NexGen Technology

Make your site the most potent weapon

History repeats itself as Indian hoteliers make the same mistakes as their Western counterparts, writes Vivek Nayak

Vivek Nayak Chief Operating Officer Avenues

If you are a hotelier who gets a significant amount of sales volume from intermediary channels, then you should be reading this article closely. And if you are one of those who think that a hotel website is good only for showcasing your hotel brand and nothing more, then you should read this article too. It might do wonders for your business.

Rise of the intermediaries

There was a time when the hospitality business was relatively simple. You chose the best possible location, built a posh property, offered a great package of amenities and services and then you announced your presence. It was as simple as that. Customers walked in. You worked hard to please them so that they added value to your brand name by speaking good things about your hotel to their friends and associates. Your business grew. And then suddenly things changed.

Competition started to eat into your franchise; 'wannabe' imitators started to take away your market share. The task of getting in guests to meet the `heads on beds' targets became a complicated exercise. So you had to start sharing your income with intermediaries who specialised in bringing in customers to your hotel. Soon the intermediaries grew to become the de facto marketing arm of the hotel, and in many cases even the brand custodians. Eventually these intermediaries became so powerful that they started to dictate terms to the hotel and take large bites out of the hotel's profits.

Internet: The great new hope?

Cut to 2003. Into this scenario an exciting new channel comes in and starts to make an impact - The Internet. Here are some good things about the medium. It was widely used, had deep penetration within the affluent audience, offered the advantages of instant one-to-one communication, gave people the ability to buy and sell quickly, cheaply and securely. At last the hotel could communicate directly with the guest and not rely on the intermediary to present the brand's true picture. This medium offered the industry a golden opportunity to go back to that simple life again.

But old habits die hard. The mindset of needing intermediaries to bring in customers still ruled. Few hoteliers took the trouble to explore the direct-to-customer opportunity through their brand websites. Those who did then are laughing all the way to the bank today. Those who did not just followed the set pattern of going to the intermediaries. This resulted in the growth of the ‘online intermediary demons’ such as Expedia.com, Hotels.com, Travelocity, etc. Soon they followed the same pattern as the intermediaries did in the offline world. They became omnipresent giants that grabbed a huge share of the hotel's earnings. Only in the past couple of years have hoteliers in the West realised their mistake. Now they have started an initiative to wrest the power back from the intermediaries by going direct-to-customer through their own brand websites. The practice of putting up the best internet rate on their own hotel website is one of the key initiatives in this direction.

The domestic scene

So what has all this got to do with hoteliers in India? Hoteliers in India need to keep an eye on the trends in the West and learn the lessons. While media and the people at large in India are ecstatic about the great prospects that the online travel industry presents today, Indian hoteliers need to step back and take a close look at the dynamics involved.

Let me reproduce some recent news reports related to the travel industry:

"According to industry estimates, the domestic airline carriers together are expected to make staggering losses of Rs 2,500 crore in 2006-07."

Here is another report about a leading Indian travel intermediary: "The response to the Diwali packages is tremendous. We have mopped up Rs 1.5 crore in the last five days from hotel and tour operations," said the CEO of a leading online travel portal to a financial daily.

"Our portal has tied up with Jet Airways for a 50 per cent discount on fares, and also with other airlines, including Air Deccan, for significant markdowns. The Jet Airways' special ‘shock fares’ are valid till October 31, where a passenger will get tickets at half the actual fare."

"We are also offering a 25 per cent cash-back offer on hotel charges as part of the Diwali package. We give 25 per cent of the amount booked for hotels or tour destinations in cash," he added.

So here are my questions. At a time when travel service providers like airlines and hotels are getting into the holiday season (where the domestic demand is high), shouldn't they be charging a premium on fares, tariffs and rack rates to bring down their accumulated losses or raise their RevPAR (as the case may be) for the year? How is it that online intermediaries can corner large volumes of inventory during the peak season, offer huge discounts to their customers and still make huge profits in the bargain? Surely someone must be losing out in the process and my guess is that it is the airline manager and the hotelier who have discounted away their revenues to line the pockets of the intermediaries.

Learn from others' mistakes

The sad truth is that, just like in the West, the online intermediary channel in India is beginning to cash in on the hotelier's reluctance to adopt and adapt technology to advantage. In the bargain, the hotelier loses out on an opportunity to take charge of his own online destiny and build his own direct-to-customer sales channel through his website. What the hoteliers don't realise is that even a small fraction of the money that is lost as discounts on room inventory to the intermediary is enough to start an e-commerce-enabled direct-to-customer sales engine on the hotel website. The money spent on building the hotel brand through the website and popularising it through SEO (Search Engine Optimisation) and PPC (Pay-Per-Click) marketing strategies can create long term value for the hotel that will stay with it for perpetuity.

Now comes the moot question: is it really worth the effort? Here are some global facts and figures. In 2006, about 54 per cent of all internet bookings in hospitality will be direct to consumer (ie via hotel-owned websites). Some pro-active hoteliers and several major brands (Marriott, Hilton, etc) already boast a direct v/s indirect online revenue ratio as high as 75:25. Some hoteliers already generate total revenues above 30 per cent from the internet and more than half of the distribution is directly to consumers.

Now let's look at the qualitative benefits. Industry experts agree that direct online sales and distribution cuts operating costs, safeguards the brand value, helps the hotel manage pricing strategies better, increases customer loyalty, attracts affluent customers and lessens the dependency on online discounters. The brand website is the least expensive distribution channel and provides the hotel with a long-term competitive advantage.

So what next?

I am not advocating that the hotel should throw away existing intermediary channels and go direct-to-customer totally. Building an effective direct-to-customer sales channel through the hotel website will not happen overnight. But the hotel should immediately start investing in exploring it. It should start managing inventory allocations and pricing strategy for each channel based on the dynamics of the marketplace and the ROI of each medium. Open the tap on profitable channels and squeeze the tap on non-productive channels.

Operational concerns at this stage would be quite natural - are we complicating things too much? How am I going to manage all these variables effectively? But as the market needs arise, so do solutions to those needs come into being. For the tasks at hand, off-the-shelf e-commerce solutions such as ResAvenue are available. They plug into your website and come with in-built tools to manage distribution for all the existing sales channels such as FITs, sales agents, corporate entities, offsite sales offices, GDS and IDS from one window. It helps one control inventory allocations to various channels, pricing strategies for each channel from the back-end and bring response time to changing market dynamics down to just a few hours. With the right e-commerce tools and CRM engines, hoteliers can make their site the most potent weapon in their marketing armoury and build lasting value for their business.

(The writer is chief operating officer at Avenues, a South Asian e-commerce service provider that launched ResAvenue - an internet reservation engine and online payment gateway solution with GDS and IDS listing for the hospitality industry)