Where do your reservations come from? Travelers visit dozens of different websites during the trip planning process, but they have to choose one site on which to book. Guests can book on a variety of third-party websites, or they can book directly on your hotel’s website or by calling your reservations department. Some guests even book through travel agents or tour operators. But for a hotelier like you, which hotel reservations are most advantageous for your property? Which reservations lead to higher RevPAR and guest satisfaction? Making effective use of the distribution landscape is the goal of a distribution strategy. In this article, we’ll explore how a distribution strategy works, why it’s important, and how you can achieve your optimal mix of reservations from different distribution channels – all to help you reach your business goals.
What is a Hotel Distribution Strategy?
In the retail industry, a distribution strategy is necessary to put your product in front of the right consumers. A company that makes t-shirts must define who their target customer is, then the company can figure out where to sell their t-shirts so that the target customers are compelled to buy them. Based on the t-shirts’ price point, quality, and style, a store like REI might be a better distribution option than Nordstrom.
The hotel industry is no different. In order for hotels to fill their rooms, they must make rooms available for sale on the marketplaces where their target guests are shopping. In a hotel, a distribution strategy aims to align the distribution channels the hotel uses with the types of guests the hotel wants to attract. The first component of a distribution strategy is to identify the desired segments of guests. Based on guest characteristics, like their level of price sensitivity and their shopping behavior, the hotel can determine which distribution channels make the most sense to include in the distribution strategy. But most hotels find the most success with a combination of several different channels, so your distribution strategy should also outline how many bookings you want to get from each channel. For example, you might want 40% of your reservations to come directly, 30% from Expedia sites, 20% from Booking.com, and 10% from smaller OTAs.
Why is a Distribution Strategy Important for Your Hotel?
A clear distribution strategy is important for a few key reasons: it will help you control costs, set more accurate forecasts, achieve optimal occupancy and RevPAR, and maintain (or increase!) guest satisfaction.
Because third-party channels charge hefty commissions, distribution costs can be quite expensive. It can be tempting to want to get as many direct bookings as possible, but some direct bookings also come at a cost, especially when you factor in advertising spend, marketing costs, and even payroll costs for reservation agents taking bookings over the phone. Mapping out exactly how much each distribution channel costs can help you not only control those costs but also make sure you’re getting the most bang for your buck on each distribution channel.
With a thorough understanding of your costs, you can budget more accurately. If you plan for a certain percentage of Booking.com reservations, then won’t be surprised by a bigger-than-usual Booking.com commission invoice. You can also predict future occupancy and ADR based on historical data by distribution channel. For example, if you know that Expedia ADR is lower than direct ADR, and you plan to get a certain percentage of Expedia bookings in a given month, then your forecast will be more accurate than one that assumes one ADR for all reservations.
Finally, a distribution strategy can help you increase guest review scores by targeting segments of guests who you know will have a good experience. If your hotel caters well to business travelers, for example, then you can focus distribution and marketing efforts on channels that are popular among business travelers. This piece of the strategy will ensure that the guests who book your hotel will have the right expectations and be happy with your product.
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What are Some Common Distribution Strategies?
So what does a distribution strategy look like in practice? Which strategy (or combination of strategies) you choose will depend heavily on the specifics of your hotel, your business goals, and even your location, brand, competitors, and size. But a few popular distribution strategies include:
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Direct strategy: This distribution strategy prioritizes direct bookings over third-party bookings. A hotel that utilizes a direct strategy would invest in a very user-friendly website, significant marketing exposure, and perhaps a loyalty program that encourages guests to continue booking directly. Some hotels that follow a direct strategy don’t even use third-party channels at all; instead they might focus on reputation-building channels like Tripadvisor to send traffic to their direct website. While a hotel using this strategy might pay low (or no) OTA commissions, they likely have a large marketing budget.
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Third-party strategy: On the flip side, a third-party strategy favors bookings made on OTA channels. Rather than spending a big advertising budget, a hotel that uses a third-party strategy lets the OTAs do the heavy lifting on the advertising side in exchange for commission payments. New hotels, hotels with a lot of international guests, or hotels that simply prefer not to manage marketing tasks can find success with a third-party strategy. Some hotels even start out with a third-party strategy, then over time shift toward a direct strategy.
