a 3-step program for coping with internet distribution · 2004-03-22 · top appendix &...
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A 3-Step Programfor Coping with
Internet Distribution
A 3A 3--Step ProgramStep Programfor Coping withfor Coping with
Internet Distribution Internet Distribution
For more info…[email protected](805) 963-9955 x1581
Tom FragalaCEO, Vistera
HFTP, LA Chapter – 03/20/03
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What’s All the Fuss About?
“Online distributors are the cocaine of the hotel industry”
--Scott AndersonHigh Country Hospitality
-- Henry HarteveldtForrester Research
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Presentation Overview
The 3-Step Program1. Acknowledge the Threat2. Educate Yourself3. Take Action
"Never believe that a few caring people can't change the world. For, indeed, that's all who ever have."
--Margaret Mead
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Presenter Background
From early 1999 to 2003, Tom Fragala served as CEO of Vistera Inc., an enterprise software company. Vistera built a Web-based business intelligence system for the hospitality industry. Through this “digital dashboard,” multi-unit lodging owners and operators gain immediate access to accurate and timely financial, operations, and customer data gathered from the diverse systems installed across their properties. This product transforms time-intensive, error-prone manual data entry processes into seamless and automatic delivery of information—facilitating proactive management decisions. Vistera’s customers included Cornerstone Real Estate Advisers, which has 35 hotels and is a subsidiary of MassMutual (a Fortune 100 company). Recently, Vistera Inc. sold its intellectual property assets. The new Vistera now offers IT and e-business consulting services to hospitality and other industries.
Prior to founding Vistera Inc., Mr. Fragala served as CTO of CompuVision, an IT consulting company. He also led the IT department for Software.com (now Openwave Systems), a wireless communications software company. In addition, he has been an employee of Cambridge Technology Partners, Microsoft, McGraw-Hill, Chase Manhattan Bank and Marriott Corporation. Mr. Fragala holds both an M.S. and B.S. in Computer Science. He can be reached at [email protected].
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Step 1/ Acknowledge the Threat
1. Growth of the online market & IDS2. Powerful new online leaders3. The negative impacts4. The positive aspects (it’s not all bad)
“Online discounters are completely disrupting the pricing integrityof hotels...this is pricing terrorism”
--Henry HarteveldtPrincipal Analyst, Forrester Research
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Growth of the Online MarketInternet hotel bookings as % of all hotel bookings
5
1014
1720
0
5
10
15
20
25
2001 2002 2003 2004 2005Source: Hotel eBusiness Strategies
% o
f tot
al
US Travel Sales: Online vs. Offline
7 1015 17
27
93 9085 83
73
0102030405060708090
100
2000 2001 2002 2003 2004Source: PhoCusWright
% o
f tot
al
OnlineOffline
By 2005, hotel bookings via GDS will be less than bookings via Internet
Source: Hotel eBusiness Strategies
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Powerful New Online LeadersMarket Value
Expedia & Hotels.com vs. Big 3
7.5
4.5
9.0
5.0
0.0
2.0
4.0
6.0
8.0
10.0
EXPE + ROOM Marriott Starwood HiltonYahoo! Finance (3/19/03)
$ Billion
Hotels.com 2002: Revenue $950m, EBITDA $120mExpedia 2002: Revenue $590m, EBITDA $145m
Expedia & Hotels.com• Book 2/3 of all non-branded hotel rooms online• Have margins approaching 30% (merchant model)• Enjoyed revenue & profit growth of 80-100% from ‘01 to ‘02• Will spend well over $100m on advertising this year
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The Negative Impact
Online distributors contribute to…1. Loss of pricing control2. Decline of ADR & RevPAR3. Slipping brand value4. Training consumers to bargain shop
When customer is buying on another site…1. Hotel can’t up-sell or offer more profitable packages2. Hotel can’t have a “dialogue” with or learn about consumer
“The hotel industry gave away control of its inventory"
--Scott Anderson
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The Good Aspects
The Internet enables hoteliers to…1. Reach more customers directly—quickly and cheaply2. Use indirect channels to move rooms fast (when appropriate)3. Learn more about their customers4. Stretch sales & marketing dollars in lean times
“The Internet in 2003 can be your best ally or worst enemy"
--Max StarkovHospitality eBusiness Strategies
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Step 2/ Educate Yourself
Attend seminars & conferences (see next page)Read hospitality web sites*Subscribe to industry e-mail listsUse Google to search for free info & articles on InternetGet involved: join associations & invite speakers to your local chapter of HFTP, AH&LA, HSMAI, AAHOA, etc.Consider hiring a knowledgeable consultant (they’re often writing those articles and talking at conferences)
For online strategy, use online specialists, i.e., Hospitality eBusiness StrategiesSearch the ISHC for a list
* See appendix for information
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Upcoming Conferences & Seminars
AH&LA's “e-Distribution 101”18 seminars across the U.S. In CA: San Diego May 18, Anaheim May 19Contact: Tia Gordon ([email protected])
Travel Commerce Conference & ExpoApr 1-2, New York City
TRAVDEX: PhoCusWright Travel Tech ConferenceApril 29-30, Atlanta
Club & Hotel Controllers ConferenceApr 28-29, San Diego
HEDNA University May 12-13, MontrealDay 1: Essentials Of Electronic Distribution For the Hotel IndustryDay 2: Marketing Dynamics of Electronic Distribution for Hotel Industry
HEDNA ConferenceMay 12-16 Montreal
Las Vegas International Hotel & Restaurant ShowJune 18-19
HITA Conference on IT in the Hospitality IndustryJune 22-23, New Orleans
HITECJune 24-26, New Orleans
Western Lodging Show September 7-8, Ontario CA
The Lodging ConferenceOctober 14-17, Phoenix
HEDNA ConferenceDec 8-12, Miami
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My Challenge to You
With our busy schedules, how can we possibly get up to speed on this issue?
