Optimal Channel Mix

by Cindy Estis Green

Every hotel has an optimal channel mix. This is the ideal mix of business from each channel that results in optimal profitability for a hotel, given its position in the marketplace relative to its competitors, taking into account its physical configuration, amenities and condition, management quality, brand strength, marketing prowess, and consumer perception.

Figuring out the optimal channel mix can be difficult and managing to achieve it is the ultimate challenge.
Realistically, a hotel with a brand flag (and this varies quite a bit by brand and location), will receive 30% to 70% of its business from the “mother ship” through group leads, central reservations, corporate promotions, national account production, loyalty clubs and other brand-sponsored programs. Most hotels still have to fill the rest by closing on the leads in their local/regional markets or through local initiatives. Contribution by a loyalty club in a chain hotel may be as much as 50% of the transient base but that raises the question as to what the individual hotel can do for retention of the other 50% of its customers. For independent properties, they may get some lift from affiliation to reservation or sales consortiums, but most of the time, they source 50% or more locally.

Demand Generators
Given that 30% to 70% percent of the business (let’s call it 50% for the purpose of discussion) is the local hotel’s responsibility, even with the help of a strong brand, getting half of the business requires some promotional and sales savvy. A hotel with diverse demand streams may have enough meeting space to fill a big part of its share of the occupancy pie with local groups, meetings, and citywides, then it may only have another 25% to fill with the amorphous unmanaged corporate or transient segments. Sales calls to local corporate accounts can fill part of it, provided this type of business exists in a market, and that a hotel has suitable facilities for it.

In an attempt to provide as much of a hotel’s business as possible, brands and reservation representation firms are building their infrastructure to step up qualified corporate traffic, especially since this segment is growing once again. Concurrently, Global Distribution Systems (GDSs) and online travel agencies (OTAs) are working hard to persuade small-to-mid-sized corporate accounts to use their inventory; for the GDSs this will supplement their primary business in powering travel management companies (TMCs).

What about hotels without meetings or corporate potential? Where do they turn for more high-value business?

There are dozens of local demand generators such as:

• convention and visitors bureaus (CVBs),
• local attractions
• parking facilities
• universities and colleges
• sports teams
• local businesses (targeting employees as opposed to corporate travel)
• travel industry employees coming to the hotel’s destination
• entertainment venues
• hotels in commonly visited nearby locations ripe for partnering on promotions
• regional directories for travel or entertainment

A hotel can tap into social media by participating in blogs about nearby sports, recreation, and activities along with consumer review sites that offer destination coverage and potential visibility to a local audience. Brainstorming a list like this may reveal a few demand streams that are not as obvious and could fill some need periods at reasonable rates with minimal distribution and promotional costs. Some smaller niche or regional OTAs offering attractive terms to a hotel may also prove to be valuable sources of business. While the dominant channels in a market certainly provide the easiest levers to pull, seeking and testing all appropriate sources in a marketplace can yield a healthy mixture of channels. It is the responsibility of the hotel team to find all the options in the marketplace, test them for quality and quantity, ensure that they yield profit and a sustainable revenue flow, and ensure that they can handle the reservations operationally. This exercise may take more time and effort if executed systematically, but it will pay off on the bottom line.

Then there is the brainstorming over ways to increase ancillary revenue for all hotel types including mid-priced and economy. Snack boxes during early morning or late-night timeframes, premium bath and bed amenities, gift cards, preferred rooms, flexible arrival and departure times, quicker check in, convenient parking spaces, and stratified high-speed Internet access are all examples of ways to improve margins on business through all channels.

Acquisition, Persuasion and Retention
Although most hotel marketing tends to focus on building traffic and acquiring new business, the companion disciplines of persuasion (which leads to conversion) and retention also play a role in a hotel’s results. Since there is limited incremental demand in the U.S. lodging industry, a hotel performing optimally will recognize that any traffic that comes its way (through any channel) is limited and is a hot target for its competitors, and therefore is highly valuable. A hotel general manager or owner can ask these questions:

• Is the hotel doing the best job possible to convert the traffic that flows through existing channels?
• Are call center and website conversion rates being tracked?
• Are retention programs implemented effectively, whether it is a brand loyalty program or a local version used for non-loyalty members or in an independent setting?
• Are social media channels being tapped to heighten engagement?
• Are all marketing resources being used primarily toward acquisition without recognizing the need to commit funds and staff time to conversion and improving repeat business or referrals?
• Has the hotel team even thought about the way it divides its time and funds in terms of acquisition, persuasion and retention?

Determining an optimal channel mix is about the relative benefit of each channel and the corresponding cost. Since most channels serve some combination of booking, informational and promotional role, deciding which one(s) yield the best results may depend on the hotel’s need for it to support its goals for acquisition, persuasion/conversion or retention.

A print version of the Distribution Channel Analysis: a Guide for Hotels can be purchased from the American Hotel & Lodging Educational Institute, http://shop.ahlei.org/Distribution-Channel-Analysis-A-Guide-for-Hotels_p_2663.html

Cindy Estis Green, CEO of Kalibri Labs, is the co-author of Distribution Channel Analysis: a Guide for Hotels and adapted this article from her book which addresses methods for determining a hotel’s optimal channel mix. cindy@kalibrilabs.com