How to design a profitable hotel distribution strategy in 6 steps

When planning a trip, travelers visit dozens of websites to gather information, but they choose only one booking channel. The more booking channels your property is listed on, the better the chances it will be your property travelers will choose. That’s why it’s important to cast your net far and wide when it comes to distribution.

Here we discuss the essential steps to developing a profitable hotel distribution strategy, whether you operate a large or small hotel, an inn, B&B, hostel, or vacation rental. Even if you already have a distribution plan in place, it’s never too late to fine-tune your strategy.

Where does distribution start? In this snippet of The Turndown Podcast, Sarah Fults, Vice President of Distribution at MGM Resorts, gives her definition of distribution, a key concept in the hotel industry that is often misunderstood.
 

Hotel distribution strategy vs. hotel marketing strategy

Whereas marketing focuses on generating demand, a distribution strategy is a revenue management function that focuses on generating bookings. Success in distribution management is measured by the revenue and profitability generated by the distribution mix, taking into account booking volume, average rates, and costs of acquisition. For more info, check this guide on hotel marketing strategies.

What are the benefits of a distribution strategy?

With a smart distribution strategy in place, accommodation operators can:

• Increase visibility on popular booking channels
• Reach a broad range of traveler types
• Increase bookings (advance and last-minute)
• Reduce dependency on one or two channels (for example, Expedia and Booking.com)
• Understand which channels are most profitable

6 steps to building a distribution strategy

To develop a profitable distribution strategy, follow these steps:

1. Identify your target markets

Although it’s a good idea to list on a broad range of distribution channels to maximize visibility, it’s not about listing on as many channels as possible. Rather, it’s about choosing the most popular channels among your target audiences.

It starts by identifying your ideal guests – the guests and prospective guests who will appreciate your property most and will generate the most bookings and profits. Are they younger or older? Where do they live? Are they luxury travelers or budget travelers?

For example, whereas all types of travelers use popular OTAs like Expedia and Booking.com, younger travelers are more likely to book on metasearch channels than older travelers, and older travelers are more likely to call in to make a reservation than younger travelers. If you run a hostel that attracts budget-oriented guests, you’ll want to work with online channels like Hostelworld and Hostelsclub. And if you operate an upscale boutique property, a better fit might be luxury sites like Tablet Hotels and Mr & Mrs Smith.

2. Choose your hotel distribution channels

Next, it’s time to choose the booking channels your target markets are most likely to use. Here are the main types of online distribution channels in the hotel industry:

Direct channels. 

These channels allow travelers to make a reservation directly with the property, such as the hotel’s website booking engine, walk-ins, and reservations by telephone, email, or messaging. Because there is no intermediary, the hotel doesn’t pay a commission or referral fee, so these channels are generally more profitable than indirect channels. For more information, check out how to attract more direct bookings for your hotel.

Online travel agencies.

OTAs are intermediaries that allow travelers to browse accommodation offerings in a destination and charge properties a commission for each booking, typically ranging between 12%-30% of the room rate. In addition to working with big online travel agents like Expedia, Booking.com, and their affiliates, consider smaller, niche OTAs that specialize in your property type or target similar regions or demographics, such as Airbnb,Trip.com, or Despegar. For more information, check out the top revenue-generating online travel agencies.

GDS. 

Global distribution systems like Amadeus and Sabre are used by travel agents to browse and book hotels, flights, car rentals, and other components of a trip. Hotels pay a commission to the travel agent for bookings as well as a fee to the GDS provider. For more information, check out attract business travelers with a hotel GDS.

Metasearch. 

Metasearch engines like Google Hotels, Tripadvisor, Trivago and Kayak display a hotel’s rates and availability from a variety of booking sources, allowing travelers to easily compare offerings on one page. To book a room, the traveler must click through to the hotel’s booking engine, making these channels a valuable source of direct bookings. The hotel pays a fee for every click. For more information, check out what is hotel metasearch marketing and Google’s free booking links.

Wholesalers. 

Wholesalers and bedbanks like TUI and Hotelbeds reserve blocks of rooms with hotels and resell them through OTAs, travel agencies, and tour operators. Rather than pay a fee or commission for bookings, the hotel provides wholesale rates that represent a significant discount from retail rates.

