“Marketing Hotels Using
Global Distribution
Systemi’
Revisited
A prescient 1993 article foresaw the issues underlying the revolution in electronic distribution,
just before the internet took hold.
BY PETER O’CONNOR AND GABRIELE PlCCOLl
N
ominating our favorite article from the last ten years
of the Cornell QuarteTl, required no hesitation. It
was clearly Emmer, Tauck, Wilkinson, and Moore’s
December 1993 article entitled “Marketing Hotels Using
Global Distribution Systems” (CHRAQ, Vol. 34, No. 6,
pp. 80-89). That paper, which is reprinted on pages 94-104
in this issue, was far ahead of its time, correctly forecasting
the effect that electronic distribution systems would have on
our industry, explaining the implications of the developing
technology for practicing managers, identifying the core is-
sues that would encourage technology’s adoption (and those
that would limit that adoption), and presenting a call to ac-
tion to the industry as to how to use global distribution sys-
tems (GDSs) for maximum benefit. Both of us still use the
article as part of our classroom teaching despite its age, be-
cause it presents a clear overview of early hotel electronic dis-
tribution that is unparalleled elsewhere. In this commentary,
we would like to revisit the ideas presented in the original
article, update them to reflect the realities of a web-enabled
hotel electronic-distribution environment, highlight some of
the critical issues currently being faced as to how the hotel
product is being distributed, and speculate a little about the
future of electronic distribution. Because electronic distribu-
tion continues to evolve, our commentary finishes with some
concrete suggestions as how best to take advantage of its out-
standing potential.
0 2003, CORNELL UNIVERSITY
OCTOBER-DECEMBER 2003 Cornell Hotel and Restaurant Administration Quarterly 105
COMMENTARY
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GDSs and web net hotel reservations
60,000,000
Source: GDS-booking figures courtesy of HEDNA. Web-booking figures are authors’ estimates
Note that all figures from 2002 onward are forecasts.
The Era of the GDS
The Emmer et al. article was written at an op-
portune time-the precise moment when GDSs
were starting to become a mainstream channel
of distribution for U.S. hoteliers (see Exhibit 1).
The article introduced readers to the components
of the developing technology (the GDSs them-
selves, hotel-representation companies, central
reservation systems, and switch companies), as
well as identified practical steps that hoteliers
needed to take to get a higher number of book-
ings from the developing systems. Distribution
using GDSs’ promised benefits in terms of cost,
efficiency, and market reach relative to traditional
print- and telephone-based methods. Using a
GDS, hoteliers could have access to a worldwide
market of travel agents, all clamouring to sell
hoteliers’ products with little extra transaction
cost beyond what the hotels would normally pay
in commission charges. In addition to highlight-
ing these benefits, the 1993 authors also presented
strategies for getting the most out of the devel-
106 Cornell Hotel and Restaurant Administration Quarterly OCTOBER-DECEMBER 2003
MARKETING: ELECTRONIC DISTRIBUTION
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COMMENTARY
GDSs: Still in the Picture
As discussed in the accompanying article, GDSs remain an important
source of business for many hotels. Many of the points that Emmer
et al. stressed are worth revisiting, as they still hold true.
(1)
(2)
(3)
(4)
Understand how travel agents use the GDSs to book hotel
rooms. Having a good knowledge of how travel agents work
helps hoteliers to include the right type of information and
rates on their CDS listing. Yet many hotels continue to use a
standard, one-size-fits-all approach on all of their electronic-
distribution channels. Travel professionals need different infor-
mation in a different format than do consumers. Remember
one simple fact: Making the travel agent’s job easier has just
one effect-more bookings!
List all attractions, points of interest, and landmarks that
attract business and leisure guests as “qualifiers.” This point
seems self evident, yet our distribution audits consistently find
obvious items missing. In many cases, the problem is caused by
hotel staff members’ being too close to the situation and think-
ing that something important is too well known to be included.
A fresh pair of eyes is often helpful. The key question here is,
“What causes customers to book my hotel?”
Use availability options to maximize yield. The advice given in
the 1993 article about closing out the GDS is particularly rel-
evant in this era of automated revenue-management systems.
Unlike voice channels, the GDSs do not provide the opportunity
to explain to the customer that just a single night of a proposed
five-night stay is unavailable. Y our hotel is simply not displayed
if just one night of the dates requested is closed out. Thus, offer-
ing availability options has an effect on days before and after-
wards. Using a minimum length of stay, or simply presenting a
higher rate for the busy night, will have a better effect on both
occupancy and profitability.
Effectively list rate categories and room types. Restrictions on
both the number of rates displayed and the content of rate de-
scription have been almost eliminated. Yet many properties con-
tinue to use cryptic rate codes and truncated textual descriptions,
(5)
(6)
(7)
(8)
out of habit rather than necessity. Rewriting your descriptions
in clear, concise, sales-oriented language can have a positive
effect on sales, as it is greatly appreciated by travel agents.
Use negotiated rates. Many hoteliers resist offering negotiated
rates, citing the loss of revenue that results from the cheaper
prices. Yet, when the yield from a negotiated rate is compared
with that from a room sold using the merchant model (as dis-
cussed in the accompanying article) or through a discount
website, it can look positively attractive. Consider expanding
your use of negotiated rates to reward agencies that deliver
consistent business, monitoring their performance using
services such as TravelClick’s HotelIntelligence reports.
Keep your hotel description current. While old rates and de-
scriptions are continuously replaced by new rates, many hotels
forget about their HOD data. Once again, distribution audits
often reveal these data to be incomplete, inaccurate, and out of
date. Remember this is your main opportunity to convince the
travel agent that yours is the right hotel for their client. When
was the last time you revised your HOD to take changes in
your product into account?
Include your two-letter code on all promotional material. Any
material destined for the travel trade needs to list the hotel’s
GDS code prominently. Remember the easier you make it for
travel agents, the more likely they are to book your property.
