WHAT CHANNELS CAN YOU USE TO REACH THEM?

You might envy your retail colleagues who make physical products. Often all they have to decide is which retailers to use and whether to use a wholesaler distributor or wholesale direct to retailers. They do not retail from the factory gate and the only way you can get hold of the product is to visit the retailer. All their efforts are directed at ‘pulling’ demand from the retailer by advertising or sales promotion or ‘pushing’ demand by retail incentives: a very simple chain.

Contrary to this, in the hotel business we have developed a very complicated set of options involving decisions about selling direct, using a variety of different types of retailer and maybe at the same time wholesaling some room availability. Budget hotels have tried to reduce the options by developing a very effective central reservation organisation based on the internet. Some budget airlines have gone a bit further by only retailing through their website, which is a great solution if you can ensure that your potential customers get to appreciate your total value for money, not just your prices.

So before you try every distribution channel and end up with an administrative nightmare, look through the options and see what suits your circumstances. If you are at the end of a very long delivery chain involving an electronic channel and a travel agent you will obviously pay more costs and commission. On the other hand the rate might be higher, so your net revenue per room may well be better.

Wholesalers often promise good business when you need it but they release unsold rooms back to you at the last minute and they also want net rates that are at least a 30 per cent discount off your full rate, so your net rate will be low. Your decision is about what channel will generate the best net revenue for each particular room each night.

Help with distribution

There are a number of options for independent hotels that want to have help with their distribution strategy. These vary from full franchises where your hotel name is replaced by a brand to simple reservation companies. You do not have to choose any of these, since it is entirely possible to sort out your own strategy. It depends how much you value your independence and how much you want to be in charge of your own destiny.

Brand franchise

The franchising concept is very well developed, particularly for fast food with McDonald’s, KFC and Subway. It means that you can operate your business under the umbrella of a name that has already become established with an image in the market place. This only works if you don’t have much of a name for yourself and the new brand will bring more guests at a better room rate through an established reservation network. This wider distribution must not be underestimated, since you have to put in a lot of effort to generate leads.

Choice Hotels with its Comfort, Quality, Sleep Inn and Clarion options offers a number of alternatives, as does the Intercontinental Hotels Group that has Intercontinental Hotels, Crowne Plaza, Hotel Indigo, Holiday Inn, Express by Holiday Inn, Staybridge and Candlewood Suites. Different countries have different options for brand franchises and there may well not be any available that suit what you are trying to do. Signing up to a brand franchise is a major business decision, not least because you are then bound to a group of other independent and company-owned properties that might not all be a boost your business. Nevertheless these companies are good at establishing and making sure that you keep to their brand standards. Costs too can be quite considerable, sometimes up to ten per cent of your room revenue. I guess that if you take this option you are no longer an ‘independent’ hotel!

Consortium/representation

A consortium is a group of independent hotels that join together for the sole purpose of joint distribution and marketing. There is not the same standardisation of approach as a brand franchise but there is some control on the membership, since different consortiums market to different market segments. It is vital that independence is retained, since this is part of the proposition. There are a number of national and international representative organisations but most seem to recruit from the more up-scale sector of the hotel supply. Some organisations recruit on a very obvious concept, such as Relais et Chateau with their dedication to the provision of good food in a classic setting. Others, such as Preferred Hotels, are a little less obvious but have segmented their offer into Summit, Sterling, Boutique and Preferred itself.

Some organisations are more insistent than others on a public show of affiliation. Best Western is such an organisation, which has 4,000 hotel members worldwide. They insist on you putting Best Western on the signage and preceding the name of the hotel wherever it appears within your property. Best Western also has to be mentioned when answering the telephone. This often confuses guests into thinking that it is a conventional hotel group or franchise and you may well lose some business as a consequence.

Each company offers different levels of service for their often-substantial annual fees. However they are a way to reach your market and the range of services can be a great help. These include sales offices, road shows, public relations, exhibitions, training, contracting assistance, leisure programmes, directories, GDS connectivity, meeting sales, web-based reservations and so on.

The advent of the internet has undermined some of the benefits of these consortia since hotels themselves can now do much of this activity. It is also possible just to contract for some of the specific services that you need such as purchasing. Whatever you do depends on your own circumstances, your skills and your needs. Signing up with a representative will not prevent you having to be in charge of your own destiny and drive your business yourself. None provide a guaranteed business ‘tap’ to turn on and fill your rooms.

