Wednesday, November 16, 2011

Why hotels should adopt a direct online sales and marketing channel

Mohammed Rehan Menon | XIMB, Bhuwaneswar

Owing to its rich and varied topography, diversified culture and captivating festivities, India offers immense tourism delights not only to foreign tourists but also for domestic tourists. The most important role is played by the tourism board and the hospitality industry to maintain a steady growth of tourists. Not just a place to put up for tourists, hotels today provide a complete experience of tourism and hospitality by providing tourism packages, delicious local, international and continental cuisines, sightseeing and sometimes even rural tourism. Though tourism department merely needs to promote tourism through ads, hotels need to make sure that they have an effective and robust sales and marketing strategy in place not just to reach to a wider audience but also handle any turbulence and volatility in market.
From 222.75 million in 2000, the total domestic and foreign tourists in India have increased to 655.15 million in 2009, a staggering 194% growth. The direct contribution of travel and tourism is expected to be around US$ 82.61 billion which is around 4.5% of GDP. After transport, a major chunk of expense borne by a traveller is on accommodation and food. This presents a very large market for hotels.

Current Sales Models

Currently hotels follow the following models for their sales channels:

Global Distribution System (GDS) - Travel agents access one or more of these systems to search hotel listings and make reservations. This is a commissionable model where the online player charges a commission of around 8-15% to the hotels after the stay of guest.

Internet Distribution System (IDS) – These are portals where people intending to travel can make the hotel reservation himself. Often search engines like Yahoo Travel section, MSN etc are powered by these IDSs to reach out to a maximum audience.

Merchant Model – Under this mode, the hotel sell their inventories (rooms) at a discount of around 25% to the third party online players. Here, the customer pays the gross rate to the merchant side and the merchant site than pays net rate.

Through own websites – This model is picking up in India where prospective tourists can directly visit the website and make their reservation. However, apart from few big hotels, generally most of the hotels do not still have their own website.

Issues with current models
Prima facie, it is clear that hotels are paying a huge sum in the form of commissions or discount rate to the third party players to get the bookings. Further, the turnover of a hotel also depends on the efficacy of these operators. Since GDS and IDS work on commission basis, hence a bias creeps in to rank hotels on their sites, with higher commission paying hotel being ranked higher. The flip side of a merchant model is that the Online Travel Agencies (OTA) can drop any hotel from its site if it is not generating sufficient revenue. Another major problem with merchant models is the rate parity issue. Hotels often give different discounts to different OTAs which instantly become public. This adversely affects the hotel’s other distribution channels and leads to brand erosion. Further, these models are often suited to large hotels that leverage their large inventory to get substantial discount. Small and independent hotels lack collective bargaining and end up paying either heft commissions or high discount.

Hospitality e-business strategies (HeBS)- a pioneer in hotel internet marketing research and solution firm has developed a model to show, how indirect channel is eroding the bottom line of hotels. Though this model is for US hotels, it can be extrapolated to Indian hotels also, given the similarity in commissions and discounts followed. Expedia, a leading travel website in US, has acknowledged that over 60% of its revenues come from hotel reservations. In its 2007-2010 SEC (Securities and Exchange Commission – US counterpart of SEBI) filings, it gives the data of the total merchant bookings made and the net commission earned by Expedia3.

Thus we see a multi-billion dollar leakage from the revenues of the hotels. It is clear that hotel reservations are financing these OTAs’ operations and allowing them to make a killing by charging exorbitantly high commission at the cost of bottom line of hotels.

Indirect channel is also a hassle for the tourists. The biggest problem faced by the tourists is that of information asymmetry. Third party operators provide lopsided information based on the commission and discount they receive from specific hotels. A tour operator will display the vacancy status based only on the rooms sold by a particular hotel. Once those rooms are sold, “No Availability “is displayed by them leaving no choice for the tourist but to book another hotel. Often tour operators do not provide real time confirmation and the tourist realises this only after arrival at the hotel. Further, due to the involvement of third party, hotels do not have complete flexibility to help a stranded guest. Many tour operators also charge many hidden fee after advertising dirt cheap rates. A non-human interaction prevents customers to make specific requests while booking. For all these reasons, it is advisable that hotels adopt a direct online sales route by making their own website and customizing the details to suit their location and business.

Marketing Strategies through internet
Simply making a website may make the sales task easy for a hotel. However, it is equally important for them to adopt robust internet marketing policies and be able to reach maximum audience which consists of people overloaded with information. Below are some of the techniques which a hotel can use:
• It is very important to ensure that the content development meets all the compatibility and restrictions. For example, IE does not fully support advanced transparency features, which results in low quality GIF formats. No user would be interested to visit a site which crashes due to such reasons or is unable to display all the embedded features.
• Using SEO has become the common trend in e-commerce sites. Search engine optimization (SEO) is designed to raise a site’s ranking in the search engine’s “natural listing”. Most of the users prefer to access the first four or five sites shown in the search results and hence SEO is an important technique. These is done by identifying keywords often used by net surfers and optimizing the site content to have such keywords at maximum places. For e.g.: a tourist wanting to visit a hotel in Jaipur may search for “Hotel Jaipur near railway station”. Hence the site should have such a combination of keyword at many places which will allow the spider (the search engine program) to easily reach the hotel’s site.
• Links should be embedded in images and content to be easily reviewed and indexed by the search engines.
• Pay per click (PPC) model is an effective and cost-efficient way to advertise your hotel. Advertiser need to pay only when a user clicks on the ads. The advertiser needs to bid on keywords which he thinks his target user would look for. When the user views a page with matching content, the ad would be shown, on clicking which he might be taken to the hotel’s website. This is cost-efficient and a much better way to reach vast market.
• Social media marketing is the latest trend to create a sudden buzz among the audience. Asking fans to comment for a special discount package, offering promotion on designated days or off season, incorporating engaging pictures of the amenities of the hotel are some of the techniques which hotels can use while marketing themselves on social media.
• Hotels often follow a “silo” approach towards various forms of internet marketing, developing some in-house while outsourcing others. A centralized plan will enable comprehensive marketing programs with all efforts complementary to each other and hence being symbiotic in relation.
• Hoteliers need to constantly analyze and evaluate their marketing efforts to ensure a positive impact on RevPAR(Revenue per available room) or GOPPAR(Gross operating profit per available room). A host of analytical tools like Adobe online marketing suit, DART etc are available which collate the data from various sales points and give an analytical report.

Web 2.0 provides enough potential for an hotelier to adopt a direct channel. The visible problems are complexity of available technology and the reluctance to adopt a new channel in this cut-throat competition. It is high time hotels realise how their bottom lines are getting eroded by third party operators and hence take steps in the right direction.


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navaneedh said...

Hey, nice site you have here! Keep up the excellent work!

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