Consider GDS advertising. Paid advertising such as sign-on
messages, POS messages, and broadcast messages have been
shown to be effective at generating business. For example, a
recent study by NFO Hog Research shows that over 50 percent
of all travel agents who received GDS advertising made a book-
ing at a hotel in the three subsequent months.’
Given their ability to be precisely targeted, and noting travel agents
continuing role in influencing the purchase decision, investing in such
a campaign can often be an effective way of increasing business from
the GDS.-l?O’C. and G.l?
’ “NFO Plog Report Survey on Travel Agent GDS Usage,” EyeForTravel
newsdesk, 10/9/2003.
oping technology. As can be seen from the sidebar
at the top of this page, much of this advice still
holds true today.
The authors were also on point when high-
lighting the limitations of the developing systems
and the implications that these would have for
hoteliers. Naturally, as technology has developed
in the intervening period, many of these prob-
lems have been resolved. Database-structure
problems that limited property descriptions and
the number of rates that could be displayed have
been corrected, the time delay between updating
information and its appearance on the system has
been shortened, and GDS to CRS connectivity
has progressed substantially, so that today what
appears on a travel agent’s terminal is identical to
what can be seen at the hotel chain’s central res-
ervations office. As a result, travel agents have
developed much more trust in what is displayed
on their terminals, and GDSs have evolved into
a major source of business, particularly for ho-
tels with primarily a business clientele. As can be
OCTOBER-DECEMBER 2003 Cornell Hotel and Restaurant Administration Quarterly 107
COMMENTARY
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MARKETING: ELECTRONIC DISTRIBUTION
seen from Exhibit 1, the number of bookings
processed over the GDS systems has grown to
unprecedented levels, and recent studies have
highlighted how such systems are likely to re-
main important in the near future.’
Reminiscent of the accuracy with which
Gordon Moore predicted the improvement in
integrated-circuit technology (i.e., Moore’s law)
Emmer et al. were remarkably accurate in their
forecasts. In addition to predicting the future
importance of GDS channels, they also foresaw
how travel agents would decline in importance
as consumers started to use technology-based sys-
tems to make bookings for themselves from their
home or of&e. However, as accurate as they were,
the Emmer group’s predictions were not perfect.
One example is their forecast that visual-image
software such as Spectrum or Jaguar (CD-ROM-
based databases that allowed travel agents to see
pictures, maps, and detailed marketing informa-
tion about hotel properties) would become com-
monplace. Today few travel agents actually use
such systems. However Emmer etal’s prediction
was wrong only in terms of the medium, because
it is now the web (and not a CD) that allows a
potential customer to see detailed, rich, graphi-
cal information to improve the chances of pur-
chase. What the authors did not foresee was the
effect of the network revolution that started a
few months after their article was published with
the opening of the web for commercial transac-
tions at the beginning of 1994.
The travel industry pioneered electronic com-
merce long before ecommerce, business to cus-
’ Peter O’Connor and Andrew J. Frew, “The Future of Hotel
Electronic Distribution: Expert-Industry Perspectives,”
Cornell Hotel and Restaurant Administration Quarterly,
Vol. 43, No. 3 (2002), pp. 33-45.
tomer (B2C), and business to business (B2B)
became popular buzzwords. The travel product
has always been the ideal product for electronic
sales-whether online or by telephone or (much
earlier) telegraph. As an information-based item,
travel bookings are intangible, heterogeneous, and
fixed geographically, making the sale of travel
highly dependent on getting the right informa-
tion to potential customers at the appropriate
stage in their purchase decision. Luckily, provid-
ing detailed, timely, and accurate information is
precisely what computer networks and the
internet were designed to do!
The long tradition of hospitality ecommerce
notwithstanding, many incumbents in the travel-
distribution landscape stumbled while trying to
figure out how to react to this new technologi-
cal, social, and commercial phenomenon. In do-
ing so, they left the door open for fast-moving
start-ups to enter the marketplace and revolution-
ize the way travel is being sold. In 2001 travel
became the highest-grossing product sold online.’
To update the comment made by Emmer et ah:
“If a hotel wants to sell its rooms, then it has to
take advantage of the opportunities presented by
the growing range of online web-based channels.”
The Dawn of the Net
In the late 1990s the word “disintermediation”
was on everyone’s lips. Because of the web, hotel
companies had the potential to distribute directly
to their customers, reducing or even eliminating
the commission payments and transaction fees
traditionally paid to intermediaries such as travel
agents and the GDSs. This ability to interact di-
rectly gave hotel chains the opportunity to gather
detailed data about their customers, potentially fa-
cilitating both database marketing and the devel-
opment of sophisticated customer-relationship-
management strategies. To take advantage of such
opportunities, the majority of the hotel chains
developed websites to try to sell directly to cus-
tomers. For example, a 2000 study showed that
over 95 percent of the major hotel brands oper-
2 D. Buhalis, eTmrism: hfoumation Technology for Strategic
ihrism Management (Harlow, UK: Prentice Hall, 2003).
108 Cornell Hotel and Restaurant Administration Quarterly OCTOBER-DECEMBER 2003
MARKETING: ELECTRONIC DISTRIBUTION
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ated consumer-oriented websites, providing fa-
cilities for potential customers to find infor-
mation and make reservations online.3 In gen-
eral, the major chains have been successful at
encouraging consumers to book on such sites,
with figures of over 60 percent of online sales
being achieved by the major chains,4 although
figures for independents and small chains are
much lower. The increasing number of custom-
ers booking for themselves is placing increasing
pressure on travel agents. Figures from the Travel
Industry Association of America (TIAA) show
that U.S. agents are finding it increasingly diffi-
cult to compete, with many going out of busi-
ness as a result of displacement by online chan-
nels.5 Simply put, as the web has allowed every
customer with an internet connection the abil-
ity to book her own hotel rooms, those travel
agents whose only value add is access to avail-
ability information and booking tools have lost
their raison d’he. Those travel agents that will
thrive in the internet age are those who provide
value based on consultation and specialized
knowledge of complex travel products.
However, many of the distribution-related
benefits promised by the web are under threat.
