Is channel proliferation & fragmentation real?

Today, hotels have plenty of options today to distribute your inventory and bookings are spread across many intermediaries. This dilutes visibility and complicates management.  The continuous emergence of B2B and metasearch platforms, coupled with wholesalers and bed banks redistributing inventory to secondary channels, contributes to challenges such as rate leakage. Hotels seek both reach and control, leading many to contract as many channels as possible.

The actual models

Exclusivity

Entering into an exclusive distribution agreement is a tremendous non-sense, regardless the potential benefits. As portfolio size increases, exclusivity becomes increasingly impractical; no distributor can cover all segments of distribution resulting in missing sales to your competitors every day and breaks a golden rule in business: dependancy. Not to mention that exclusivity itself doesn´t exist in distribution, it often is a consequence of insufficient strategic planning and ignorance of more modern distribution practices. Exclusivity does not garantee rate leakage, expand the spread of static rates and limit tremendously the opportunities of new business, especially targeting specialized segments. Such model has demonstrated to be a total failure in terms of controling distribution and revenue management efficiencies but most of all, locks hotel chains into restrictive contracts.

Selected partners

Typically the most effective. Under certain rules and proper management, this can support a proper revenue management strategy and maximisation of efficiencies. Distribution is a cost and as such needs to be controlled. However most chains today fell into the trap of rate deviation, elevating costs and losing control over inventory. A set of rules have to be clearly defined and imposed.

The more the better

What seems like a good idea in reality results in a reduction of revenue. Exponential traffic costs, decrementality of sales, welcome to a model that drives sales into a rate war. Making a brand available to all is not a solution either unless under fully transparent distribution and control of sales incrementality. This model incentives distributors to resell inventory using package rates and disruption. Distributors will try to seek your attention by generating good business volumes most of the time undercutting their margins. Guess who is winning? Traffic costs...

The reality by facts

When commission structures vary across distributors, diversity is lost. Give a better commission and the fragmentation is dead, the winner controls it all. What creates caos is that differentiation, not the channels. There is a natural selection when commision is the same for all versus giving a 23% to a partner and 20% to another one is simply deviating your revenue to a specific partner while the other remains uncompetitive. Everyone connects today so it doesnt matter if the beneficiary is a certain type of channel. 

The reality is that most chains today DO NOT know who is buying their inventory, at what costs and under what conditions. The reality is that chains will concentrate distribution to distributors that have that special extra margin under the excuse of a secured environment or specific distribution segment, most of the time making the big, simply bigger. The truth is rate leakage has never been that high.

What Hotels Can Do

The GOLDEN rule - stop given margin away by providing different discounts to different partners - Afraid to lose sales? The distribution ecosystem sustains itself naturally without the intervention of extra spend.

• Segment channels by profitability and allocate inventory accordingly.

• Audit regularly for rate parity, content accuracy, and unauthorized reselling.

• Leverage data: Combine analytics from all channels to optimize pricing and marketing spend.

• Request transparency: avoid reselling and keep control of distribution.