

EXECUTIVE SUMMARY T here are many disciplines within hospitality claiming to have the highest impact on profitability. Revenue management, brand marketing, asset management and development can all make this case. Distribution strategy is the underlying foundation for all of them. Distribution is the circulatory system of the hospitality organism. It has moved far beyond the original job as the hospitality “plumber” that makes sure the reservation “pipes” are clear. Distribution strategy regulates the heart to make sure it pumps the needed business volume throughout the organization and it does so by addressing all paths taken by consumers during the trip planning, booking, stay and post-stay experiences. Management of distribution has moved from a focus on technology and cost control to one of marketing and revenue management; the discipline requires a dual effort to manage distribution of reservations along with media and brand messaging. Successful asset management and real estate development are heavily dependent on the deployment of an effective distribution model. Revenue management, brand marketing and distribution are increasingly more intertwined as they share the common goal of a highly productive and efficiently operating circulatory system for business. Some predict they will merge into one discipline (could be called demand management)1 which will become the primary focus of the chief marketing officer. The revenue at stake and the high costs of distribution bring this issue into sharp relief. The online travel market is enormous. What started as the new venue for the larger chains has evolved into a level playing field where chains and independents alike vie for the attention of the consumers’ lucrative mouse clicks. In sheer volume, in 2000 about 20% of all bookings were made through GDS and Internet sites and of that total, about 90% came from GDS systems. That equated to about 2% of all bookings coming from Internet websites. PhoCusWright projects that hotel Internet gross bookings will reach close to $40 billion by 2009, representing almost one-third (31%) of all hotel revenue booked. These numbers represent averages though. There are independent hotels and smaller chains that regularly report more than 50% of their volume comes from electronic sources. The real story is not only about the business that is actually booked electronically. Just as valuable is the business that is influenced by an electronic distribution channel. ROI Research cited statistics showing the average search user spends $2.56 offline for every $1 of online bookings; Y Partnership claims more than half of online travel shoppers ultimately purchase offline.2 All hoteliers, whether their hotel(s) are above or below the industry average, whether or not they are affiliated with a branded chain, need to understand fully their options and capabilities relative to their distribution strategy and tactics. Although online revenue percentages may be one-third to one-half of the total and growing, it means that sales coming through offline channels still represent one-half to two-thirds of all revenue. Some is due to the influence of online 1 2 Chris Anderson and Bill Carroll, Demand management: beyond revenue management, Journal of Revenue and Pricing Management, July 10, 2007 ROI Research 2006, eMarketer; Y Partnership cites 51% of online travel shoppers book offline in their 2006 consumer survey as reported by eMarketer 16 PUBLISHING PARTNERS TIG GLOBAL | PEGASUS SOLUTIONS

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