Reservation network

Reservation networks are central reservation systems that service multiple hotels in order to gain economies of scale. But this is generally all they do. They do not profess to service only one sector of the market and do not give any guarantee of quality or service standard. They are therefore different to a consortium in that they specialise in reservations not marketing.

Your chain hotel competitors will have their own reservation network, the best known of which is Holidex, serving the needs of Holiday Inn Hotels. Some smaller hotel companies joined together some years ago and set up Supranational, which represents one hotel company in each country in which it operates. UTELL is another general system that takes reservations for most reasonably sized hotels, although they did start out as a representative firm.

These reservation systems also provide an interface with the GDS, enabling you to have direct contact with all the GDS-connected travel agents in the world. This sort of facility is only of benefit to you if you consider that there is potential corporate business through travel agents and you are near a city or an airport. If you are near neither of these the GDS will not be able to locate you.

If you will not benefit from worldwide exposure you can consider a reservation network that only generates enquiries through the internet. In the UK, Active Hotels has developed into a very powerful supplier of business. They provide instant availability and also are an information supplier to a number of other internet sites that promote hotel rooms.

Representative firm

Representative firms can be hired to represent your interests in a particular market that you don’t cover yourself. These firms will represent a number of non-competing hotels and will generate leads for you using the variety of tactics that you use yourself. They will have good contacts with meeting planners and producers of corporate business. You will need to pay a fee and also pay for specific marketing actions in addition. Paying by commission rarely works effectively, since there are often disputes as to who actually created the booking.

This type of outsourcing is no longer confined to geographically remote situations. You may well decide to outsource your whole sales process to a third party. I would not recommend this as strategy, since you are leaving your relationship building to a third party, which is not really what the client wants and not what will lead to long-term business growth. You can however outsource some parts of your sales process, such as your daily internet interface, since a specialist contractor can often do this more effectively than you can yourself.

Distribution channel options

You can distribute your rooms direct, through commissionable agents or through wholesalers. Each route has its advantages and disadvantages but your own needs will dictate which distribution channels will work for you. If you can sell all your rooms direct then you will not need to work your way down this list. However every hotel has some times of the year when they need some help, so other options may be attractive.

Direct sales

Selling all your rooms at your published rate direct to your guests is an ideal solution. Not many independent hotels achieve this, although the advent of the internet has given a new lease of life to independent hotels that can now better compete with the chain operators.

It is also very effective to make it possible to book rooms immediately off your site. Prospects no longer want to send you an e-mail request and wait for you to answer. This on-line reservation facility can be provided by third parties, some of which also act as intermediaries between your hotel and all the hundreds of internet portal sites that promote hotel rooms. Again there is commission to pay but if you generate a regular guest from these third party internet sites, it is usual for subsequent reservations to come direct via telephone or your own site.

Commissionable retailers

Travel agents and GDS

There are around 180,000 GDS-connected travel agents worldwide who reserve hotels on behalf of business and leisure travellers in return for the payment of commission. Travel agents come in all sorts of shapes and sizes, ranging from the large groups such as American Express and Carlson Wagonlit, often with in-plant offices in large companies, through to individually owned agencies specialising in leisure travel. The critical aspects for all agents is having information on your availability and paying them the commission that is due when they actually make a booking.

In the past the only way for travel agents to get hotel availability and information was from the Global Distribution System (GDS), of which there are four main networks that make up the system: Amadeus (57,000 agents), Galileo (45,000 agents), Sabre (60,000 agents) and Worldspan (20,000 agents). These networks were originally set up for the benefit of their airline sponsors, but very soon the technology was extended to the travel agent offices so that they had real-time information on airline seats.

Very quickly hotel rooms and car hire were added to the offer so that travel agents and airlines could package itineraries for travellers.

Each GDS has a geographical bias based on the home base of the original airline shareholders, but this needn’t really concern you unless you want to advertise or pay for priority listing on specific GDS networks and you know where your customers originate. There was a thought that these networks would become redundant as the internet grew, since travel agents could now access your availability from the information you supply to other sources. However it seems that most travel agents use the GDS networks just as much as they ever did.

The GDS networks have also been very quick to take up the new technology and have themselves been at the forefront of the technological advances. For instance Sabre owns Travelocity (and thus LastMinute) and Orbitz used to work closely with Worldspan. However there is likely to be a lot of change in this distribution model that has prevailed since the 1960s. Even the original airlines are not bound to the GDS that they originally set up and each supplier is looking for the lowest cost way to reach the market. The market for distribution products is now deregulated and there are likely to be more entrants who think that they can undercut the incumbents. Hopefully good sense will prevail since what the booker, whether travel agent or travel manager, wants is comprehensive information on all the available options for air travel, hotel rooms and car rental.

