Online distribution has grown by almost 50% over the past 5 years, OTAs volumes skyrocketed and reached around 70% of the independent hotels’ channel mix, new online players are entering the market and the onward distribution of wholesale rogue rates to B2C channels is dramatically impacting on the Hotels’ revenue, margins, direct sales and reputation.
Pricing is becoming more and more sophisticated and nailed it in real-time through Artificial Intelligence considering the total spend, customer value and consumers’ behaviour. Pricing rules are dynamically applied to discriminate demand through hurdle rates or last room values. With pricing, the topline revenue is optimized to generate the best possible RevPAR per segment.
Pricing alone does not discriminate the best possible profit per channel.
The Hospitality market worth is $667 BL per year (including v.r.) and $100 BL is the estimated cost of sales. Every online channel has a specific and dynamic CPS (Cost Per Sale), but the distribution of rooms from Hotels to the online channels (Ota, wholesalers and GDS) is democratic: the room inventory is distributed online through channel managers or XML connections to all players equally, on a first-come-first-serve basis. With this democratic inventory approach, the strongest and fastest channels get the booking, regardless of the CPS and profitability.
Unprioritized free-sale of inventory causes profit dilution.
To discriminate availability and prioritise channels, some Hotels apply static if-then rules through the channel managers — e.g. if the hotel reaches 90% occupancy, the channel manager is instructed to close some specific channels. Others apply manual inventory management: allotments, release dates, off-parity prices, forced closures or restrictions. These techniques are not efficient, measurable and cause dimming and de-ranking from the OTAs.
The manual inventory and acquisition management cause loss of sales volume, profitability and sustainability. This activity is not scalable by humans.
Cost of sales will continue to grow and profitability shrink. Only if we embrace the change and find new ways of approaching our distribution and inventory management by leveraging technology and Artificial Intelligence, we will thrive.
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