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Selective distribution strategy: Kind of a happy medium between direct and third-party strategies is a selective distribution strategy which focuses on a small number of highly relevant third-party channels. If a potential distribution channel doesn’t attract precisely the right guest segment, then a hotel using a selective distribution strategy would skip it. Hotels that cater to a very specific type of guests, like a luxury adults-only resort, might use this strategy.
Hotel distribution strategy is complex because it involves a variety of factors and components, including distribution channels, intermediaries, wholesalers, distributors, selective distribution, exclusive distribution, intensive distribution, and direct distribution strategies. Additionally, the strategy must take into account the target audience and potential customers, as well as the type of product, target market, and customer base.
To shore up their distribution strategies, hoteliers should take the following steps:
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Define their target audience: Hoteliers need to identify their ideal customer demographic to understand which distribution channels are most effective in reaching them. This will inform the types of distribution channels to use, such as wholesalers, retailers, distributors, intermediaries, e-commerce, direct sales, or physical stores.
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Evaluate different types of distribution strategies: Hoteliers can choose from various distribution methods such as exclusive, selective, or intensive distribution. Depending on the type of product and target customers, they can decide on the right distribution strategy that fits their brand and marketing goals.
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Optimize the supply chain: Hoteliers need to evaluate their distribution process and ensure they have a cost-effective and efficient supply chain. This includes identifying potential partners, optimizing templates, establishing KPIs, and monitoring markups.
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Build brand awareness: Hoteliers should use social media, partnerships, and storefronts to build brand awareness and reach potential customers. They can also consider franchising or collaborating with department stores and grocery stores to expand their distribution channels.
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Focus on customer experience: Hoteliers need to provide a high-end customer experience through their distribution channels. This means optimizing their website, investing in direct channel distribution, and ensuring their products are available in the right stores and locations.
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Monitor and measure performance: Hoteliers need to track the performance of their distribution channels to identify what is working and what needs improvement. This includes analyzing sales data, monitoring customer feedback, and adapting their distribution strategy accordingly.
By implementing the right distribution strategy, hoteliers can reach their ideal customer demographic and increase their customer base while maximizing their profitability. They should optimize their supply chain, build brand awareness, focus on customer experience, and monitor and measure performance. This can involve using different distribution strategies such as exclusive, selective, or intensive distribution, and different distribution channels such as wholesalers, retailers, distributors, intermediaries, e-commerce, direct sales, or physical stores.
To create an effective distribution plan, hotels need to optimize their distribution process and marketing efforts, utilizing a variety of marketing channels, such as social media platforms, search engines, content marketing, and e-commerce. They must also consider partnerships and collaborations with providers, wholesalers, and department stores, as well as creating a storefront for direct sales.
Hotels must use various marketing campaigns to reach their target customers and end-users, with infographics and LinkedIn being just a couple of examples of the types of marketing channels used to attract new customers. They must also measure the success of their marketing plan using metrics and KPIs.
One of the key challenges in hotel distribution strategy is determining the right distribution strategy to use. Hotels must decide whether to use a direct, indirect, or selective distribution strategy, and whether an exclusive or intensive distribution strategy is more appropriate. They must also create a roadmap and templates to ensure that their distribution strategy is consistent across all channels.
Another challenge is creating a customer experience that is both cost-effective and meets the needs and preferences of the target market. Hotels must consider demographic factors, such as age, gender, and income level, when creating a marketing plan and distribution network.
Hotels must ensure that their distribution strategy aligns with their supply chain and that their marketing efforts are SEO optimized to drive traffic to their website. By considering all these factors, hotels can create a successful hotel distribution strategy that reaches their target audience and maximizes revenue.
Once you’ve decided on the right distribution strategy for your hotel, it’s worthwhile to check in with that strategy on a regular basis. Since market dynamics and traveler behavior changes over time, what works for your hotel right now might not make sense in one or two years. There’s no “right” or “wrong” distribution strategy; instead, it’s about finding the right balance between costs, marketing spend, guest satisfaction, and profitability.
