• Bg Careers

Calculating the Real Cost of Third Party Distribution

by Sarah McCay Tams, Contributing Editor, EMEA |

Hotels are being put under increasing pressure to up their game in the online market, as online travel agencies continue to have the edge. The question many are asking is, “What action do hotels need to take?”

At a recent conference, Peter O’Connor, Professor and Director of the MBA in Hospitality Management at Essec Business School, explained how each hotel needs to look at its own business case before it takes action.

He gave the example of two hotels — one running at 50% occupancy and the other running at 90% occupancy with 40% of its bookings coming through OTAs. For the first, his recommendation was that the hotel should sign up with an OTA at any price. For the second, they should focus more on their own direct marketing efforts to replace more OTA bookings with self-generated ones.

However, his advice goes further. Hotels need to calculate the real distribution costs of using a third party against the cost of self-generated business.

We need to increase the industry’s understanding of distribution issues. Click To Tweet

“Hotels need to understand their distribution environment, the market into which they are selling, which channels they need to be using, without any preconceived ideas of which is the best or the cheapest,” O’Connor said.

O’Connor has been instrumental in changing the face of hospitality education, with a focus on distribution and technology. A key figure at Essec Business School, he has been a driving force in this subject area since joining this highly ranked educational establishment in 1991. As a result, today Essec offers courses ranging from Massive Open Online Courses (MOOCs) to an MBA in Hospitality Management with a heavy focus on distribution, revenue management and technology related issues.

We caught up with him to learn how the industry needs to adapt to the challenges of an ever-changing marketplace.

Peter O'Connor, Professor and Director of the MBA in Hospitality Management at Essec Business School

Peter O’Connor

How do hotels go about calculating the real distribution cost of using a third party?

O’Connor: If you are generating business through your own website — how do you calculate its true cost? You need a website, then you need to do SEO, employ a loyalty programme, do direct marketing with email campaigns, maintain the site — the list goes on and on. A lot of hotels are currently working on estimating the real cost of using different channels, including web, call centres and OTAs, and being shocked that OTAs are not actually that expensive because the cost of other channels are hidden. In comparison, the cost of OTAs is well understood as someone has to sign a commission check each and every month.

Those that are successful in this exercise rapidly reach the conclusion that direct distribution isn’t cheap. What hotels need to learn is how to work better with the OTAs and how to leverage them as a marketing channel in a positive way.

What do we need to do to ensure the next generation of revenue managers are equipped to take on this challenge?

O’Connor: We need to increase the industry’s understanding of distribution issues, revenue management and what we now call demand management.

There is a need to provide these people working in this area with more opportunity to network with each other. That’s why industry associations such as HSMAI and HEDNA are so valuable, and why we need to continue to have industry events for people at all levels to interact and exchange.

Events such as the Duetto Revenue Strategy Forum in London are another gathering that is very useful, as is continuing education. For example, instead of holding internal training programs, many of our executive education clients prefer to send their employees to open enrollment programs, specifically so they can mix and interact with peers from other companies.

The hospitality product is constantly evolving, with new players such as AirBnB offering an alternative to the traditional hotel model. How do your courses reflect these changes?

O’Connor: We use the U.S. system of required and elected courses. Through this, we enrich the program of study with a whole portfolio of electives — students can choose and as a result tailor their programme of study to the areas that interest them.

We can introduce new electives very easily and vary the portfolio depending on what is happening in the industry. We offer electives on social media, reputation management, revenue management, total pricing, etc. These are all things we have incorporated as we have seen these are relevant and interesting to the industry.

We have an industry advisory board comprised of hotel executives from Europe and the Middle East who tell us what their concerns are and what skill sets and knowledge the students actually need to succeed in today’s highly competitive job market. We can then adjust our programme of study depending on their recommendations.

In September 2015, Essec Business School partnered with Duetto and SnapShot to offer online hotel management courses on distribution, revenue and demand management. How did this come about?

O’Connor: We put these MOOCs together because we felt the level of base knowledge about distribution and revenue management issues in the hotel industry was very low.

There were few adequate resources out there that could be used to increase this level of knowledge and confidence, and those that did exist tended to be books or other resources that quickly could become out of date.

We started thinking about who we needed to work on — for example, a front office manager in a small hotel or someone coming out of a degree and who wants to work in revenue management — and asked, “How do we reach these people?” We knew it was not by a book or a white paper.

These people are used to online, short, sharp interactive types of learning. We approached Coursera. As an online company, they track what their customers are searching for and they knew there was a demand for our subject matter. They were so enthusiastic that they came back to us and said that instead of creating a single course, why not do four! So it turned into a much bigger project than we expected.

What do these courses cover and how do they prepare students for a career in hotel revenue management?

O’Connor: The students learn a totally new skill set.

The distribution MOOC starts with the basics on hotels and the industry, how it’s structured, the role of hotel chains and key services. It moves into distribution and technology, with an overview of distribution channels, price parity, loyalty and reputation management. This is followed by the revenue management MOOC, which looks at the role of the revenue manager, along with the key topics of segmentation, forecasting and pricing. Lastly, we have a MOOC on what we call demand management. This looks again at distribution, revenue management, issues such as loyalty and even operations, with an emphasis on understanding how these topics can no longer be managed in isolation but must be integrated together to provide an outstanding experience for the customer and maximise the return for the hotel.

You studied hotel management yourself at the start of your career. What have been the biggest changes you have seen in the way courses are now delivered?

O’Connor: Now courses are far more participative. In my day, in the 1980s, it was the talking head model — professor talking to the students, sharing the wisdom. Now, it’s about getting your hands dirty with the students and working on things. There is more industry in the classroom. We bring in guest speakers and have more practical work — the students are actually working on real life projects with real life companies.

What future innovations would you like to see in course delivery and content?

O’Connor: Delivering the content is getting easier, and facilitating interaction is getting easier via discussion forums and chat boards, but ideally we would like to be able to actually see each other, run a virtual class with groups of 20-40 students in a reliable and cost-effective way. The technology is not quite there yet, and I guess time differences could present a significant challenge. At least someone in the world would have to attend in their pyjamas!

RELATED ARTICLES

Sarah McCay Tams, Contributing Editor, EMEA

Sarah McCay Tams, Contributing Editor, EMEA

Sarah is contributing editor covering Europe, Middle East & Africa (EMEA) for Duetto. An experienced B2B travel industry journalist, Sarah spent 14 years working in the Middle East, most notably as senior editor – hospitality for ITP Publishing Group in Dubai, where she headed up the editorial teams on Hotelier Middle East, Caterer Middle East and Arabian Travel News. Sarah is now based back in the UK.
Sarah McCay Tams, Contributing Editor, EMEA

Latest posts by Sarah McCay Tams, Contributing Editor, EMEA (see all)

Email this to someoneShare on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

Sarah McCay Tams, Contributing Editor, EMEA

Sarah is contributing editor covering Europe, Middle East & Africa (EMEA) for Duetto. An experienced B2B travel industry journalist, Sarah spent 14 years working in the Middle East, most notably as senior editor – hospitality for ITP Publishing Group in Dubai, where she headed up the editorial teams on Hotelier Middle East, Caterer Middle East and Arabian Travel News. Sarah is now based back in the UK.