How to Build a Profitable Hotel Distribution Strategy?

How did hotels sell rooms before the internet? Pretend for a second you manage a hotel before the internet arrived. Your hotel distribution strategy probably centres around a phone and a travel agent who acts as a middleman between travellers and your hotel. 

Basically, it was way more complicated to reach guests.

Fast forward to today, guests can browse between hundreds of websites and travel agencies that feature property details and hotel availability. Despite the internet making hoteliers’ lives easier – it’s easy to get lost as hotel distribution strategy grows more complex. 

What’s the best way to decide which channel to use? Should your hotel work with all of them, or is one enough? 

This article will help you find answers to these questions as we cover the essential elements that go into building a profitable hotel distribution strategy.

What is a Hotel Distribution Strategy?

Hotel distribution strategy refers to the mix of channels through which you sell hotel rooms. Often, this strategy will be based on the acquisition cost per customer of the various channels through which you can reach your guests.

These channels include:

• Online Travel Agencies (OTAs), like Booking, Expedia, or Agoda;
• Hotel direct channels: website, phone, emails, social media;
• GDS – Global Distribution Systems;
• Wholesalers;
• Metasearch engines like Google, Tripadvisor or Trivago;
• Destination Marketing Organizations (DMO);
• Offline bookings, like walk-ins.

Ultimately, an effective distribution strategy should aim to increase hotel visibility and target the right customer segments for your property. 

Why is building a distribution strategy for hotels is essential?

Simply put, more visibility, more bookings, and better reviews mean more chances for success. 

Creating the right strategy is vital to:

• Increase revenues
• Attract the right customers
• Improve reviews

What are the Types of Hotel Distribution Channels?

The distribution landscape consists of both online and offline channels. Below we’ve described some of the most popular distribution channels in the hotel industry.

Online travel agencies

OTA’s are websites where potential guests can search for accommodations, check prices, and book rooms. There are hundreds of OTAs, from the major ones like Booking.com or Expedia to the niche websites like BringFido (designed for guests seeking pet-friendly accommodations).

To list on OTA’s, hotels pay commissions ranging between 15%-25%, from each booking. The bright side of selling on OTA is the ability to enter markets that would otherwise be harder to reach. 

For example, hoteliers can attract travellers from South America via Despegar or South Korea on Ctrip. 

Despite their reach and convenience, there’s a love and hate relationship between OTA and hotels. This is mainly due to the fact that OTA’s take high commissions for listing and selling hotel inventory. On the other hand, OTA’s give properties more exposure and make them easier to find. 

Plus, have you heard about the billboard effect?

Must Read: Who’s Really Winning The Battle Between OTA and Direct Booking?

The billboard effect

Did you know that up to 35% of direct hotel bookings result from travellers finding the property on a third-party website? 

A significant number of customers will first find a hotel on a website like Expedia and then book directly through the hotel website. That’s the billboard effect – without which you would potentially need to spend more money on advertising and search engine optimization tactics to improve your page ranking on Google.

Direct channel

Direct channels include hotel websites, social media, emails, walk-ins, and phone bookings. You don’t need to pay any commission for direct bookings, but you do need to add the costs of maintaining a website and booking engine.

GDS

A Global Distribution System is a network used by travel agencies for researching and booking flights, hotels, and cars for clients. Examples of GDS’s are Amadeus or Sabre. Any hotel using a GDS will be connected to multiple travel agencies which will then refer guests.

Wholesalers

A wholesaler is essentially a middleman between a hotel and an OTA or travel agency. They purchase rooms for specific dates in bulk at discounted rates, wrap them in a package, and sell them to the OTAs, travel agents, or tour operators.

Metasearch engines

In recent years metasearch engines like Google have become more critical to the hotel distribution landscape. A metasearch scans through OTAs and hotel websites and shows travellers hotel rates on different channels for their chosen dates.

As Google is one of the first places where travellers will hit the search button, it’s no wonder that the search giant now plays a key role in hotel bookings. What’s more, with the ability to list hotel booking links on Google for free, hotels can be more competitive versus OTAs and can increase their direct bookings.

Embracing this growing metasearch trend could play a key role in your property’s distribution strategy. 

DMOs

Destination Marketing Organizations are the organizations in charge of promoting a given city or country. Partnering with them usually includes the ability to feature hotel info on their website and social media as a preferred accommodation partner. 

How to Build a Profitable Hotel Distribution Strategy?

A successful strategy will include a mix of channels. To choose the proper channels for selling  your inventory, you’ll need to take these next points into consideration:

1. Get to know your best guests

When we talk about choosing the right distribution channel in the hotel industry, we mean choosing the one through which your target guests are looking to book. 

But to make sure you get those bookings, you need to know who your guests are first. 

To do that, you can use your Property Management System (PMS), channel manager, and booking engine data. 

For example, if your guests are budget travellers you can include OTAs like Hostelworld in your strategy. But if a large number of your guests are from South Korea, then their most popular channels are Agoda, Ctrip, or Booking.

If you have different types of guests, you can create a range of different value propositions. A family with kids won’t look for the same features in your hotel as a business traveller. Knowing that you need to choose the channels where those different guest types book and offer them what they are looking for.

2. Set business objectives

It’s always a good practice to set clear business goals in order to identify your most profitable channels and include them in the distribution mix. So, what are your objectives?

Is it to fill in the rooms during the low season? To reach more international markets? To diversify your distribution and stop relying on one channel? Or,  do you want to be able to fill last-minute vacancies quickly?

Your property may want to create a specific atmosphere, and not all channels might bring the type of client you want.

Setting clear business goals can be a great help in deciding which channels to include in your strategy.

3. Track customer acquisition costs 

What’s the point of selling rooms on a specific channel if the costs are higher than the profit it brings? 

