Hotel Distribution and Revenue Management Strategy

The Link Between Hotel Distribution and Revenue Management

Albert BarraAugust 12, 2018 · 3 min read

THE IDEA

This article explores the relationship between hotel distribution and revenue management—two essential strategies for achieving occupancy, average rate and RevPAR goals. It also examines the common mistake of treating them separately, the main hotel distribution systems, and the importance of a strategic approach to distribution.

The subject of hotel inventory distribution is always controversial and immensely interesting, as well as being one of my favourites. Following what I wrote in a previous article, in which I presented the results of the survey on merchant agencies, I felt it appropriate to write this perhaps slightly more in-depth post on the relationship between Hotel Distribution and Revenue Management, which I hope will encourage reflection and foster debate. I must admit that, in these times of constant change in which we live—and especially now that there is so much talk of the Social Web—I feel uncomfortable talking about hotel distribution, as I believe the two concepts may, to some extent, contradict one another, or at the very least pursue the same objective through two entirely different routes. A hotel’s distribution strategy, together with its Revenue Management strategy, should be the cornerstone for achieving its occupancy and average rate objectives—ultimately, its RevPAR. This requires constant evaluation of the objectives achieved in order to make decisions that affect results in the short, medium and long term. Both strategies—Distribution and Revenue Management—are, or should be, defined in a hotel’s marketing plan, if one exists, and must go hand in hand in every initiative undertaken by the hotel or hotel chain. In fact, one of the most common mistakes hotels make is separating these two strategies. First and foremost, we must understand that distribution is the way we bring our product to the customer, rather than a mechanism for being present in as many places as possible. The rest is about knowing which customers we distribute to, at what prices and at what cost. Logically, there are two groups of hotel distribution systems. We are talking about Direct Distribution, which we mistakenly associate solely with the hotel or hotel chain website, and Intermediated or Indirect Distribution, whereby the hotel relies on a third party to represent it in its distribution in exchange for intermediary compensation, where this adds value. I have always liked to compare the Hotel Market Mix—and ultimately its marketing, Distribution and Revenue Management strategies—to a culinary recipe, where the quality of the ingredients, together with their proportions, combinations, order of arrangement, presentation, degree of cooking and, above all, each chef’s particular know-how, determine the success or failure of every dish. With this in mind, we must create our own recipe, where what matters is knowing which dish we want to cook, rather than seeing which dish emerges after mixing the ingredients. In my view, the mix that makes up the recipe for success for any establishment should be:

Customer value: high-value customers based on their frequency and the revenue generated, alongside more price-sensitive customers.
Balance in intermediary costs.
ROI
Brand building.
Sustainability and independence.

This is where CRM and customer knowledge play an important role before undertaking actions aimed at winning them. One thing that strikes me is that hotels are aware of the positive effects delivered by a sound Revenue Management strategy. However, their distribution strategy is limited to contracting distribution channels without the necessary strategic approach. I hope to explore hotel distribution channels, intermediation and the implications of merchant contracting in greater detail in future articles.

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