A large number of online intermediaries have de-
veloped and collectively are beginning to domi-
nate the sale of travel online (see Exhibit 2). From
the consumer’s perspective, the appeal of such
sites is clear. Travel products in general (and ho-
tels in particular) are rarely bought in isolation.
While supplier sites tend to focus on just a single
product, the online mega-agencies offer consum-
ers a one-stop travel-shopping experience, allow-
ing them to book hotel, air, car rentals, and a
large variety of other travel-related services in one
seamless transaction. Online agencies also pro-
3 l? O’Connor, “On-line Pricing: An Analysis of Hotel Com-
pany Practices,” Cornell Hotel and Restaurant Administra-
don QuaTter& Vol. 44, No. 1 (2003), pp. 88-96.
* Market Wire, “Brand Sites Produce 67% of Al l Major
Hotel Chain Internet Reservations,” Market Wire, Incor-
porated, October 9, 2003.
5 Travel Industry Association of America, “Travel Agencies
Still Preferred Source for Travel Information” (press release
viewed in 1998), www.tia.org/research/summinternet
97.asp.
Leading online agencies, 2002
Expedia $4,860
Travelocity $3,240
Orbitz $2.430
Priceline
_____--.-
Hotels.com
$1,080
$810
Hotwire $810
WorldRes
~-.--
Lastminute.com
$270
$476
Ebookers $431
Note:Agencies arrayed by gross booking revenue in millions of U.S. dollars.
Sources: Compiled from multiple sources, including: C. Marcussen, “Trends in the
U.S. Online-travel Market 2000-2002,” Centre for Regional and Tourism Research,
Bornholm, Denmark, 2003; and 0. Jager, “European Online Travel Marketplace: Focus
on France,” PhoCusWright, 2003.
vide a wider choice of brands than does any indi-
vidual supplier site, and research has shown that
they tend to be competitive in terms of price.G
Several have introduced innovative methods of
operation (e.g., Priceline.com’s name-your-own-
price concept, Lastminute.com’s sale of distressed
inventory, and Ebay’s auction of travel packages)
that have attracted customers’ attention and
helped develop their reputation as the place to
book travel. In the lucrative arena of business
travel, the online mega-agencies provide corpo-
rate travel managers with enhanced levels of ser-
vice in terms of travel-policy enforcement, ex-
pense reporting, and control. In both realms, the
emergence of the merchant model has sent pow-
erful shockwaves through the electronic-distri-
bution chain. Hotel companies now face the
threat of loss of rate control on a large scale. Thus,
both leisure and business clients are being driven
toward the major online intermediaries, replac-
ing the promise of disintermediation with the
threat of re-intermediation.
The result of these developments is a hotel
electronic-distribution arena infinitely more com-
plex than that discussed by Emmer et al. As can
6 O’Connor, op. cit.
OCTOBER-DECEMBER 2003 Cornell Hotel and Restaurant Administration Quarterly 109
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be seen from Exhibit 3, both the number of
routes to the customers and interconnections
among these routes have grown substantially. (A
good overview of the current situation can be
found in the article by Carroll and Siguaw in the
previous issue of the Cornell Quarterly..3 Under-
standing how to distribute the hotel product over
this complex network has become a challenge-
one that must be faced by every hotelier. Par-
ticularly when considered together, electronic
channels now make up a considerable propor-
tion of the hotel-sales mix. A lack of awareness
of how to manage these channels is resulting in
lost opportunities, and, as we discuss below, sev-
eral important issues need to be addressed to en-
sure that it is the hotel rather than the interme-
diary that benefits from the current growth in
the sale of travel online. No longer can hotels sit
back and wait for business to come to them. Ac-
tive management of the distribution process has
now become essential.
Challenges with Hotel
Distribution Today
As the distribution environment has become
more complex, several issues have emerged that
will affect the nature of the hotel business. Per-
haps the most pressing is the growth in the power
of the online mega-agencies mentioned above.
Companies such as Expedia, Travelocity,
Hotels.com, and others make a valuable contri-
bution by providing their hotel partners with
substantial numbers of bookings. However, as
they have developed, such mega-agencies have
gradually captured a considerable share of the
hotel rooms sold online. As was discussed ear-
lier, most offer one-stop-shopping services that
are highly attractive to customers. For example,
Expedia.com has as its objective to become the
world’s largest retailer of travel services by offer-
ing “everything in travel.” Already it sells airline
seats, car rentals, hotel rooms, condominiums,
cruises, corporate travel services, ground trans-
’ See: B. Carroll and J. Siguaw, “The Evolution of Elec-
tronic Distribution: Effects of Hotels and Intermediaries,”
Cornell Hotel and Restaurant Administration Quarterly,
Vol. 44, No. 4 (August 2003), pp. 38-50.
portation, insurance, show tickets, and lots
more-and it is constantly expanding its portfo-
lio of products in innovative ways. These online
travel supermarkets are also currently experiment-
ing with “dynamic packaging,” taking advantage
of their product portfolio and technological ex-
pertise to allow customers to interactively as-
semble their own made-to-measure travel pack-
ages. Individual supplier sites simply cannot
compete in terms of breadth of service and depth
of functionality. The mega-agencies are also in-
vesting millions in offline and online advertising
to build brand awareness, and have to a large ex-
tent succeeded in convincing consumers that the
best bargains and best service can be had on their
sites. Thus, despite recent efforts by hotel com-
panies, the mega-agencies’ strategy of combin-
ing features, brand, and pricing is accelerating
the trend towards re-intermediation, with the big
winners in the growth of the sale of travel online
likely to be the mega-agencies rather than the
travel supplier.
Already there has been evidence of mega-
agencies’ taking advantage of their dominant
market position to change the nature of supplier-
intermediary relationship. For example, many
have introduced the merchant model-a business
process whereby the intermediary negotiates al-
locations of inventory at net rates with suppliers
and subsequently sells these rooms to customers
at a mark up, taking as profit the difference be-
tween the rate negotiated and the price at which
it sells the room online.8 While this might look
like a good deal for the hotel (no commissions or
other transaction costs combined with the abil-
ity to set net rates to reflect the minimum amount
it is prepared to accept for a room on a particular
night), the negotiating power of the online mer-
chants means that they can demand net rates
lower than what the hotel might freely wish to
give. By careful management of their margin, the
intermediaries can then sell such rooms at highly
competitive prices-in many cases cheaper than
the rates being offered on the hotel’s own website!
