Understand the cost of your booking channels to maximise revenues
Written by: Stephen Hambleton, IDeaS senior product manager
Today, more than ever, Indonesian hoteliers need to understand that often a direct booking is the best kind of booking. However, while encouraging guests to book direct can help hotels bypass third-party commissions and fees, there are still many hotels that rely on the distribution and marketing reach of online travel agencies (OTAs).
Given the rising costs of distribution, it is critical to weigh the value of each booking channel. Hoteliers now need to ask themselves what is the actual cost of acquiring reservations through a booking channel and how much of that demand is needed.
Understand your reservation acquisition costs
To date, hoteliers have generally drawn on the vast amount of data stored in their reservation and distribution systems to optimise revenues. However, this focus is changing as reservation acquisition costs have increased and hotels have seen demand shift to higher cost channels with more pressure on bottom-line performance.
Understanding costs by channel—and evaluating which channels deliver the greatest returns for a hotel—can be a significant challenge, unless a property’s revenue management team has a common definition on the coding structure and a means to calculate cost of acquisition.
Hoteliers are increasingly focused on collecting data to understand the impact of acquisition costs. Identifying the true value of acquisition costs can facilitate short-term booking decisions and longer-term channel-value-centric decisions when contracting with distribution channel partners.
There are a multitude of ways hoteliers can determine the cost structure of a booking channel, including incorporating infrastructure and labour costs, like data servers, salespeople. For revenue management purposes though, it’s more appropriate to keep it simple and consider the cost of acquiring one additional booking through a channel. This will make it easier to compare costs on a channel-by-channel basis and build a foundation for optimisation—i.e., how hoteliers decide if they need one more reservation from that channel, or if they have demand from lower-cost channels.
Knowledge is power in contract negotiations
A hotel that knows the cost of its booking channels has greater power when it comes to contract negotiations with booking partners. This includes deciding how to agree to a fair commission percentage, or which rate and availability parity clauses to agree upon (and how a hotel is penalised for authorised breaking of said clauses within a contract).
The alignment of these clauses across partners are important prerequisites as a hotel puts sophisticated profit optimisation strategies in place (e.g., if a hotel closes or restricts bookings in one channel, must it do the same in all channels?).
The current value of these activities and the partner overall can be hard to evaluate, and the impacts are difficult to predict unless contractually committed. It is especially important as revenue management and marketing are typically a short-term centric discipline, with short-term promotions or pricing practices to drive demand across optimised occupancy dates. Trends or impacts of these distribution practices will play a key role in longer-term performance and should be evaluated as such.
Strategies for reducing acquisition costs
Indonesian Hoteliers looking to reduce their booking acquisitions costs should review their third-party contractual commitments to availability and rate parity and investigate introducing more flexibility into those commitments. These changes typically take time to go into effect and have a significant bearing on how hotels can enact longer term channel optimisation.
Through capturing their channel costs by looking at each booking endpoint in their distribution ecosystem—from direct online bookings through each GDS, OTA and group booking partner, hoteliers can effectively review and analyse their acquisition outlay. As a hotel considers each booking endpoint, it is important to define what the cost of taking each additional booking is.
Once a hotel has a clean data set from which it can isolate its channel costs, revenue managers can make the decision to take more or less of the available demand through various channels on the basis of the cost to take one additional reservation through that channel. That’s how Indonesian hotels will improve profit performance: by controlling costs on a channel-by-channel basis.
The distribution landscape is changing—ensure you get the most out of it
As hoteliers become savvier around the need to measure the costs associated with each channel and booking acquisitions generally, meaningful negotiations will occur between hotel brands and OTAs that help secure guests. It is those hoteliers who understand the cost versus value each booking partner delivers that will be best placed to hold effective negotiations and establish mutually beneficial business relationships.