I spent most of this weekend looking at reports on the hotel industry for indications of how Q1 will finish. 2017 is a year to watch for many reasons – ‘instability’ being the word of the day. Last year it was ‘uncertainty’. In particular, I was focusing on hotel distribution costs and the aggressive measures by large hotel brands to wrestle control of distribution costs back from the likes of Expedia and Priceline. A few clients sent me conflicting data on whether third parties help or hurt (good luck answering that one!) and I wanted to get to the bottom of the contradiction.
In 2016, Expedia reported 61% revenue from hotels. That’s $5.34 billion that hotels paid Expedia in 2016. So, understandably Expedia, worried as it should be, put out an article in Skift, that said hotel owners will actually lose 8% even though they save on distribution costs. Their argument is simple, you’ll pay that money anyway, in fact more, why not pay us. Hotels on their part have mostly looked at distribution costs in a vacuum of third parties with very little impact studies done on the long-term effect, what the consumer really wants, and other things such as ‘billboard effect’ (which Expedia seems to play on)
There’s no disputing that $5.34 billion is an amount that hotels could well do with taking to their own bank rather than handing it over to Expedia – and similar amounts to Priceline. Sell rooms on your own low-cost channel, save distribution/commission costs, and keep more money. If this logic is so simple, then why is there study after study after study disputing the previous one? Why did Expedia’s revenue rise 20+% in a year with aggressive drive-to-branded-web push? The reason is simple:
Hotel brands themselves don’t know if they’re winning the distribution tug-of-war.
There hasn’t been a decisive study from a major hotel brand that dispels the Expedia study. The only response I could find was from a little-known marketing outfit called Mirai that debunked Expedia’s study with their own assumptions. There are countless other studies published by other players in the market – Sojern & TripTease to name just a couple – many of whose studies somehow magically come to the conclusion that the answer to a hotel’s problems is their own product. We all know that companies like to build credibility, share information, and at the same time make a plug for their services. But lately this phenomenon has gotten out of control with conflicting information being published from various sources all the time, the plugs becoming more and more shameless, and practically all items in the daily hotelmarketing.com newsletter are written by their sponsors or link to commercial firms selling something. Is it little wonder that I found myself throwing my hands up, screaming a few choice words at my screen and giving up reading on these ‘studies’ on hotel distribution.
So why should we care? In itself, this is nothing new. Oil firms publish reports on environmental impact, Automotive firms analyze pollution, Marketing firms study the next frontier of customer acquisition etc. While the exact numbers and conclusions may vary to suit the publisher, the general trend is the same. Oil extraction damages the environment – how much may differ if you ask Al Gore or Scott Pruitt. But hotel distribution studies are all over the place. This is far more damaging that we can imagine.
First, there’s a study to back whatever your position on hotel distribution is. Hence, there’s no real debate on ‘facts’ but just different ‘points of view’ based on different data. This can be misleading when making the right decision in the hotel’s best interest. Second, hotels could be making bad decisions with biased data. This could lead to failure of distribution experiments thus proving counter studies right – a self-fulfilling prophecy. Third, it lowers credibility of the industry and brands as a whole. Hotel brands are infamous for lagging behind in technology, Business Intelligence, and sophisticated pricing/distribution models. The current environment does not bode well for anyone’s reputation. Finally, it’s a huge distraction for the already scrambling sales and revenue teams. They have to present arguments and counter-arguments to any study that catches their GM or owner’s whim and creates hours of work that they could well spend on analyzing their own specific situation.
What about independent studies by PwC or PKF Consulting (now CBRE Hotels) or STR? They do publish some excellent studies, but they are costly and very generic. So while they will give you an idea of the industry as a whole, it’s difficult to analyze how it could benefit your particular situation. And as impartial third parties, they don’t have specific action items which the service suppliers’ studies seem to do – not least of which is buying their services.
At the risk of sounding like a rant, I believe the hotel industry should take control of facts before taking control of distribution. Spend the time in benchmarking current state, including variables that are outside distribution’s direct sphere, and settling on some KPIs that everyone in the organization agrees upon before simply trying to sell direct. There should be no dispute within each organization on what the impact will be for themselves and what is the best way to solve the distribution conundrum. Once everyone is on the same page, by all means go forth and battle the right elements to win. Because only hotels/brands themselves are in a position to evaluate their exact circumstances. There doesn’t seem to be an industry standard that accurately applies to everyone. Who knows when that will come. Or maybe there’s a study for that!