Margin or revenue management in the travel industry is usually looked at from the perspective of hotels, airlines, rental companies, F&B, and other organizations that deliver travel products. But margin management applies to all of the organizations that deal with perishable commodities within the supply chain.
Travel agents, OTAs, tour operators, and other third-party providers within the ecosystem also need to improve their profitability. However, even though all of these entities manage their margins somehow, only a few of them have comprehensive revenue management practices set in place to set the best prices for their inventories.
Even though third-party providers don’t have complete control over the inventory, all of their contracted or allocated inventory is still perishable. If you have an unallocated room that you haven’t sold means you’re losing revenue.
Is margin management for hotel distributors?
All travel companies that work with fixed supply and variable demand can perform margin management. This is a must for hotel distributors, including online intermediaries and travel agents.
The main reason for this is that the suppliers are putting in a lot of effort creating direct bookings through their sites. All of this puts more pressure on OTAs, and other similar entities as their profits can cut short. As a result, the whole travel industry is very competitive and the demand volatile.
This is why revenue management is crucial. With the proper implementation, interpretation, and development of pricing systems, it becomes easier to compete and maximize revenue. Price is the most important competitive factor within the travel industry.
The way a hotel needs a property management system OTAs need price intelligence tools. With this solution, it’s possible to adjust prices daily according to variable demand and market changes. But it’s also possible to ensure accurate forecasting of hotel traffic in the future.
Things to consider
Even though intermediaries have had a key advantage over hotels and set the tone since the internet came alive, things are changing. OTAs are growing in number, and there is a lot of competition. It has become difficult to compete, and since pricing and revenue management are crucial, these things need to be done with care.
You can’t optimize distribution with a single approach!
The whole travel industry is interconnected. Guests interact and talk with each other, travel sites compete and work together with hotels, and travelers have different needs, and so on. With this in mind, it’s impossible to set up a uniform approach to distribution.
Methods that work in one region or channel won’t work in some other channel. In many cases, the trip types that are taken serve as catalysts for those channels used by travelers. That’s why it can be challenging to create a single approach for product distribution.
For these reasons, it’s essential to segment your customers and the products you’re offering. Consider each location and hotel independently and avoid trying to find a one-size-fits-all solution.
OTAs need to put themselves in the shoes of the hotels!
If they want to make the highest possible revenue, OTAs and bed-banks have to find as many customers as possible. You need to do all of this while providing exceptional service. But it’s not just about choosing the best hotels and finding deals with them.
You need to work on your visibility (marketing) and provide exceptional services to clients. This is the only way to create a positive narrative towards your platform. Distribution and guest experience are deeply connected.
If you offer poor service to the guests, they will negatively perceive the hotel service, which will affect your margins poorly. How? The hotels will lose their guests, and at the same time, people won’t book them through your channel.
Hotels must get direct bookings on their site!
Why should distributors care about how many direct bookings hotels have? Well, they should. If a hotel doesn’t have any guests coming through their own channels, it could potentially lead to a loss of revenue on both ends.
If a hotel doesn’t make enough revenue on its own, it will have to ask for higher booking prices from the wholesalers they work with. This will make it difficult for bed-banks and OTAs to adjust prices and find suitable deals that will work for everyone involved.
How hotel distributors can optimize their performance
To achieve this, a channel manager needs to set up the right processes and systems. But apart from that, they need to rely on crucial data metrics that will help tackle all the daily challenges. The five most important insights are search metrics, understanding margins, inventory management, response times, and timeouts.
All of these insights come from raw data that is located within all distribution processes. Simply put, every organization has this data, but it needs to gather it similarly to the way hotels use PMS solutions for data management. Since our focus today is on margin management, let’s take a deeper look.
Performing margin management
One has to work with different suppliers, various food services, beverage options, destinations, and room types, meaning applying pricing structures that enable disparity in margins. For example, when distributors return rooms per request, they need to consider the different margins between the sale and buying prices.
This is especially important when the same rooms are sourced through several suppliers. Good margin management means finding the best rooms for the right prices while ensuring fulfilments as well. Managers need to do this with the right speed while ensuring pricing in real-time.
It’s simply not possible to do this without analytics software that can give you a wide range of insights, including demand relevance, product availability, and prices. In addition, all operations need to be digitalized and tracked in real-time.
Achieving success in travel is all about knowing your distribution performance and measuring relevant data. It’s about having the right approach to margin management and having the right tools in place to make vital decisions based on data.