Sometimes the price for hotels to acquire a guest is more than double the room rate. It’s important to quickly identify and eliminate ineffective channels from your distribution strategy. 

So can you know which are effective and which are not? 

To evaluate channel effectiveness, you will need to understand the costs of guest acquisition. The hotel industry uses the NetRevPAR metric to monitor it. 

If you’re scratching your head right now and wondering what that is, here’s a quick explanation:

NetRevPAR is the revenue per available room after deducting the costs incurred to acquire a guest.

Calculating this metric will tell you how much net revenue you’re receiving from each booking.

The formula for it is as follows:

NetRevPAR= room revenue – distribution costs (e.g.,cost-per-click + marketing + third-party commissions) / available rooms

4. Invest in a direct channel

There’s no doubt that the direct hotel channel should be a priority in any hotel’s online distribution strategy. Neglecting it will undoubtedly result in lost (commission-free) revenue opportunities. Direct channels include hotel websites, booking engines, and social media strategies.

You need an easy-to-navigate and attractive website 

Your website will be a guest’s first contact with your hotel, so make sure it’s aligned with your brand and objectives. 

Importantly, around 70% of travellers did travel research on mobiles. 

Conclusion? Make sure to optimize your website for mobile phones.

Google research has also shown that over 25% of consumers across a  range of markets and industries mention pain points like availability, payment issues, and customer support when they shop online. It’s good to keep this information in mind and facilitate the booking process on your website in order to make it as simple as possible for guests to book a room.

In addition to a great website, you’ll also need a good booking engine, which allows guests to check availability and make reservations with instant confirmation. Want another good idea? Adding a chat function to your website can help potential guests quickly resolve any doubts or questions that arise on their booking journey. 

Don’t forget about socials

Investing in direct channels includes an aligned social media strategy. In fact, digital content inspires 65% of next-gen (millennials and gen Z) travellers to plan a trip. So many travellers these days reference Instagram or Facebook to check out a hotel and decide if it’s the right choice. Don’t neglect social media as you risk losing potential guests who rely on it to inform their decision-making.

5. Review strategy

Once you increase online visibility, reviews are inevitable – and can be extremely valuable. The review strategy you put in place should go hand-in-hand with your hotel’s online distribution strategy and revenue strategy. 

Online reviews can help increase your rankings and popularity and will influence the value of your offer in the eyes of potential customers. Of course, it would be a dream to always receive positive feedback, but you understand the reality as a hotelier. 

There will be some negative reviews, and so you should be prepared for them. Respond to and address every negative opinion, as these can hurt your hotel’s reputation. 

6. Use dynamic rates across all channels

Implementing dynamic pricing across all your channels will significantly increase your competitiveness. 

Dynamic pricing means adapting prices on each booking channel based on availability and demand. When demand and occupancy are high, instead of closing availability on a specific channel out of fear of overbooking, increase your prices. In times of low, reduce your rates to drive more bookings.

7. Maintaining price integrity

When using dynamic pricing in your hotel’s online distribution strategy, remember to maintain price integrity. Avoid colossal price drops to fill your empty rooms. Some customers can see be put off by seeing rock-bottom prices: it makes them wonder if it’s too good to be true. 

What’s more, keeping the price integrity can help you in protecting the customer base. Avoiding unwanted types of guests results in a better hotel atmosphere and happier clients.

Additionally, when you drastically lower rates, you may not turn a profit despite filling your rooms. The cost of attracting a guest and maintaining the room may end up being higher than what the guest actually paid. For that reason, make sure you factor in those other costs to determine if the decision will be profitable or not. 

Hotel Distribution Strategy and Technology

To implement an effective hotel distribution strategy need the right set of tools. These tools can include a channel manager, booking engine, PMS, revenue management system, rate shoppers, and a reputation manager. Of course, it’s not obligatory to have all the tools for hotel distribution management. You might consider starting with the first three mentioned and adding the rest along the way.

Channel manager

A channel manager connects your property to all your chosen distribution channels. It will help you effectively manage your inventory and avoid overbookings. You can adjust room prices from the channel manager, set stay restrictions, and build pricing strategies.

Booking engine

A booking engine connects to your website and channel manager. It allows website visitors to check room availability and make reservations directly with you. What’s more, when the booking engine connects to payment getaways, customers can be charged immediately upon making a reservation.

Property management system (PMS)

A PMS is a system used to manage your property as a whole. You can say it’s like the heart of a hotel– it includes a listing of all rooms and reservations, guest details, as well as housekeeping schedules and property details. It gives hotel managers valuable insights in the form of a range of reports: bookings, occupancy rate, revenues, and availability. Nowadays, most PMS’s are cloud-based, meaning there’s no need to install any system directly on your computers. 

When combined, a PMS, channel manager, and booking engine can greatly improve hotel operations as they work together. 

Revenue management system (RMS)

Hotel distribution strategy should also align with revenue management strategy. In the current competitive environment, it’s essential to use real-time market data to inform your prices across all selling channels. 

Setting your prices manually takes valuable time and can be extremely frustrating. In an environment where demand changes so quickly, you need to react just as fast in order to capture the maximum amount of revenue. Fortunately, technology can be a great help here as well: RMS’s like Pricepoint connect to your channel manager, scan hotel and market data 24/7, and automatically send optimized prices to all your channels in real-time. 

There’s no question that using an RMS can give you and your property a competitive edge. It is without a doubt a must-have hotel distribution management tool. 

An RMS reacts instantly to changes in demand and pushes optimized prices to your OTA’s. Meanwhile, competitors setting prices manually will be left behind – and they’ll leave potential extra revenue behind as well.

Reputation management systems

Reputation management systems help you create an overview of your online reviews across all booking channels. It generates a summary of your overall reputation and enables you to easily identify areas where there is room for improvement.