Other channels.

Other distribution channels for independent hotels include bed banks, tour operators, regional destination management organizations (DMOs), call centers, social media, paid channels such as Google Hotel Ads, and more. For more information, check out Cloudbeds’ list of distribution channels.

3. Optimize your distribution channel listings

Optimizing your listings means ensuring the content you share provides all the information travelers need to make a decision to book your property. This includes high-quality photos, compelling descriptions, and information about your location, amenities, and other features that appeal to your target markets. Review your listings regularly to ensure information is always accurate and up to date. For more information, check out 4 steps to optimizing your OTA ranking.

Keep in mind that traveler reviews and ratings can have a big impact on visibility and conversions on the distribution channels that feature them. Be sure to monitor and respond to reviews and take action to fix problems and improve your ratings. For more information, check out 10 tactics for successful hotel reputation management.

To encourage those lucrative direct bookings, your website should be easy to navigate, be optimized for search engines and mobile devices, and feature an integrated booking engine and a best-rate guarantee. Consider adding a webchat widget to answer travelers’ questions during the booking process and information about upgrades, local activities and tours, and other upselling propositions. For more information, check out demystifying hotel SEO – the fast guide to better rankings

As for walk-ins and reservations by telephone, email, and messaging, some people prefer to contact a live person on property – don’t deny them this need! Ensure that employees respond to queries promptly and have all the information they need to answer questions, quote rates, and take reservations.

4. Set hotel room pricing and promotions

Now you’ll need to decide the rates to offer on your distribution channels. Rather than sell rooms with different rates on each channel, it’s a good practice to maintain rate parity, ensuring rates are the same on all distribution channels. Your pricing should be high enough that it covers commissions and fees while still generating a decent profit.

Rather than list only your cheapest rooms, offer several room types and rate plans to appeal to a variety of travelers, such as suites, packages, and non-refundable rates. Ask your OTA account rep which room types and packages generate the most hotel bookings.

To maximize revenue, follow a dynamic pricing strategy, adjusting rates and stay restrictions according to changes in occupancy, market conditions, and competitor activity.

5. Track acquisition costs by distribution channel

Once you’ve activated your online booking channels, you’ll want to keep a close eye on performance. To understand which bookings are the most profitable, calculate the costs of acquisition on each channel, including commissions, cost-per-click fees, transaction fees, and other costs. For direct channels, estimate the costs of marketing, technology, loyalty program, and, if applicable, booking engine fees.

Be aware that customer acquisition costs can creep up over time, so check them regularly and shift resources to the most profitable booking channels.

For tracking the overall profitability of your distribution mix, a good metric to use is NetRevPAR, or net revenue per available room. It’s calculated by subtracting the costs of acquiring bookings from total room revenue and dividing by the total number of rooms available to sell.

The NetRevPAR formula is: rooms revenue minus distribution costs divided by available rooms.

For example, if you have 30 rooms and sold $5,500 in room revenue last night, with an estimated $1,350 in distribution costs, your NetRevPAR was $138.33. For more info, check the most important hospitality industry metrics.

6. Utilize revenue management tools

Managing multiple distribution channels can be time-consuming and complex, but fortunately, there are a number of property and revenue management systems that help hoteliers save time and boost results by automating a variety of tasks.

Hotel distribution management tools include:

• Website booking engine. Don’t lose website visitors to other booking channels. Allow travelers to check availability and make reservations directly from your website with a commission-free booking engine integrated with your website and property management system.
• Pricing intelligence engine. This tool will help you maximize revenue and occupancy by monitoring your competitors’ rates, sending you alerts to pricing changes, and keeping you aware of local market conditions all from one dashboard integrated with your PMS.
• Channel manager. A channel manager will make managing multiple distribution channels a breeze. Your rates and room inventory will be updated across all your booking channels simultaneously in real-time, helping you avoid overbookings and other errors.
• Rate shopper. This tool automatically collects competitor availability and rate information and displays it on an interactive dashboard, allowing you to monitor rates in real time and ensure you’re always priced competitively in the market.

You will need to work with a technology partner to load inventory and rates on some distribution channels. Find out how Cloudbeds Hospitality Platform can get you up and running with all the tools and integrations you need to maintain a profitable distribution strategy.