’ I? O’Connor, “Online Intermediaries-Revolutionizing
Travel Distribution,” Travel & Tourism Analyst, Vol. 1
(2003), pp. 54-78.
110 Cornell Hotel and Restaurant Administration Quarterly OCTOBER-DECEMBER 2003
MARKETING: ELECTRONIC DISTRIBUTION
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COMMENTARY
An updated overview of the global distribution network
4
Property
website ’
Chain
4
consumer
I
1 website 1
-I
1-1 Travelocity kI- - - - - 7 - - - - - -
-*d Sabre f
4
~ Expedia +------;
v-1
World- GDS
q-Travel-agents’ terminals -
span e- switches
~
(e.g., Thisco. -
4
Travel-agent
Wizcom
sites
Galileo +
Corporate-
travel t-
solutions
t
your-own-price sites,
auction sites,
r-i 4
1 late-availability sites) k
t
- - - - - - -
t
_ _ _ _ _ _ _ .
Tour
= On-line interface - - - - - = Extranet-based merchant model
OCTOBER-DECEMBER 2003 Cornell Hotel and Restaurant Administration Quarterly 111
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(O’Connor’s study of online pricing found that
the mega-agencies frequently offered the cheap-
est prices for hotel rooms, particularly at the up-
per end of the market.9) Of course, hotels are
always free to refuse to participate, but, in classic
fashion, nobody wants to be the first to leave the
online agencies and thereby risk losing out on
large numbers of potential (if low-yield) book-
ings. Recently, and perhaps belatedly, the indus-
try has started to react to this threat on both an
individual and a collective basis. Many of the
larger chains have begun to actively discourage
their properties and franchisees from giving low
rates to the online merchants, and have started
to promise consumers the lowest price on their
own branded website.” In addition, the hotel
chains have begun acting together to try to fight
the dominant power of the mega-agencies and
regain control over electronic distribution. Fol-
lowing a similar strategy to Orbitz in the airline
sector, Hilton, Hyatt, Intercontinental,
Marriott, and Starwood have joined technology
provider Pegasus to establish TravelWeb, in a bid
to wrest control of online pricing and merchant-
model arrangements back from the online inter-
mediaries. (A similar initiative-WorldRes-is
underway in Europe.) By facilitating direct
connectivity to multiple small online channels at
a reasonable cost, the chains hope to reduce the
power of the large mega-agencies and help hotels
achieve a wider distribution of their product.
The ease with which consumers can find in-
formation has also made pricing over multiple
channels problematic. There is evidence that cus-
tomers search several online channels before com-
mitting to making a reservation.” In addition, a
variety of online tools (for example, Sidestep,
9 O’Connor, pp. 88-96.
lo The structure of the hotel industry though makes
concerted action difficult. See: G. Piccoli, l? O’Connor,
C. Capaccioli, and R. Alvarez, “Customer-relationship
Management-A Driver for Change in the Structure of the
U.S. Lodging Industry,” Cornell Hotel and Restaurant
Administration Quarterly, Vol. 44, No. 4 (August 2003),
pp. 61-74.
‘r See: Forrester Research, “Travel North America Consumer
Technographics Survey &Data” (Cambridge, MA: Forrester
Research, August 2000).
TravelAxe, and Kelkoo) are also available to help
travel buyers comparison shop among multiple
sites with practically a single click. Such price
transparency places downward pressure on rates,
even though research has shown that this type of
reactive discounting rarely results in higher vol-
umes of bookings in the long term.12
The downward rate spiral is amplified by the
business practices of the online intermediaries,
who employ “market managers” to encourage ho-
tels to further reduce their negotiated rate in re-
turn for better placement on hotel listings. Con-
sumers are also learning that they can often find
better prices by waiting until the last minute to
make their booking. In fact there is some evi-
dence that this is leading to channel cannibaliza-
tion. While the web promised incremental busi-
ness by allowing hotels to reach customers whom
they could otherwise not have attracted, in prac-
tice many of the customers who book online
would have booked the hotel in any case. The
difference is, however, that the price that those
customers have obtained online results in a
far lower yield for the hotel than if the booking
had been made in the “normal” fashion. Even
worse, some of the more street-smart customers
are booking rooms far in advance, monitoring
the online channels for better prices, and,
when possible, cancelling their original reserva-
tion to rebook at a cheaper rate closer to the ar-
rival date. Failure to discourage or prevent such
practices could potentially have a drastic effect
on profitability.‘3
Ownership of the customer is also an issue that
hoteliers urgently need to address. As has been
discussed above, the online intermediaries are at-
tractive to consumers as a result of their conve-
nience, their rich feature set, and their competi-
tive prices. Consumers booking on these sites are
nearly always likely to find a product that meets
their needs. In most cases, the mega-agencies of-
fer them choices, in contrast to hotel chains’ sites
that may not have a property in the desired loca-
‘a C. Enz, “Hotel Pricing in a Networked World,” Cornell
Hotel and Restaurant Administration Quart&y, Vol. 44,
No. 1 (February 2003), pp. 4-5.
I3 Ibid.
112 Cornell Hotel and Restaurant Administration Quarterly OCTOBER-DECEMBER 2003
MARKETING: ELECTRONIC DISTRIBUTION
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CCIMMENTARY
tion or may be booked for the dates requested.
Given such a performance, where are customers
likely to look the next time they want to make a
booking? In addition, many of the online agen-
cies are trying to enhance brand loyalty by devel-
oping customer-relationship-management solu-
tions that recognize frequent and high-value
customers and use electronic-marketing tech-
niques to develop a closer relationship with those
customers. While hotel companies may be invest-
ing millions developing and enhancing their
brands, is that money well spent if consumers
end up using the online intermediary as the
solution to their travel booking needs?
