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Tim Peter

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July 30, 2013

How to Take Charge of Your Distribution Strategy (Travel Tuesday)

July 30, 2013 | By | One Comment

Tim Peter explains distribution strategy at HEDNA

Shifts in the online travel landscape have many hotels rethinking their distribution strategy. And with good reason. While some hotels and online travel agencies (OTA’s) have been slugging it out over new agreements, there’ve also been legal suits claiming price parity agreements and other tactics constitute price fixing between hotels and online travel agencies (OTA’s).

For instance, Jason Freed at HotelNewsNow highlighted a case in France accusing hotels and OTA’s of engaging in anti-competitive practices (HotelNewsNow interviewed me for the article).

As Freed notes:

“The most recent complaint in France names Priceline’s Booking.com, Expedia and Hotel Reservation Service, alleging the sites are breaking French and European competition rules by forcing hotels to give them their lowest rates and then barring them from offering discounted rates elsewhere.”

Now, I’m not a lawyer. I haven’t played one on TV. I don’t even watch The Good Wife or Judge Judy. So, I’m not going to comment on the legal aspect of this in any depth (unless of course, someone wants to hire me as an expert witness—just see my disclosures here first, please.

The one point I would note from a legal perspective, though, is not to bet on the courts or legislatures reaching a decision that necessarily favors your hotel or brand. Sure, maybe they will. Maybe they won’t. Maybe they’ll punt the issue down the road—not that that ever happens.

But your distribution strategy shouldn’t depend on vagaries of some city council, congressman, legislature, or lawyer.

On the other hand, I do want to expand on a couple of points made in the HotelNewsNow article as a marketing, e-commerce, and distribution guy.

Why Distribution Strategy Matters (or The Farmer and the Cowman Should Be Friends)

First off, let’s get this right out of the way: Hotels and OTA’s aren’t enemies.

Or at least shouldn’t be.

Hotels and OTA’s really do represent complementary services. At least in theory, anyway.

Hotels—the supply side of the equation here—frequently benefit from greater exposure offered by OTA’s. And OTA’s—the distribution channel—need a regular supply of hotel inventory to satisfy consumer/guest demand. That provides hotels the basis for a sound negotiation platform when dealing with OTA’s. Again, at least in theory.

The problem, of course, is too many hotels have become too dependent on OTA business and now, as Roland Héguy notes in the HotelNewsNow article:

“The online hotel booking platforms have become a crucial channel of distribution for French hotels, notably [for] the smaller [hotels].”

Some hotels simply depend on OTA’s for far too much of their business. And some OTA’s have taken advantage of that, pushing those hotels to accept less-than-ideal terms. Clearly, those cases neither reflect nor represent a healthy “partnership.”

Hotels, instead of lighting flaming torches to storm the OTA’s castles, though, should look at how OTA’s fit into their overall distribution strategy and use them accordingly. Remember, it’s your inventory. Use it to your advantage.

  • Hotels need a comprehensive distribution strategy. Filling rooms regularly is not best accomplished by outsourcing your property’s sales and marketing to just anyone who delivers room nights. Relying on OTA’s—or any other channel you don’t control—as your primary source of business most likely represents a recipe for… well, not disaster. But not a tasty meal, either, when folks who represent a disproportionate share of your business push for things you don’t want to do or pay or sign or… well, you get the point.
  • OTA’s often play a useful role in that strategy. But…
  • Hotels need multiple distribution channels to fill rooms. Your website, travel agents, corporate, meetings, and events planners, and others also have valuable roles to play. Just as you wouldn’t want all your eggs in one basket, neither should you depend on any one chicken to produce those eggs.
  • Your best customer is the one you talk to directly. So, if you’re going to err, err on the side of channels you control yourself. Think: website, mobile, email. Then look to other parties to fill in the gaps.
  • Invest in your own channels. Many hotels willingly gave up inventory to OTA’s in down periods because they didn’t have the means to invest in their own sales and marketing efforts. That’s understandable. As business conditions improve though, it’s critical for hotels to adjust their focus and invest more heavily in driving direct business.
  • Obviously, do what you need to do. None of this means you should immediately cut off valuable sources of business. But if you find yourself in a hole, first thing you want to do is stop digging. Don’t hurt your business today if you’ve got a note to pay. But, plan to move from less favorable channels by shifting share to more friendly partners and more direct business.

There is no “silver bullet” here. Executing against an effective distribution strategy takes time. If you can drop the folks who treat you like their personal chew toy, do so. Immediately. And if you can’t, play ball until you’re ready to walk away. Just make sure you’re actively working towards walking away.

What You Can Learn from Publishers Using Apple and Amazon as Distribution Channels

Hotels aren’t the only one’s facing these issues, by the way. Record companies and book publishers have been trying to regain control of electronic distribution from AGFAM players like Apple and Amazon for some time.

Ironically, at the same time record companies have tried to get away from Apple, publishers teamed up with Steve Jobs and company to wrest control of their e-book inventory from Amazon.

The result? A finding of antitrust and price fixing against Apple (and separate settlements between the publishers and regulators). One particularly relevant passage from the judge’s ruling states [PDF link]:

“The agreements also included a price parity provision, or Most-Favored-Nation clause (“MFN”), which not only protected Apple by guaranteeing it could match the lowest retail price listed on any competitor’s e-bookstore, but also imposed a severe financial penalty upon the Publisher Defendants if they did not force Amazon and other retailers similarly to change their business models and cede control over e-book pricing to the Publishers.”

As I mentioned above, how and whether this will apply to the travel industry remains very much up in the air, but as the ruling also notes:

“The advantages offered by these platforms have gradually been canceled out by the harmful effects of commercial practices…”

Perhaps the best lesson is to be careful what you wish for. Even though Apple (the distribution partner), was found guilty in court, the individual publishers each settle independently with the FTC and effectively ceded distribution back to Amazon (the less-favored distribution partner) as a result. I’m betting neither represent what the publishers were going for.

Conclusion

Despite the legal tussles shaping distribution today, you can’t rely on the courts or lawmakers to resolve these issues in your favor. And it’s a mistake to bet on any one outcome without also working to achieve the results you need.

Hotels truly interested in gaining control of their overall distribution must put in the effort to develop a robust sales-and-marketing operation or risk finding themselves in the same position with some other partner down the road.

During the downturns of 2001 and 2008, survival was enough. But now you want to do more than survive. It’s time to thrive. And the best way to do that is to take charge of your overall sales, marketing, and distribution strategy. Use OTA’s and third-parties where they’re appropriate. But put your focus on growing your web and mobile business to connect with guests directly.

Need help with your distribution strategy (or some other part of your digital marketing)? Give me a call at 201-305-0055.

And if you’re interested in learning more about travel marketing and where it’s going—as well as lessons that apply to a host of other industries—register to receive a special report I’ve produced in conjunction with hotel marketing firm Vizergy, “Digital Hotel Marketing in a Multiscreen World.” You can get your free copy of the report here.

Finally, you might also enjoy some of our past coverage of these changes in the marketplace, including:

Full disclosure: I have a number of clients in the hospitality sector and own stock in several hospitality companies.

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