Block out 15 min. a day or 1 hour a week and do business reading—including reading on this topic
Set aside time on your schedule, turn off the phone, close the door (try it first thing in the morning)
Print out articles from Internet or read an e-mail list newsletter
Share what you learn with your peers
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Step 3/ Take Action
1. Channel management/conversion2. Build an online distribution strategy3. Focus on your hotel or chain web site4. Look to the future
"Every problem has a gift for you in its hands." --Richard Bach
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Channel Management/Conversion
Channel management• Consistent rates, room types & descriptions across all channels• Rates need frequent updating w/yield management• Needs to be implemented & trained across entire company • Rate tracker tools: Travelclick, TrendFX, TIMS, etc.• What’s more important is positioning, not just knowing rates• Updating just a few IDS is a time-consuming task (the future holds promise)
Channel conversion• Goal is to increase bookings through your hotel web site• Market your website to guest that booked via IDS• Tip: Provide guests a card advertising hotel web site, explain lowest rate
guarantee, or special promotion discount for booking direct• If you’re “paying” IDS to sell rooms for you, provide those guests with
exceptional service so next time they’ll be loyal to you• Also needs company-wide planning & training
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Build an Online Distribution Strategy1
Drive customers to hotel web site (direct to consumer)• This is the cheapest (thus, most profitable) channel• Don’t have a rate lower than your own web site• Consider using opaque channels to hide special low rates (Priceline, Hotwire)• Lessen dependence on other channels
Benchmarks to shoot for1
• Limit distribution to indirect online channels to less than 47%2
• Generate 13%2 of total bookings from Internet—without losing price control
1 “Hotelier’s Top Ten Internet Resolutions”, Max Starkov & Jason Price, January 20032 National average
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Tips
How do you stack up vs. competition--in all areas of Internet?Invest in a better website so you turn lookers into bookersUse search engines to better position your hotelUse pay-per-click advertising—effective for “distressed” inventoryEmail marketing can be an inexpensive & effective toolDo you have 60% of your customer’s email accounts?
“The indirect channels are not inevitable…if you do your job right, you may not need them."
--Max StarkovHospitality eBusiness Strategies
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Look to the Future
Channel management (CM) products on the horizon• Provide CM of all channels, rates, types & descriptions• Web-based software hosted by hotel company or via ASP model• Ultimate goals…
Seamless integration with all channels (IDS, PMS, CRS, switches, GDS) and yield management Dashboard to control all channelsDynamic allocation based on demand & yield strategiesFlexible business rules on a per-channel basis
• Still a ways off, primarily because of challenges of integration• Worth considering for 2004 budget
Vendors to watch• HIS will be releasing exciting CM module soon*• hubX has quality product: X-Change (to be renamed soon)*• Newtrade was recently acquired by Expedia…future uncertain• Also, Hotel Booking Solutions
* See appendix for screen shots of products
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Summary
The 3-Step Program1. Acknowledge the Threat…know the pitfalls & positives2. Educate Yourself…much of it’s free3. Take Action…use Internet to your advantage
“It is no use saying, 'We are doing our best.' You have got to succeed in doing what is necessary.”
--Sir Winston Churchill
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Appendix & Glossary
"Knowledge is of two kinds. We know a subject ourselves, "Knowledge is of two kinds. We know a subject ourselves, or we know where we can find information upon it." or we know where we can find information upon it."
----Samuel JohnsonSamuel Johnson
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Hospitality Web Sites
The following is a partial list of popular and useful hospitality web sites
Hotel Online Wired Hotelier
AH&LAHospitality Upgrade
HITEC OnlineHotel Business
H&MM Magazine Hospitality Technology
Hospitality Net Hotel Interactive
Hotel ResourceLodging Hospitality
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Glossary
IDS: Internet distribution channelADS: alternative distribution channel (used interchangeably with IDS)Indirect online channel: a third party IDSDirect online channel: a hotel’s or chain’s own web site(s)Merchant model: buy inventory at wholesale prices and mark up to consumer; delivers
higher margins than the travel agency commission modelGDS: global distribution systems (Worldspan, Galileo, Amadeus, Sabre)Switch: provide simpler connections to GDS (Wizcom, Pegasus)CRS: Central reservation system, i.e., Pegasus Rezview, Synxis, Unires, etc.
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Articles on the InternetThe following is a list of articles used in creating this presentation. It represents a good
starting point for further research.
Are Hoteliers Ready to Meet the New Challenges in Online Business Travel, Jason Price & Max StarkovHoteliers Are Still Behind The Curve In Online Distribution, Jason Price & Max StarkovHotelier's 2003 Top Ten Internet Resolutions, Max Starkov & Jason PriceHotels out in cold thanks to Web's popularity in booking rooms, Kathy Bergen, Chicago TribuneCan Six Continents Stem Online Wholesaling?, Dr. Bill CarrollHotels’ Efforts To Control Distribution Evaluated In New Phocuswright Report, PhoCusWrightWresting Back Control from the Online Wholesalers, Sharon H. McAuliffeHotels' Efforts To Control Distribution Could Backfire, PhoCusWrightOutperforming the Outperformers - Expedia leads the online travel industry, Douglas S. Wood, CNNInventory And Rate Management In A New World, John Burns
If any of these links return an error, or are not found, type the title into Google and perform a search.
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User is managing hotel web site channel…can
do the same for any channel, i.e. IDS, PMS,
GDS, switch, etc.
Used with permission.
Hotel Information Systems
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hubX
Check utilization of your channels
Used with permission.