Winning strategies to bring in new customers
By Elisa Chan, Assistant Professor of Marketing at Ecole Hoteliere de Lausanne (EHL)
How should hotels be reaching out to potential customers? When it comes to distribution channels, the discussion should never just be limited to the hotel's relationship with online travel agencies or OTAs. In our view, hotels should deploy strategies with the right mix of information to allow potential customers to make informed choices. In addition, hoteliers should leverage services offered by indirect channels to win over business from their competitors.
1. Distribution channels connect hoteliers to markets
Smart hoteliers see distribution channels as a means to connect to markets they can't reach on their own. By offering a wide selection of accommodation choices and technology infrastructure, GDSs create markets consisting of travel agents and travel managers, while OTAs attract individual travelers. For instance, Trivago attracts travelers who focus on price comparisons and HotelTonight attracts last-minute mobile travelers, while CTrip is the largest Chinese OTA. Hoteliers could strategically expand target segments by working with indirect channels such as these.
Cost is an important factor when it comes to selecting distribution channels, but it should not be the only criterion. Hoteliers must also consider the distribution channels' own markets, their ability to bring in business within high-need periods, and their ability to provide information about markets and competitors.
2. Leverage services offered by indirect channels
Some indirect channels provide market intelligence as part of their services. For example, Expedia Partner Central (EPC) provides performance indicators, such as revenue booked and earned, the tracking of bookings which went to competitors, and benchmarking of performance against competitors and the market in general, etc. Such market intelligence reports are available in real-time and free up hoteliers from laborious data collection so they can spend more time on decision-making.
In addition, Expedia also provides back-of-house technology support to hoteliers. EPC already offers mobile solutions to connect customers to hoteliers before, during, and after their stays. This March, EPC announced it would offer a sentiment analysis tool, Guest Review Insights, to hotel partners. More importantly, EPC also offers a revenue management tool, Rev+, which allows hoteliers to set prices based on their competitors' pricing as well as market demand, according to Ait Voncke, Vice President of Expedia EMEA. Rev+ features a 'market demand score' so that hoteliers can estimate demand based on data from the Expedia network, with a 'price calendar' for hoteliers to benchmark their prices against those of their competitors. These services require no capital investment and could potentially reduce the level of technology investment for independent hotels.
3. Expand market share by winning over customers from competitors on indirect channels
Taking EPC's report as an example, hoteliers could track the amount of business lost to competitors. When hoteliers are equipped with this level of insight, they could conduct case-by-case and trend analyses and, over time, improve their products by enhancing their value proposition. Hoteliers may find different competitive sets on a range of channels and would need to develop strategies for each channel to win business from their competitors.
Some hoteliers may wonder if winning over their competitors' business is a good idea, due to the commissions involved. Yet, the alternative is to lose business to your competitors. Since hotel customers are price sensitive, to increase hotel revenues hoteliers prefer building up strong demand before raising prices. When hotels continuously win over customers on indirect channels, they will be more confident about raising room prices and improving revenues.
In this regard, indirect channels which offer hotels greater flexibility in promoting their properties on their platforms have added value for hoteliers. Channels which allow hotels to tailor their offerings – whether featuring different amenities and facilities, according to market trends and target segment, as well as different room types and packages – can help hoteliers differentiate their product from those of their competitors on the same platforms.
4. Don't forget local demand generators
Most hotels rely on search engine optimization (SEO), pay-per-click internet advertising, emails, and retargeting to boost demand because many travelers use search engines and social media to find hotels. But the big spenders in branding and advertising a destination are really local companies, universities, government, non-governmental organizations, and tourist attractions. These tourism demand generators take a long-term perspective in their marketing efforts and could provide referrals for potential customers who come to the destination or the surrounding neighborhood for business or leisure activities.
5. Make sure your direct channels are always ready for business
When designing and implementing a distribution strategy, hoteliers should keep two issues in mind:
Firstly, the cost of customer acquisition is part of the nature of this business.
Before the advent of the internet, hotel distribution channel choices included tour operators, travel agencies, GDSs, reservation services and, to some extent, franchises. Hoteliers use distribution channels to reach potential customers, and pay commissions in return. With the introduction of the internet, hoteliers still leverage distribution channels, but are also able to use new channels such as brand.com, OTAs, and search engines. When new channels refer customers to brand.com or process bookings, they demand compensation just like traditional channels. The cost of customer acquisition will remain a cost of doing business.
Secondly, attributing the right credits to the right channels is still work-in-progress.
Travelers use a variety of information sources to search, compare, and book accommodation. Identifying the information sources used by those looking for a hotel during the buying process and granting the right credits to these channels are critical for marketers to deploy their distribution strategies effectively and allocate marketing resources accordingly. Yet the data required to develop the attribution model are spread among different channels as outlined below.
Property management systems (PMSs) track reservations made through brand.com, phone calls, OTAs, GDSs, etc. However, this information does not reveal the sources used by travelers. For example, most hoteliers would agree on the influence of Tripadvisor reviews on their hotel businesses, but the platform does not appear on most hotel PMSs as a source of bookings. Focusing on the current measured booking contributors may neglect other important channels used by potential customers.
On the other hand, Google Analytics helps hoteliers track the sites that sent most of their web traffic, as well as the sites their visitors went on to. Nevertheless, Google Analytics does not have information of the search volumes of a hotel and its competitors on indirect channels, such as OTAs or GDSs. Relying only on Google Analytics without referring to search data on indirect channels may ignore the contribution they have made.
To develop an attribution model, hoteliers need data from PMSs, Google Analytics, as well as indirect channels. Although there are many discussions about attribution models, the perfect model is still work-in-progress. Hoteliers need to be aware of the potential bias caused by incomplete data and of the risk of not paying enough attention to some distribution channels.
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