To achieve the crucial revenue-management goal of optimizing profits by managing the availability and price of tourism products, one must have an in-depth understanding of the digital-distribution and traceability mechanisms for those services, all within a well-defined strategy. We are all familiar with classic offline distribution, but now we are immersed in a new online setting that has emerged as a key factor. The number of customers who are willing to physically visit a travel agency in order to book a flight, buy a train ticket, or reserve a hotel room is clearly dwindling. However, although digital distribution is growing exponentially, I would argue that traditional offline distribution will always have its niche.
One element that has a direct impact on digital distribution is price parity, which I believe does not exist (if it did, there would be no need for price comparison sites like TripAdvisor, Trivago, Kayak, etc.). It makes more sense to think about the consistency and coherence of prices and products. This trend is already evident in Europe, where some countries have introduced their own measures to liberalize the market for hotel rates. In France, for example, the Macron Law of 2015 prohibited rate parity clauses in contracts between hoteliers and online travel agencies.
Online reputation is another area that has been influenced by digital distribution. Customers are willing to pay more for a product or service if they think it’s better. Online reputation—a concept just fifteen years old—has an influence on pricing and on the revenue management of tourism products. Maintaining the online reputation of a service or destination is a clear economic objective for companies, as it has a decisive influence on demand and on the price that customers are willing to pay.
Therefore, one of the best economic investments for any product is to take steps to improve its online reputation. The direct visibility that a product, hotel, or restaurant enjoys by being listed on TripAdvisor as one of the best in the city has a direct impact on the bottom line. And revenue managers know that this impact will be one of the key factors in improving the average price or occupancy rate of the product in question. We can share the criteria of positioning and valuation or not, but their influence on pricing is clear. It’s just like any other consumer product.
Digital distribution will grow exponentially, but traditional offline distribution will always have its niche.
The weight of big data
Big data also has an impact on digital distribution and is an essential element of current revenue-management ideas. Online distribution has created the possibility of obtaining a huge volume of customer data through digital-analysis tools. The highly valuable information provided by these tools allows more precise segmentation and better customization, making it possible to offer the exact product the customer wants. Here’s the proof: when you book a flight to Rome, there are companies that acquire information about your purchase and sell it to third parties. Your data is processed in a fraction of a second, so the next time you surf the Internet you see ads for products related to your plane ticket: hotels, car rentals, etc.
Revenue management is geared towards maximizing profits, not increasing sales. This form of profit management takes into account the profitability of actions and their ultimate impact on the bottom line.
It’s not about selling for the sake of selling—it’s about making more money. Revenue management determines that any action taken and any decision made through the various digital distribution channels should be in the service of increasing the bottom line, not billing more. The aim is not to fill all the rooms or sell the entire fleet; it’s to make more money at the end of the day. And to do that, you must learn more about the mechanisms of digital distribution, because otherwise your bookings will be cannibalized by certain distributors who have mastered the digital channel—not only in terms of technology, but also knowledge and strategy.
Given this reality, revenue managers should also have expertise in digital distribution and understand how it works. Hoteliers and other proprietors of final products generally have abysmal knowledge in this area compared to distributors. Moreover, something curious happens in the hotel industry that does not occur in other sectors: the loss of product traceability. Would a multinational like Mercedes not know who sells its cars? Would Apple ship thousands of iPhones to a dealer who refused to reveal where they would be sold and at what price? It’s unthinkable. But this does happen in the tourism and hotel industry. Many hotels do not know who is selling their rooms, how the prices are determined, who is modifying their margins, etc. The result is a scenario very different from that of fifteen years ago.
Revenue management is geared towards maximizing profits, not increasing sales.
Searching and booking
Digital distribution simplifies the searching and booking processes, and the multi-device nature of these processes increases product visibility, causing potential demand to grow exponentially. Customers can’t buy something they can’t find. In 2015, 64% of online flight searches were done on computers, 7% on tablets, and 29% on smartphones. For hotel bookings, most searches were done on mobiles (53%) followed by computers (39%), while for car rentals computers were in first place (56%), followed by mobiles (37%).
The presence of a tourism product on the main distribution sites creates a rebound effect on sales in other channels. It used to be that customers would look online and book offline. Nowadays, digital distribution has exponentially increased visibility, allowing products to reach many more potential customers, influencing potential demand, and therefore boosting sales. It becomes truer with each passing day that what is not on the Internet simply does not exist.
However, perhaps one of the biggest challenges for the tourism industry is to understand how digital distribution works and strike a balance between direct online sales and selling through distributors. For the hotel industry in particular, this is probably one of the most important pieces of unfinished business: understanding how an inadequate channel mix affects profitability.
Understanding the impact of digital distribution on profitability, who resells products, what the costs are, how products are pitched, and such simple concepts as affiliation—these are vital but often poorly understood points. This doesn’t happen only with hotels and small businesses: occasionally, a company like Iberia discovers that a website has been selling its products in a way that violates its sales policy. You have to understand, above all, that digital marketing, digital distribution, revenue management, and commercialization are circles that converge in the same place and must be interconnected. These are no longer different elements; if they are not united, you lose opportunities for improvement. Revenue managers have to understand and manage this if they are going to make the right decisions.
Revenue management and digital marketing have evolved at a dizzying pace. The two areas should work closely together, but this doesn’t always happen.
Strategic distribution
The aim of strategic distribution is to reach the right customer with the right service at the right time. At the strategic level, revenue managers should incorporate the impact of various actions that can be carried out to enhance digital distribution. They need to understand and analyze online reality in order to optimize results. There are clear synergies that need to be automated with analysis tools in order to create clear, well-defined processes for applying the right tactics to achieve strategic goals.
Understanding distribution mechanisms is perhaps the most important challenge. Revenue management used to be seen as a separate area of expertise. Revenue managers drew up demand estimates and projections and developed price-based strategies, while the sales department focused on selling. Then the marketing team, which focused on branding, was added to the mix as a separate department. Today, it’s no longer like that. Revenue management and digital marketing have evolved at a dizzying pace. The two areas should work closely together, but this doesn’t always happen. When there is no rapport between revenue management and digital marketing, synergies are wasted and the demand generated by marketing actions may be lost, squandering resources and sales opportunities. The two departments share common goals, and their interaction can and must generate positive results in the long term.
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