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The 10 Things You Should Know


1 hotel demand in the u.s. market is “price inelastic”
on an industrywide basis for all hotel types. that
means lowering prices will not stimulate enough
incremental demand to make up for the rate reductions; there isn’t enough demand in most markets to
compensate—therefore, the net result of lower rates
is lower revenue levels. this is mainly due to limited
demand for lodging services overall in a mature u.s.
hotel market.


2 on a property level, a hotel may be able to lower
prices in certain circumstances to generate enough
demand within a comp set to result in a net positive
revenue outcome. however, because the rates are so
transparent and prominent in current and emerging
digital venues, by the time the competitors match the
lowered rate, the first hotel that lowered its rates loses
any benefit in terms of a demand bump and the entire
competitive set may have a harder time increasing
rates commensurate with the increased cost of doing
business. 

3 the u.s. hotel market at the comp set level operates as a near zero-sum game. the fact that there

has been limited hotel demand growth in the u.s.
market (averaging 1.6% year-over-year for the last
20 years) means that any claim that a channel vendor
will create substantial new industry level demand is
unrealistic. Channel vendors may be very effective in
helping a hotel shift share, from one hotel to another
or one time period to another. despite the fact that
they might generate some new demand coming from
inbound international markets, they are unlikely to
bring meaningful incremental demand into any u.s.
marketplace in the near term.


4 hotels rooms are for sale in a dynamic and volatile
distribution landscape that is launching many market
savvy and financially well-endowed “gatekeepers”
who will become a new breed of third party intermediary (e.g., Google, Facebook, Apple); their power will
grow as they gradually become the preferred points
of entry for consumers to do travel shopping and
buying. they will charge fees for referrals to hotels
and, while there is no firm evidence pointing to an
exact number, it is plausible that upwards of half of
the hotel business could ultimately pass through third
parties before being delivered to a hotel or brand;
also possible is that costs may run as much as 10%
to 20% of revenue for this emerging new network.
Although they also pose great opportunities, how
the hotel brands manage them in the near future will
be critical to the longer-term outcomes and hoteliers
will have to remain vigilant to ensure that each new
channel has a reasonable return on investment. the
categories to watch are meta-search (e.g., Google,
hotel Finder, Room Key), social (e.g., Facebook, trip
Advisor) and mobile (e.g., all otAs, all hotel brands
and new mobile-only players). new technologies
like voice- and map-activated applications that are
suited to the native mobile environment will become
attractive substitutes for the traditional search engine
browser for consumers to initiate their shopping and
buying. even when these new third parties send a
hotel its business directly, they will charge referral
or media fees and these bookings will still require a
technology infrastructure to support the inquiries and
transaction delivery, all adding to the cost. 

5 For those concerned about intermediary costs such as

the estimated $2.7 billion cost of otA commissions in
2010 (as calculated and estimated by this study) or the
additional estimated $1.3 billion paid to retail travel
agencies through the Gdss (as calculated and estimated by this study), the prospect of paying double these
costs to a widening array of third party intermediaries
within 3 to 5 years may be shocking, but it is not unrealistic. using a hypothetical example, a hotel with $3
million in room revenue may have paid $120,000 to
$150,000 in distribution costs in 2010 and may well
be paying close to $200,000 to $250,000 by 2015.
When the u.s. hotel industry AdR in 2010 appears to
be $10 below the inflation-adjusted rate charged in
2000, these added costs aggravate an already challenging profit picture for a hotel owner.

6 the primary source of new incremental demand in
the u.s. market will come internationally. despite
security restrictions on inbound travel to the u.s., the
growing number of Chinese and indian travelers will
provide meaningful growth in major markets. Many
large hotel companies are building brand awareness
in China and india through aggressive hotel development efforts, but the third parties with marketing
savvy and substantial budgets also have their eye on
capturing this lucrative inbound demand potential and
are laser-focused on securing adoption and loyalty
as a reservation channel of choice within these new
markets, making them crucial players in the consumer
hotel selection process. 

7 some third party distribution channels may start to

offer similar services as those provided by current
franchise and branded hotel organizations. they may
develop into a kind of “soft brand” to support client
hotels by (1) maintaining a brand presence, (2) providing substantial reservation contribution, (3) maintaining quality metrics for customer evaluation and (4)
offering the benefits of a frequency/loyalty program.

8 For the hotelier who does not take proper precautions
and execute careful planning and control, “last minute” pricing strategies can (1) make forecasting more
difficult; (2) lower rates overall; (3) reduce the volume
of high rated business booked further out from arrival
(why book early when you can wait and get a better
deal?); (4) cause consumers to believe that there is
little difference between hotel brands (there is a growing commoditization of hotels as a product); and (5)
put into question the issue of who “owns” the guest
by making the reservation portal the “place to go” for
hotel buyers and, in so doing, potentially degrading
the value of the hotel brand.

9 the prominence and transparency of rates on the
internet and emerging mobile applications, and the
concern for “rate parity” to keep the same rates in
all channels, may result in a “one-rate-fits-all” pricing
structure for many hotels. this undermines the power
of marketing which is a discipline built on a foundation
that calls for offering relevant products and services
with corresponding rates by segment in order to best
meet the needs of each customer group. Rates are
often diluted by (1) the pressure to keep prominent
online rates as low as possible, (2) the reality that
many customers have been trained to believe that he
or she will find a lower rate closer to arrival, and (3) a
propensity for hotels to think that the demand generated by lower rates will always compensate for the
rate reduction. 

10 With a highly fragmented distribution network and

limited marketing resources, it is imperative for hotel
marketers to understand which promotional efforts
to credit with their bookings. the Cornell’s Center
for hospitality Research (ChR) published two studies
concluding that expedia creates a “billboard effect”
that causes a major lift in a hotel’s website bookings.
the studies documented specific hotels in conditions
that may not mirror a realistic situation for many hotels
and do not address variables that may influence the
findings in a meaningful way. it would be misleading
for a hotel marketer to assume that the study findings
can be projected to his or her own hotel. however, the
study has become part of the industry dialogue that
has lead many hotel companies to develop “attribution models” that systematically help the brands figure
out how much to credit each consumer touch point
with its contribution to bookings. there is no simple
answer to this question and it will become even more
complex as new channels come online making a clear
case for brands and marketing partners of independents to focus on this question in order to most
efficiently deploy marketing resources. 

Bron: http://www.hospitalitynet.org/news/4054585.html