Cdl to Action
The 1993 article presented an important call to
action to hotels to start using the developing
GDSs to sell rooms lest they be put out of busi-
ness by those competitors that do so. Today the
situation has changed. Not only does a hotelier
face competition from other hotels as to which
room will be bought by the consumer, hotel
brands also face competition from the online in-
termediaries as to how that room will be sold.
Given all the benefits that such sites offer the
travel purchaser, hotels urgently need to take ac-
tion to regain control over the distribution of their
product. As interested industry observers, we
would suggest that hoteliers concentrate on the
following:
l Develop an understanding of the electronic-
distribution environment. It is only by be-
ing aware of the options available and the
implications of using or not using each
one that hoteliers can start to develop an
effective distribution strategy. Different
channels serve different customers and are
best suited for use at different times and
with different objectives. Which online
intermediaries are most important in the
geographical markets that you actively
target? What type of business model do
those intermediaries use? What are the
costs (initial, periodic, and transaction)
associated with using each channel? Does
using the channel tie you into a room al-
location or does it operate on a free-sale
basis? Does the online intermediary pro-
vide an electronic interface with your ex-
isting reservation system to obtain inven-
tory and rates, or must you manage them
manually using an extranet-based inter-
face? These are just some of the key
questions that must be answered.i4
Develop a clear and logical electronic-
distribution strategy. Currently most hotels
use a shelf-space approach to electronic
distribution-presuming that being
present on as many channels as possible
is the best position. However, this tactic
largely ignores the issue of complexity.
As the number of channels increases, the
cost of the infrastructure necessary to sup-
port those channels increases, and inven-
tory and rate have to be managed in mul-
tiple locations, again leading to higher
costs.‘j Instead of trying to be everywhere,
select those channels with the most po-
tential for addressing your markets, and
work actively and closely with the chosen
vendors to try to maximize exposure on
these channels. Distribution strategy is as
much about deciding where not to be and
who not to serve as it is about seeking
broad representation and setting prices.
Once the strategy has been set, make sure
everyone in your company is on board so
that everyone speaks with a unified voice
and implements the same policies. Finally,
re-evaluate your strategy periodically in
light of developments in technology and
the fast pace of change in the electronic-
distribution arena. Set your strategy, but
be prepared to change when the environ-
ment changes.
Develop a comprehensive pricing strategy.
Two approaches are common. One ap-
proach relates the cost of using the chan-
nel to the rates shown there-with lower
‘* O’Connor & Frew, op. cit.
‘ j D. Connolly, “Understanding Information Technology
Investment Decision Making in the Context of Hotel Glo-
bal Distribution Systems: A Multiple-Case Study,” Hotel
and Tourism Management, Blacksburg, Virginia, 1999.
than “normal.‘”
OCTOBER-DECEMBER 2003 Cornell Hotel and Restaurant Administration Quarterly 113
COMMENTARY
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Peter O’Connor, Ph.D.
(pictured above), is an associ-
ate professor at IMHI (Cornell
ESSEC, [email protected]).
Gabriele Piccoli, Ph.D.
(pictured below), is an assis-
tant professor at the Cornell
University School of Hotel
Administration igp45@cornell.
edu).
prices in low-cost channels and higher
prices on high-cost ones. (Tools such as
TravelClick’s RateView allow you to
monitor multiple channels to ensure that
the strategy is being implemented effec-
tively.) The other approach focuses on
maintaining price consistency across dif-
ferent channels so that irrespective of
where the booking is made, the customer
always sees the same price. In either case,
the objective is to divert the customer
away from the mega-agencies. Take par-
ticular care to develop fences in your rates
to prevent the channel-cannibalization
problem mentioned earlier. Either by
placing restrictions or by creating pack-
ages you need to limit the comparability
of your product. The web is great at effi-
cient comparison of similar things, but
breaks down quickly as the product be-
comes more complex.
l Drive business to your own branded website.
Although the mega-agencies can deliver
volume in the short run, their price-
driven customers are fickle and can be
diverted by competitors offering slightly
lower rates. Moreover, mega-agencies’
adoption of the merchant model means
that the cost of distribution over such
channels is comparatively high. Instead
you should encourage customers to book
through your own branded website-
a difficult proposition. As we speak, the
mega-agencies continue to invest heavily
to ensure that any search for travel online
ends up on their websites. In fact, it can
be quite illuminating to pretend to be a
customer and try to find your own hotel
online, as invariably you will end up on
an online intermediary’s site. While
simple steps such as listing your website’s
address on all promotional material and
correspondence, developing reciprocal
links with selected websites, or bidding on
highly specific keywords can be effective
in making some customers aware of your
site’s existence, the biggest potential lies
in taking advantage of the key facet of the
hospitality business-a closeness with the
customer that allows hoteliers to develop
a real and lasting relationship. Hospitality
operators’ ability to know the customer in
a way that the online intermediary cannot
gives the hoteliers an advantage on which
they must not fail to capitalize.
l Know the customer. More than any other
medium that has gone before, the internet
fosters communication and dialog. Thus,
the web provides operators with the po-
tential to develop a personal relationship
with each individual customer, a relation-
ship that lasts over multiple transactions
and is beneficial for both parties. By adopt-
ing sophisticated customer-relationship-
management techniques, operators have
the opportunity to increase the complex-
ity of the product-through personaliza-
tion, for example-and combat the ease
with which a meaningful web-based com-
parison can be made. By doing so, opera-
tors can lock in loyal customers who are
uninterested in shopping and reduce the
effectiveness of mega-agencies. A focus on
quality, not only quantity, of market share,
and the judicious use of loyalty programs,
can help in this regard.
In summary, the key success factor for using
electronic distribution channels today is active
management. The GDSs discussed by the authors
of the 1993 article have not gone away. Instead
they have become more powerful and have been
supplemented by a highly complex series ofweb-
based channels. This network of electronic-
distribution channels (shown in Exhibit 3) pro-
vides an outstanding opportunity for those
who manage it effectively, but also danger for those
who fail to recognize its importance or do not in-
vest the time and effort needed to take advantage of
its potential. Complacency in the past has resulted
in a situation where hotels collectively have come
close to losing control over the sale of their product
in the online environment. Comprehensive, well
designed, and relentlessly implemented strategies
will curtail this problem, help operators regain
control over inventory and price, and benefit from
the potential of direct sales over the web.
