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Why Being Different Drives Profit

Direct bookings. We talk about it every day. OTA commissions stick out like a sore thumb on our P&Ls. Our direct booking shares are in decline but the cost to maintain that share is rising. Hotel owners and managers alike are heavily investing in technologies to generate more direct bookings while fighting the inherent distribution challenges that continue to plague our industry. We spend a lot of time talking about the user experience on our websites and booking channel disparities, while we pay less attention to talking about the overall product experience of our hotels and guest service disparities. We somehow believe that we can “turn on” the direct bookings or “turn off” the third parties with a flip of a switch. When we talk about profit maximisation, we talk about direct bookings when we should be talking about, well, profit maximisation.

This is why I'm not a big fan of having a set number that defines what your distribution mix should be. It just needs to drive as much revenue as possible at the lowest cost of sale, whatever that may be appropriate for your hotel. The conversation should be about driving profit and that starts with whatever channel can get you the highest volume and rate. It’s about the net revenue after all costs of sales have been taken out.

For example, if you are operating a resort property in a remote island off the coast of Africa, you're going to have a lot more wholesalers because the flights that operate there are going to be mostly driven by the tour operators and the wholesalers. Good luck trying to drive direct business there. It’s going to cost you a lot of money chartering private planes to get people into your island. If you are in central London, however, your direct channel may be much bigger because the profile of the traveller mix is so much different there.

I’d like to think there are three parts to maximising profit. Demand generation, demand optimisation, and retention. Pricing and distribution are both examples of demand optimisation. The former is about maximising revenue with the given demand levels while the latter is about capturing that revenue at the lowest cost of sale. With the right strategies and tactics, we can steal share from other competing hotels, but we don’t necessarily generate demand with these functions

How do you generate the demand for your hotel? The demand is generated when the guests seek you out, and they’ll only seek you out when you offer a fundamentally better or differentiated experience, often backed by an ethos that is unique to your brand or hotel. We don’t talk about it as often in our weekly or monthly commercial strategy meetings, but it’s about time we incorporate plans to distinguish your hotel versus your competitors within the context of commercial strategy and profit maximisation.

Differentiating ahead of a downturn

If you operate in a downturn market and you have a commodity product, i.e. there's nothing that separates you from the competitor next door, you're going to be in a tough position. All proverbial factors will apply, such as the location, price, room type availability, and loyalty. When the hotels with less than stellar revenue strategies in your comp set decide to change the only thing they can - price - then you will be forced to compete in a race towards the bottom, compromising the rate integrity in the entire market. 

In the best-case scenario, every hotel will deploy tactics that are on everyone else’s list of tactics, such as building a base farther out, opening up those lower corporate rate plans that almost always get closed out, offering incentives for MICE and group enquiries, discounting based on length of stay or booking window, yielding rates dynamically based on demand, etc. That means everyone else is doing the same thing you’re doing. The net effect is zero.

If your hotel offers a unique and differentiated experience, however, then you are more resilient in a downturn market (or any market) because the guests will seek you out for the experience that distinguishes yours from the rest. Rather than depending on demand from the various distribution channels, your hotel can command its own demand. This is why having a distinctive character and providing a unique and differentiated experience matter. One of the reasons why people love Airbnb is because every Airbnb stay is distinctive, which is quite the departure from the cookie-cutter experience provided by most hotels. 

This is why we have YOTEL. Yes, we continuously strive for the mastery of demand optimisation (and we think we’re pretty good at that), but we also understand that the fundamental reason why a guest chooses to stay with YOTEL is because of the ethos we share, the experience we offer, and the value we bring. Brand, product, and experience generate and retain demand, while the commercial functions, such as revenue, sales, marketing, and distribution optimise that demand. Once you see your revenue and cost of sales margins stagnating, it may be time to take a serious look at your hotel’s overall product and offering. Even if you can’t do much to distinguish your hotel from the rest of your competitors, it will at least bring clarity on your strategies to steal share from the existing pool of demand across all segments and channels.

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Joe Pettigrew, SVP Commercial Strategy, YOTEL

Joe is responsible for YOTEL's global strategy on revenue, distribution, e-commerce, sales and digital marketing. He brings over 15 years of experience in the hospitality industry, having held various leadership positions at some of the most celebrated companies, such as The Principal Hotel Company, The Palms Casino & Resorts, and Expedia, where he completed key initiatives, such as the launch of multiple award-winning websites, a new loyalty scheme, and a CRM. He is also an active member of the industry, serving on a steering committee of European Hotel Forum and frequently contributing to industry studies and events.

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