Cost optimization and profitability: Cost-optimization has always been a central notion in revenue management. That being said, the pandemic brought renewed attention to the topic. Today, more than ever, proper cost control is crucial to navigate these difficult waters and prepare for the "new normal." Whether we like it or not, every single decision revenue managers take on a daily basis, has an impact on the bottom line, meaning that revenue management is not only about optimizing the revenue streams, but also about increasing profitability. Favoring the distribution channels with the highest profit has become imperative in our industry. But how can hotels calculate the cost-per-acquisition of each channel? What should be taken into consideration? And how can this analysis influence one's distribution decisions?

Oleksii Kapichin
Oleksii Kapichin
Revenue Management Expert

When creating a distribution strategy for the hotel, it's vital to consider channel-specific acquisition and distribution costs. But should it be the primary factor when choosing a hotel's distribution mix?  I think that before calculating channel costs, hoteliers need to answer the following questions:

  • Which segments book through a specific distribution channel?
  • Will the hotel get access to these guest segments through other channels?
  • Does the distribution channel generate unique demand? 
  • Does the distribution channel generate demand in high or low demand periods?
  • How much ancillary revenue hotel generates from guests booked via a specific channel?

Once these questions are answered, it's time to calculate distribution costs per channel. Naturally, hotels want to sell rooms via channels that have the lowest distribution costs. But can hotels afford to ignore less profitable channels?

In my opinion, hoteliers should consider channel-specific demand, ancillary spending, seasonality, and costs to answer this question. For example, if the distribution channel is expensive, but it brings demand that will not be booked through other channels or guests that book via this channel tend to spend more in hotel outlets than channel should be part of the distribution mix. 

What if the channel is expensive and demand is not unique? In this case, hotels should develop a strategy to move customers from expensive channels to less costly channels (shift share).

What if two channels have unique demand and it's a high demand period for the hotel? The hotel should give preference to the distribution channels that have lower distribution costs and higher ancillary spending.

To conclude, hotels should not base distribution decisions only on channel costs. Instead, a variety of other important factors should be considered. Only when hoteliers see that whole picture can they make strategic decisions that will maximize profitability. 

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