114 Cornell Hotel and Restaurant Administration Quarterly OCTOBER-DECEMBER 2003
doc_827034572.pdf
Global Distribution
Systemi’
Revisited
A prescient 1993 article foresaw the issues underlying the revolution in electronic distribution,
just before the internet took hold.
BY PETER O’CONNOR AND GABRIELE PlCCOLl
N
ominating our favorite article from the last ten years
of the Cornell QuarteTl, required no hesitation. It
was clearly Emmer, Tauck, Wilkinson, and Moore’s
December 1993 article entitled “Marketing Hotels Using
Global Distribution Systems” (CHRAQ, Vol. 34, No. 6,
pp. 80-89). That paper, which is reprinted on pages 94-104
in this issue, was far ahead of its time, correctly forecasting
the effect that electronic distribution systems would have on
our industry, explaining the implications of the developing
technology for practicing managers, identifying the core is-
sues that would encourage technology’s adoption (and those
that would limit that adoption), and presenting a call to ac-
tion to the industry as to how to use global distribution sys-
tems (GDSs) for maximum benefit. Both of us still use the
article as part of our classroom teaching despite its age, be-
cause it presents a clear overview of early hotel electronic dis-
tribution that is unparalleled elsewhere. In this commentary,
we would like to revisit the ideas presented in the original
article, update them to reflect the realities of a web-enabled
hotel electronic-distribution environment, highlight some of
the critical issues currently being faced as to how the hotel
product is being distributed, and speculate a little about the
future of electronic distribution. Because electronic distribu-
tion continues to evolve, our commentary finishes with some
concrete suggestions as how best to take advantage of its out-
standing potential.
0 2003, CORNELL UNIVERSITY
OCTOBER-DECEMBER 2003 Cornell Hotel and Restaurant Administration Quarterly 105
COMMENTARY
I
MARKETING: ELECTRONIC DISTRIBUTION
GDSs and web net hotel reservations
60,000,000
Source: GDS-booking figures courtesy of HEDNA. Web-booking figures are authors’ estimates
Note that all figures from 2002 onward are forecasts.
The Era of the GDS
The Emmer et al. article was written at an op-
portune time-the precise moment when GDSs
were starting to become a mainstream channel
of distribution for U.S. hoteliers (see Exhibit 1).
The article introduced readers to the components
of the developing technology (the GDSs them-
selves, hotel-representation companies, central
reservation systems, and switch companies), as
well as identified practical steps that hoteliers
needed to take to get a higher number of book-
ings from the developing systems. Distribution
using GDSs’ promised benefits in terms of cost,
efficiency, and market reach relative to traditional
print- and telephone-based methods. Using a
GDS, hoteliers could have access to a worldwide
market of travel agents, all clamouring to sell
hoteliers’ products with little extra transaction
cost beyond what the hotels would normally pay
in commission charges. In addition to highlight-
ing these benefits, the 1993 authors also presented
strategies for getting the most out of the devel-
106 Cornell Hotel and Restaurant Administration Quarterly OCTOBER-DECEMBER 2003
MARKETING: ELECTRONIC DISTRIBUTION
I
COMMENTARY
GDSs: Still in the Picture
As discussed in the accompanying article, GDSs remain an important
source of business for many hotels. Many of the points that Emmer
et al. stressed are worth revisiting, as they still hold true.
(1)
(2)
(3)
(4)
Understand how travel agents use the GDSs to book hotel
rooms. Having a good knowledge of how travel agents work
helps hoteliers to include the right type of information and
rates on their CDS listing. Yet many hotels continue to use a
standard, one-size-fits-all approach on all of their electronic-
distribution channels. Travel professionals need different infor-
mation in a different format than do consumers. Remember
one simple fact: Making the travel agent’s job easier has just
one effect-more bookings!
List all attractions, points of interest, and landmarks that
attract business and leisure guests as “qualifiers.” This point
seems self evident, yet our distribution audits consistently find
obvious items missing. In many cases, the problem is caused by
hotel staff members’ being too close to the situation and think-
ing that something important is too well known to be included.
A fresh pair of eyes is often helpful. The key question here is,
“What causes customers to book my hotel?”
Use availability options to maximize yield. The advice given in
the 1993 article about closing out the GDS is particularly rel-
evant in this era of automated revenue-management systems.
Unlike voice channels, the GDSs do not provide the opportunity
to explain to the customer that just a single night of a proposed
five-night stay is unavailable. Y our hotel is simply not displayed
if just one night of the dates requested is closed out. Thus, offer-
ing availability options has an effect on days before and after-
wards. Using a minimum length of stay, or simply presenting a
higher rate for the busy night, will have a better effect on both
occupancy and profitability.
Effectively list rate categories and room types. Restrictions on
both the number of rates displayed and the content of rate de-
scription have been almost eliminated. Yet many properties con-
tinue to use cryptic rate codes and truncated textual descriptions,
(5)
(6)
(7)
(8)
out of habit rather than necessity. Rewriting your descriptions
in clear, concise, sales-oriented language can have a positive
effect on sales, as it is greatly appreciated by travel agents.
Use negotiated rates. Many hoteliers resist offering negotiated
rates, citing the loss of revenue that results from the cheaper
prices. Yet, when the yield from a negotiated rate is compared
with that from a room sold using the merchant model (as dis-
cussed in the accompanying article) or through a discount
website, it can look positively attractive. Consider expanding
your use of negotiated rates to reward agencies that deliver
consistent business, monitoring their performance using
services such as TravelClick’s HotelIntelligence reports.
