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Distribution Channel Analysis: a Guide for Hotels

publication date: Jan 26, 2012
author/source: Report Published by HSMAI Foundation

Final Version of Distribution Channel Analysis: a Guide for Hotels
Now Available Courtesy of American Hotel & Lodging Association and STR;
Report Published by HSMAI Foundation

25 January 2012 - The final version of the American Hotel & Lodging Association (AH&LA) and STR Special Report "Distribution Channel Analysis: a Guide for Hotels", published by the Hospitality Sales & Marketing Association International (HSMAI) Foundation, has been released.

The report discusses the effects of channel mix on profitability and what the industry can expect in the near term in the distribution landscape. It reviews the size and structure of the hotel industry at a high level, with respect to hotel performance and its use of dis­tribution channels. It also drills down to issues of distribution costs and benefits, price elasticity, and the evolving roles of marketing, revenue management and distribution strategy in a dynamic and volatile online environment.

"It's been months in the making and without a doubt one of the most ambitious examinations made to date of the industry's use of distribution channels," said AH&LA President / CEO Joe McInerney. "Given the crucial strategic role of distribution, this is a discipline that is fast becoming the centerpiece of many hotels' marketing and revenue management plans, so this report will help hoteliers understand the value of each entity to their business."

The full report is the most comprehensive analysis made to date of the hotel industry's use of distribution channels in order to develop tools and metrics to assist hotels in determining their optimal channel mix. It is based on interviews with hundreds of industry executives along with data sources including distribution costs, price elasticity analyses, media spending for hotel advertising, consumer clickstream data and channel mix from more than 25,000 hotels and 100 brands representing more than three million hotel rooms.

Executive Summary findings are broken out into categories, including:
  • Prices, Price Elasticity and Demand
Finding highlight: In the mature U.S. lodging market, the primary expectation of hotels from their distribution channel partners will be in shifting demand share, rather than generating new incremental demand.
  • Individual Channel Profiles
Finding highlight: Brand.com continues to capture a larger share of both the absolute number of rooms booked and the percentage of total rooms booked in year-over-year comparisons representing (in 2010) 16.4 percent of the demand and 18.5 percent of the revenue. OTA share of room night bookings grew substantially in 2010 over 2009, representing almost 11 percent of all room night demand and 7.7 percent of the revenue. GDS share of room nights grew steadily in 2010 capturing 8.3 percent of the room nights and 10.8 percent of the room revenue. The share of the voice channel dropped slightly in 2010 but rose again by June of 2011 to 13.7 percent of room demand and 17.3 percent of room revenue.
  • Marketing and Distribution Strategy
Finding highlight: The three greatest emerging forces in online distribution are: search, social media and mobile. These new media are rapidly becoming popular points of entry for travel shoppers.

"We're pleased to have been part of this groundbreaking study that sets a benchmark for hotel operators in terms of managing their distribution channel platforms," said Amanda Hite, STR's president. "This study and future data collection provides key information for hoteliers to move away from the reliance on anecdotal evidence in establishing their channel-management strategies."

Authors Cindy Estis Green of Kalibri Labs and Mark Lomanno of newBrandAnalytics also focused on the implications of the various findings.

Noting the number of new emerging channels for distribution, the authors suggest, "To compete effectively and retain control of pricing, inventory, and the value proposition of lodging brands, the hospitality industry has to make a substantial commitment to manage a burgeoning array of transactional and marketing channels and harness its customer relationships. Closely managing channel costs and choosing the best mix of channel partners can refine a distribution strategy to deliver optimal results at a brand and hotel level."

A key driver in the study was helping hotels and hotel companies find their optimal channel mix. To this end, the report comments, "Each hotel has an optimal channel mix. It is affected by supply and demand; the number of rooms booked through the channel, and at what room rate; the strategy of each competitor; and the position of each hotel in its marketplace. Being mindful of the use of discounting to drive demand and the affect it has on overall ADR is at the heart of achieving an optimal channel mix."

The complete report is available via the HSMAI Foundation's eConnect site (www.hsmaieconnect.org), as well as via AH&LA (www.ahla.com) and STR (www.strglobal.com). Additional insights will be coming in the weeks and months ahead from AH&LA, STR, and the HSMAI Foundation.

"After a tireless effort from many industry experts and the input of the leading hotel brands and properties, we are excited to share the first-of-its-kind Distribution Channel Analysis report with our hospitality colleagues," said HSMAI Foundation Executive Director Fran Brasseux. "The results of the hotel distribution channel analysis will have a significant impact on the knowledge available to industry professionals within the sales, marketing, and revenue management sectors of the hospitality profession on the path to increased profitability."

Distribution Channel Analysis: a Guide for Hotels is the third in the Demystifying Distribution series published by the HSMAI Foundation.

About AH&LA
Serving the hospitality industry for a century, AH&LA is the sole national association representing all sectors and stakeholders in the lodging industry, including individual hotel property members, hotel companies, student and faculty members, and industry suppliers. Headquartered in Washington, D.C., AH&LA provides members with national advocacy on Capitol Hill, public relations and image management, education, research and information, and other value-added services to provide bottom line savings and ensure a positive business climate for the lodging industry. Partner state associations provide local representation and additional cost-saving benefits to members.

About STR

STR (http://www.str.com) provides clients-including hotel operators, developers, financiers, analysts and suppliers to the hotel industry-access to hotel research with regular and custom reports covering North America, Mexico and Caribbean. STR provides a single source of global hotel data covering daily and monthly performance data, forecasts, annual profitability, pipeline and census information. STR founded the STR family of companies and is proudly associated with STR Global, RRC Associates, STR Analytics, and HotelNewsNow.com.

About HSMAI Foundation

Established in 1983 to serve as the research and educational arm of the Hospitality Sales and Marketing Association International, the HSMAI Foundation's mission is to develop knowledge and insights for the future to fuel sales, inspire marketing and optimize revenue. For more information on the HSMAI Foundation, a 501 (c) (3) organization, visit www.hsmaifoundation.org

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