How to Create a Profitable Hotel Distribution Strategy?
What is a Hotel Distribution Strategy? It is the process through which you sell your hotel rooms via various channels.
I know your mind must have immediately skipped to OTAs. Yes, Online Travel Agencies are one of the major pathways through which you get hotel bookings. But there are various drawbacks of using (or rather, overusing) OTAs, like TripAdvisor and Expedia.
Many hotel owners are tempted to completely hand over the responsibility of hotel distribution to the OTAs. After all, all you need to do is set some fixed prices and wait for the bookings to come rolling in.
But this is a terrible hotel distribution strategy. First, all OTA channels take a certain commission from you for the bookings. And if you don’t keep an eye on the OTA channels, they might keep increasing the commission rate. Second, you don’t have much control over the prices and the experience that you are offering if you use an OTA. Third, it’s difficult to modify the settings and prices on all the OTA channels.
The list goes on. Long story short, just depending on the OTA platforms for an effective hotel distribution strategy is not going to help you. You need to have a more nuanced approach and correct certain mistakes that you’re currently making. In this article, I will tell you exactly how to create a profitable hotel distribution strategy.
How to Create a Profitable Hotel Distribution Strategy
Know Your Target Demographic
Know your customers. This is the first piece of advice that you’re going to receive no matter which industry you work in.
You need to know what your target demographic looks like. Who is the most likely to book a room at your hotel? 30+ business executives? 20+ college students? Honeymooners? Vacationing families?
These are all widely different categories of people who require widely different treatment both in terms of hospitality and marketing. As you are going to discover from the points which follow, each group has to be catered to differently. If you advertise to 20-something college grads and 60-something retired folks through the same channels, this isn’t going to work.
How can you find your target demographic though? It’s not like your hotel lobby will be crowded with one particular group at any point in time.
No, you have to make use of a Property Management System like StayFlexi. Since StayFlexi keeps track of your guest data, it can tell you the prevalent trends in guests. This does not only help you narrow down the category of guests that you usually entertain. You can also find out what their specific preferences are so that you can focus on those elements.
Select OTAs Carefully
Yes, almost all hotels are listed on Bookings.com or TripAdvisor. But did you know that there are more niche OTA channels like Worldmeetings or hostelbookers.com? The first caters to business executives in particular while the latter caters to college grads. There are also specific luxury OTA channels that cater to honeymooners.
These niche OTA channels are not easy to find. But if you have a very clear grasp of your target demographic, these niche channels are a great option. This is because your target demographic is already flocking to these sites.
A lot of hoteliers have a tendency to get listed on all possible OTA channels. But OTA channels charge a huge commission. Why would you want to get listed on one that did not have your target demographic at all?
That’s why this is an essential step in creating a hotel distribution strategy. Only select the OTA channels which can get you the most profit.
Prioritise on Direct Bookings
As I have mentioned in the very beginning, there are multiple drawbacks of using OTAs. Not only do they charge a hefty commission, but they might also steal away customers from you later. After all, you cannot compete with the advertising or loyalty programs of sites with major funding such as Trivago.
This is why you need to start redirecting guests to your own site. Offering small discounts or some complimentary services for direct bookings always helps. With direct bookings, your profit margin is much greater because there is no middleman. Without the obligation to pay commissions, you can lower the room rates while keeping the profit high. This benefits both you and the customer.
With direct bookings, you also have way more control over the experience that you are providing to your guests. You can send them personalized confirmation emails and questionnaires.
To get direct bookings, you must make sure your site is up and running smoothly. StayFlexi helps with this as well as the payment portal. The process of directly booking rooms should not be too complicated.
Keep an Eye on CAC
CAC refers to Customer Acquisition Cost. It refers to the amount of money that you have to spend on getting a new customer. One of the major mistakes that new businesses make is not keeping the CAC in mind. Hoteliers cannot focus on profitable hotel distribution without having a clear idea about their CAC.
If your CAC is too high, you simply won’t make a profit at all, no matter how much revenue you generate. This is why you cannot go absolutely crazy with marketing and advertising.
A great way to reduce the CAC is by focusing on repeat customers. In the case of hotels, this means focusing on returning guests. StayFlexi allows you to create amazing loyalty programs that let you provide specific benefits to your most profitable customers. Remember, retargeting always takes way less money than coaxing a new customer to enter the sales funnel.