So that any agent with a GDS computer can make real-time reservations at your hotel you need a Distribution Service Provider (DSP) to connect your hotel reservation service to the GDS. There are a number of re-sellers of GDS services as well as organisations such as Pegasus (with its Unires system) which can provide both DSP and reservation services: Wizcom and Trust International are two smaller DSPs.

Travel agents and corporate rate programmes

Some travel agency groups have set up special corporate rate programmes to try to tie corporate travellers to their companies. These can be worth participating in if they are likely to generate a reasonable amount of extra business. Sometimes you have to be in the programme just to be featured by the agent but your representative organisation or reservation company often coordinates participation in these programmes. Consider American Express, Rosenbluth, BTI, Carlson Wagonlit, Woodside and others but bear in mind that participation costs can be heavy.

Commission payments have become more and more vital to travel agents; particularly since fees paid by the traveller have largely replaced airline commissions. It is vital that you set up or participate in a scheme that can remit commission to travel agents as quickly as possible or you will be deleted from the programmes.

Internet companies

The potential for you to reach the leisure traveller have been expanded tremendously by the growth of third party travel aggregators (virtual agents) such as SideStep, Travelocity, Expedia, Orbitz, TripAdvisor, Yahoo Travel and Kayak.

Between them they account for the majority of reservations not made with hotels direct or chain reservation systems. Just like the GDS, they package travel elements together. Participating with these agents can be a problem for small hotels since they work with room allocations and return unsold rooms at 48 hours’ notice. The same is true for hotel-only sites such as Hotels.com. Commission rates vary between ten and 20 per cent.

There are also a number of internet sites that specialise in promoting late availability. LateRooms.com, LastMinute.com and Wotif.com all provide a good outlet but the challenge for every hotel operator is not to have rooms that they need to sell through these sites.

Hotel booking and venue finding agents

These agents work on behalf of their corporate or government clients to locate hotel rooms and conference facilities. They offer a free service to their clients and the hotels usually pay them a commission, although you can also negotiate to pay a fee per client. You should treat these agencies in the same way that you would a direct client. Speed of response is paramount, since these agents will usually ask at least three hotels to quote for any specific request. Before you quote find out if the rate is commissionable and at what rate.

These agencies have grown up as a result of the cutbacks made by companies in their dedicated travel departments. So although you might not like these companies inserting themselves between you and the client I suspect that they are a way of life and you will have to live with the situation. Of course if you are active in your prospecting, it will be more likely that you will be in contact with companies before they contact an agent.

Be very careful about being asked for higher levels of commission. It will probably not result in any more business than before and if all hotels agree to it then the only gainer is the agency. However you need to treat each case on its merits. If the standard rate the agency expects is 12.5 per cent there is no point in offering eight per cent since you will not get any business at all.

Incentive houses

Incentive houses specialise in only handling reward travel for their corporate clients. Mostly they only contract with top-of-the-range hotels and usually need meeting space as well as a reasonable number of rooms, often a coach load. They put together an entire trip of which the hotel forms a part. Meals are often organised outside of the hotel. The incentive house relies heavily on the travel providers for their reputation, which puts great pressure on all concerned. Payment is usually net with a management fee from the incentive house but it can be organised on a commission basis.

Wholesalers

Wholesalers, as the name implies, contract to take your rooms usually at a low rate. These rooms will then be sold on to other national or international operators who put together travel packages. The hotel is at the mercy of these operators to make the tours successful, but very often the projected tour will not take place: your rooms will then be returned to you for you to sell yourself through your own channels.

You need to work closely with the operators, since they may need some concessions from you to help them in their marketing efforts. It will not help if you are too strict in your cancellation policy but on the other hand you don’t want to be exploited by being promised low season business that doesn’t arrive in return for your precious high season availability.

Some wholesalers, such as Superbreak, also have their own product that they retail through the travel trade. This can be useful business but beware of the conditions and the impact on your average rate.

KEY POINTS

• Articulate your vision anyway you like but ensure that you share it with your customers and your team.
• There are various levels of support available to help you reach your market. Your circumstances will determine the most appropriate set-up for your hotel.
• Try to keep your distribution as simple as possible.
• Be aware of the costs of distribution, particularly in long distribution chains.
• Wholesalers can be very helpful but be careful about giving away too much without guarantees.
• Research thoroughly all the opportunities in your area for generating business.