Opinion: Online distribution strategy

Article by Max Starkov, Chief eBusiness Strategist at Hospitality eBusiness Strategies, Inc., New York City. www.hospitalityebusiness.com

9/11 created a major shift in how consumers book travel. The crisis created a dramatic drop in demand, which forced travel suppliers to introduce unprecedented discounts. Airlines, hotels and all other travel suppliers struggled to sell seats, rooms, car rentals to a significantly shrunk leisure and business travel market. The Internet allowed for smart and proactive suppliers to connect with their customers, move inventory and stay ahead of the competition. At the same time it punished those suppliers who had no clear Internet strategy and understanding how the Web and online distribution works.

The Internet: the greatest direct-to-consumer channel

Over the past six months all major airlines adopted, once and for all, the “Direct Web Distribution Model” i.e. direct consumer sales via the Internet. The abolishment of base travel agency commissions by the major airlines now, six months after 9/11, was no coincidence. The airlines needed this time to squeeze whatever they could from the old distribution system and enhance their new Web distribution strategies. It is a direct result of the newly gained realization that Direct Web Distribution Model works.

The airlines have perfected website and precision e-mail marketing to promote their special offers and sell seats. Actually, eMarketing has become the airlines’ preferred marketing tool. Why? It is cheap and it works! For example, precision e-mail marketing offers up to fivefold increase in response rates and tenfold lower conversion costs than direct mail (IMT Strategies). The Internet has saved the airlines tons of marketing dollars since 9/11. In place of full-page newspaper ads, the airlines used, extensively, precision e-mail to target specific market segments with unparalleled accuracy in their Web-only fare promotions and special offers campaigns. The Internet has firmly established itself as the airlines’ distribution channel of choice. Over 18% of all airline sales in 2001 were done via the Web.

As a result, over the past six months, leisure and business travelers alike realized that all of the very good travel deals were to be found not through a travel agent, or calling a supplier directly, but on the Web.

What is the situation in hospitality?

Unlike the airlines, hospitality companies, except for several major brands, did not take full advantage of the Internet as the cheapest and most efficient distribution medium. Not only that, but many of them became victims of their lack of understanding how the Internet works. Several major online discounters took advantage of the situation and increased market share at the expense of hotels’ direct and GDS distribution.

There is nothing wrong with using online hotel consolidators to upload your distressed inventory. But it is very wrong to turn these online services into your primary and, in many cases, only Web distribution channel. Why? If your hotel has not implemented all other aspects of the Total Online Distribution Channel Strategy discussed below, your hotel will appear on the Web only through your discounted rates offered by the online consolidators. Online travelers can find your hotel only through major online discounters or their affiliates. Which means that Internet users will always “bump” into your discounted rates and nothing else.

Therefore, as far as the Internet consumer is concerned, these discounted rates are de facto your published hotel rates. Period. The result is major brand erosion and price dilution with catastrophic future repercussions. If consumers consistently find on the Web only your discounted rates in the $129-$139 price range, how can your hotel convince them to pay the $199-$229 rack rates — online or offline?

What can hoteliers do to avoid brand erosion?

The answer is very simple. Hoteliers must adopt a comprehensive Total Online Distribution Channel Strategy, which focuses on two major areas, the Direct and Indirect Web Distribution Models.

The Internet is all about positioning your hotel at all “touch points” of interaction with the potential customer. If the online traveler looks for accommodations in your destination, he/she should be able to find your hotel website first through the search engines, your website affiliates, destination portals and CVB websites, and second your hotel through the online channels beyond your website: major online travel services, incoming operators, as part of packages offered by tour operators, demand-generation services like Hotwire, impulse-purchasing services like Site59, and perhaps via a discounter.

Direct Web Distribution Model:
In hospitality the Direct Web Distribution Model is a two-step process:

– Hotel website marketing: turning your hotel website into a 24/7 sales force: booking engine, website optimization, website functionality, customer e-mail capture, eCRM features.

– Search engine strategy: search engine optimization of your website, making your website visible to the search engines, improving its positioning on the search engines, listing it with 1500 search engine worldwide, domain name strategy, etc.

Indirect Web Distribution Model:
– Online distribution channels beyond the hotel website: there are over 60 major online distribution channels that are accessible to your hotel.

Here are some comments on these models you should consider with utmost urgency:

Direct Web Distribution Model

This direct-to-consumer model should become the foundation, the centerpiece of your hotel’s online distribution strategy. Why? It is the cheapest way to distribute your inventory: the cost of a booking via your website could be as low as $3-$3.50 while a reservation via your call center would cost a min