Keep your hotel description current. While old rates and de-
scriptions are continuously replaced by new rates, many hotels
forget about their HOD data. Once again, distribution audits
often reveal these data to be incomplete, inaccurate, and out of
date. Remember this is your main opportunity to convince the
travel agent that yours is the right hotel for their client. When
was the last time you revised your HOD to take changes in
your product into account?
Include your two-letter code on all promotional material. Any
material destined for the travel trade needs to list the hotel’s
GDS code prominently. Remember the easier you make it for
travel agents, the more likely they are to book your property.
Consider GDS advertising. Paid advertising such as sign-on
messages, POS messages, and broadcast messages have been
shown to be effective at generating business. For example, a
recent study by NFO Hog Research shows that over 50 percent
of all travel agents who received GDS advertising made a book-
ing at a hotel in the three subsequent months.’
Given their ability to be precisely targeted, and noting travel agents
continuing role in influencing the purchase decision, investing in such
a campaign can often be an effective way of increasing business from
the GDS.-l?O’C. and G.l?
’ “NFO Plog Report Survey on Travel Agent GDS Usage,” EyeForTravel
newsdesk, 10/9/2003.
oping technology. As can be seen from the sidebar
at the top of this page, much of this advice still
holds true today.
The authors were also on point when high-
lighting the limitations of the developing systems
and the implications that these would have for
hoteliers. Naturally, as technology has developed
in the intervening period, many of these prob-
lems have been resolved. Database-structure
problems that limited property descriptions and
the number of rates that could be displayed have
been corrected, the time delay between updating
information and its appearance on the system has
been shortened, and GDS to CRS connectivity
has progressed substantially, so that today what
appears on a travel agent’s terminal is identical to
what can be seen at the hotel chain’s central res-
ervations office. As a result, travel agents have
developed much more trust in what is displayed
on their terminals, and GDSs have evolved into
a major source of business, particularly for ho-
tels with primarily a business clientele. As can be
OCTOBER-DECEMBER 2003 Cornell Hotel and Restaurant Administration Quarterly 107
COMMENTARY
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MARKETING: ELECTRONIC DISTRIBUTION
seen from Exhibit 1, the number of bookings
processed over the GDS systems has grown to
unprecedented levels, and recent studies have
highlighted how such systems are likely to re-
main important in the near future.’
Reminiscent of the accuracy with which
Gordon Moore predicted the improvement in
integrated-circuit technology (i.e., Moore’s law)
Emmer et al. were remarkably accurate in their
forecasts. In addition to predicting the future
importance of GDS channels, they also foresaw
how travel agents would decline in importance
as consumers started to use technology-based sys-
tems to make bookings for themselves from their
home or of&e. However, as accurate as they were,
the Emmer group’s predictions were not perfect.
One example is their forecast that visual-image
software such as Spectrum or Jaguar (CD-ROM-
based databases that allowed travel agents to see
pictures, maps, and detailed marketing informa-
tion about hotel properties) would become com-
monplace. Today few travel agents actually use
such systems. However Emmer etal’s prediction
was wrong only in terms of the medium, because
it is now the web (and not a CD) that allows a
potential customer to see detailed, rich, graphi-
cal information to improve the chances of pur-
chase. What the authors did not foresee was the
effect of the network revolution that started a
few months after their article was published with
the opening of the web for commercial transac-
tions at the beginning of 1994.
The travel industry pioneered electronic com-
merce long before ecommerce, business to cus-
’ Peter O’Connor and Andrew J. Frew, “The Future of Hotel
Electronic Distribution: Expert-Industry Perspectives,”
Cornell Hotel and Restaurant Administration Quarterly,
Vol. 43, No. 3 (2002), pp. 33-45.
tomer (B2C), and business to business (B2B)
became popular buzzwords. The travel product
has always been the ideal product for electronic
sales-whether online or by telephone or (much
earlier) telegraph. As an information-based item,
travel bookings are intangible, heterogeneous, and
fixed geographically, making the sale of travel
highly dependent on getting the right informa-
tion to potential customers at the appropriate
stage in their purchase decision. Luckily, provid-
ing detailed, timely, and accurate information is
precisely what computer networks and the
internet were designed to do!
The long tradition of hospitality ecommerce
notwithstanding, many incumbents in the travel-
distribution landscape stumbled while trying to
figure out how to react to this new technologi-
cal, social, and commercial phenomenon. In do-
ing so, they left the door open for fast-moving
start-ups to enter the marketplace and revolution-
ize the way travel is being sold. In 2001 travel
became the highest-grossing product sold online.’
To update the comment made by Emmer et ah:
“If a hotel wants to sell its rooms, then it has to
take advantage of the opportunities presented by
the growing range of online web-based channels.”
The Dawn of the Net
In the late 1990s the word “disintermediation”
was on everyone’s lips. Because of the web, hotel
companies had the potential to distribute directly
to their customers, reducing or even eliminating
the commission payments and transaction fees
traditionally paid to intermediaries such as travel
agents and the GDSs. This ability to interact di-
rectly gave hotel chains the opportunity to gather
detailed data about their customers, potentially fa-
cilitating both database marketing and the devel-
opment of sophisticated customer-relationship-
management strategies. To take advantage of such
opportunities, the majority of the hotel chains
developed websites to try to sell directly to cus-
tomers. For example, a 2000 study showed that
over 95 percent of the major hotel brands oper-
2 D. Buhalis, eTmrism: hfoumation Technology for Strategic
ihrism Management (Harlow, UK: Prentice Hall, 2003).
108 Cornell Hotel and Restaurant Administration Quarterly OCTOBER-DECEMBER 2003
MARKETING: ELECTRONIC DISTRIBUTION
I
COMMENTARY
ated consumer-oriented websites, providing fa-
cilities for potential customers to find infor-
mation and make reservations online.3 In gen-
eral, the major chains have been successful at
encouraging consumers to book on such sites,
with figures of over 60 percent of online sales
being achieved by the major chains,4 although
figures for independents and small chains are
much lower. The increasing number of custom-
ers booking for themselves is placing increasing
pressure on travel agents. Figures from the Travel
Industry Association of America (TIAA) show
that U.S. agents are finding it increasingly diffi-
cult to compete, with many going out of busi-
ness as a result of displacement by online chan-
nels.5 Simply put, as the web has allowed every
customer with an internet connection the abil-
ity to book her own hotel rooms, those travel
agents whose only value add is access to avail-
ability information and booking tools have lost
their raison d’he. Those travel agents that will
thrive in the internet age are those who provide
value based on consultation and specialized
knowledge of complex travel products.