Practice Dynamic Pricing
The term dynamic pricing is rather misunderstood by most hoteliers. Having a fixed price and then decreasing it by a certain percentage for discounts, doesn’t count as dynamic pricing. A lot of hoteliers tend to stick to this formula regardless because it is easier. After all, it is a huge hassle to go on varying the room prices across 50+ OTA channels.
But having fixed pricing severely affects your hotel distribution strategy. After all, your room rates should not just change seasonally. They should change by the hour depending upon the occupancy rate. Don’t take the remaining 3 rooms of your hotel off the listing just because you’re scared of overbooking. Instead, increase the room rates for those 3 rooms even more.
Wondering how to effectively handle this without risking overbooking? Invest in a PMS like StayFlexi. StayFlexi’s Auto Inventory Management system makes sure that the moment a booking is made, that room gets taken off the listing. So, there is absolutely no fear of overbooking. The process is completely automated, so there is no room for human error.
StayFlexi also allows you to fluctuate the room rates based on the occupancy level. You do not need to manually monitor this process at all.
Don’t Lower Room Rates Abruptly
Yes, when demand goes up, you should increase the room rates. But is the converse true? Should you sell off empty rooms at dirt cheap prices if you don’t get any booking till the last minute? Will lowering your prices instantly increase the demand?
Not really. This is because seasoned guests are suspicious about extremely low prices as well. This automatically makes them feel like there’s something very wrong with the hotel room.
Not just that. Even if you get these bookings, will you be making any profit at all? Think about which option is better:
- Letting a room be empty but also not spending any human labor on it.
- Wasting human labor on it while not making enough profits to cover that cost.
Of course, the first option is preferable.
Yes, keeping the occupancy rate high is important. But don’t lower your prices to the extent where you won’t be able to make any profits at all.
Invest in a Channel Manager
When I was talking about dynamic pricing I mentioned that StayFlexi automates the process of fluctuating prices. However, this is not just valid for the main hotel site. This is valid for all other OTA channels as well.
StayFlexi syncs up the activities of 100+ OTA channels. So two customers from TripAdvisor and Trivago cannot book the same room twice. The moment one is booked from Trivago, it goes off the listing on TripAdvisor as well.
StayFlexi is connected to multiple channel managers. But you can bring over your own channel manager as well. The ultimate goal is to make sure there is a perfect 2-way sync between the direct website and the OTAs. Every distribution channel has to be on the same page for an effective and profitable hotel distribution strategy.
Keep Track of Hotel Metrics
There are multiple metrics that you have to keep in mind while running a hotel. CAC is only one of them. RevPAR or Revenue Per Available Room is another very important metric. When I suggested not lowering room rates abruptly, it was because your RevPAR could plummet if you did so.
Average Daily Rate or ADR is another metric that you have to keep in mind. This refers to the average cost of the rooms on a particular day. This value is important to chart how your revenue management is functioning on an overall basis.
Average Occupancy Rate and Gross Operating Profit Per Available Room (GOP PAR) are other hotel metrics that you should be aware of.
Advertise Where it Counts
This is a direct follow-up to the first point that I mentioned on this list. You need to advertise based on your specific customer base.
If you have an older target base, then focus on email marketing and especially retargeting. Stay in constant touch with your customers and advertise based on their past preferences. If you have a younger target base, focus on social media advertisement. Now Instagram and Pinterest advertising work spectacularly because these are image-based sites. Have something unique that your guests will want to click photos of and then post. These tags get you both free advertising and social proof. You should always try to encourage as much User Generated Content as possible.
Having said that, you should always entertain the likes and dislikes or adjacent groups too. However, you should not splurge your marketing budget on them. The best hotel distribution strategy is to market to those who are most likely to buy.
A profitable Hotel Distribution Strategy brings many different things into its envelope. Marketing, revenue management, dynamic pricing, development of the hotel website- there’s a lot to do.
However, I think the first step is to put a stop to the overdependence that many hoteliers have on OTA channels. Don’t stop using them, But make sure that you are making more money out of them than you are spending on them.
StayFlexi can help you create a profitable hotel distribution strategy in multiple ways. If you want to know more about the individual features of StayFlexi, do leave a comment!