However, many of the distribution-related
benefits promised by the web are under threat.
A large number of online intermediaries have de-
veloped and collectively are beginning to domi-
nate the sale of travel online (see Exhibit 2). From
the consumer’s perspective, the appeal of such
sites is clear. Travel products in general (and ho-
tels in particular) are rarely bought in isolation.
While supplier sites tend to focus on just a single
product, the online mega-agencies offer consum-
ers a one-stop travel-shopping experience, allow-
ing them to book hotel, air, car rentals, and a
large variety of other travel-related services in one
seamless transaction. Online agencies also pro-
3 l? O’Connor, “On-line Pricing: An Analysis of Hotel Com-
pany Practices,” Cornell Hotel and Restaurant Administra-
don QuaTter& Vol. 44, No. 1 (2003), pp. 88-96.
* Market Wire, “Brand Sites Produce 67% of Al l Major
Hotel Chain Internet Reservations,” Market Wire, Incor-
porated, October 9, 2003.
5 Travel Industry Association of America, “Travel Agencies
Still Preferred Source for Travel Information” (press release
viewed in 1998), www.tia.org/research/summinternet
97.asp.
Leading online agencies, 2002
Expedia $4,860
Travelocity $3,240
Orbitz $2.430
Priceline
_____--.-
Hotels.com
$1,080
$810
Hotwire $810
WorldRes
~-.--
Lastminute.com
$270
$476
Ebookers $431
Note:Agencies arrayed by gross booking revenue in millions of U.S. dollars.
Sources: Compiled from multiple sources, including: C. Marcussen, “Trends in the
U.S. Online-travel Market 2000-2002,” Centre for Regional and Tourism Research,
Bornholm, Denmark, 2003; and 0. Jager, “European Online Travel Marketplace: Focus
on France,” PhoCusWright, 2003.
vide a wider choice of brands than does any indi-
vidual supplier site, and research has shown that
they tend to be competitive in terms of price.G
Several have introduced innovative methods of
operation (e.g., Priceline.com’s name-your-own-
price concept, Lastminute.com’s sale of distressed
inventory, and Ebay’s auction of travel packages)
that have attracted customers’ attention and
helped develop their reputation as the place to
book travel. In the lucrative arena of business
travel, the online mega-agencies provide corpo-
rate travel managers with enhanced levels of ser-
vice in terms of travel-policy enforcement, ex-
pense reporting, and control. In both realms, the
emergence of the merchant model has sent pow-
erful shockwaves through the electronic-distri-
bution chain. Hotel companies now face the
threat of loss of rate control on a large scale. Thus,
both leisure and business clients are being driven
toward the major online intermediaries, replac-
ing the promise of disintermediation with the
threat of re-intermediation.
The result of these developments is a hotel
electronic-distribution arena infinitely more com-
plex than that discussed by Emmer et al. As can
6 O’Connor, op. cit.
OCTOBER-DECEMBER 2003 Cornell Hotel and Restaurant Administration Quarterly 109
COMMENTARY
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MARKETING: ELECTRONIC DISTRIBUTION
be seen from Exhibit 3, both the number of
routes to the customers and interconnections
among these routes have grown substantially. (A
good overview of the current situation can be
found in the article by Carroll and Siguaw in the
previous issue of the Cornell Quarterly..3 Under-
standing how to distribute the hotel product over
this complex network has become a challenge-
one that must be faced by every hotelier. Par-
ticularly when considered together, electronic
channels now make up a considerable propor-
tion of the hotel-sales mix. A lack of awareness
of how to manage these channels is resulting in
lost opportunities, and, as we discuss below, sev-
eral important issues need to be addressed to en-
sure that it is the hotel rather than the interme-
diary that benefits from the current growth in
the sale of travel online. No longer can hotels sit
back and wait for business to come to them. Ac-
tive management of the distribution process has
now become essential.
Challenges with Hotel
Distribution Today
As the distribution environment has become
more complex, several issues have emerged that
will affect the nature of the hotel business. Per-
haps the most pressing is the growth in the power
of the online mega-agencies mentioned above.
Companies such as Expedia, Travelocity,
Hotels.com, and others make a valuable contri-
bution by providing their hotel partners with
substantial numbers of bookings. However, as
they have developed, such mega-agencies have
gradually captured a considerable share of the
hotel rooms sold online. As was discussed ear-
lier, most offer one-stop-shopping services that
are highly attractive to customers. For example,
Expedia.com has as its objective to become the
world’s largest retailer of travel services by offer-
ing “everything in travel.” Already it sells airline
seats, car rentals, hotel rooms, condominiums,
cruises, corporate travel services, ground trans-
’ See: B. Carroll and J. Siguaw, “The Evolution of Elec-
tronic Distribution: Effects of Hotels and Intermediaries,”
Cornell Hotel and Restaurant Administration Quarterly,
Vol. 44, No. 4 (August 2003), pp. 38-50.
portation, insurance, show tickets, and lots
more-and it is constantly expanding its portfo-
lio of products in innovative ways. These online
travel supermarkets are also currently experiment-
ing with “dynamic packaging,” taking advantage
of their product portfolio and technological ex-
pertise to allow customers to interactively as-
semble their own made-to-measure travel pack-
ages. Individual supplier sites simply cannot
compete in terms of breadth of service and depth
of functionality. The mega-agencies are also in-
vesting millions in offline and online advertising
to build brand awareness, and have to a large ex-
tent succeeded in convincing consumers that the
best bargains and best service can be had on their
sites. Thus, despite recent efforts by hotel com-
panies, the mega-agencies’ strategy of combin-
ing features, brand, and pricing is accelerating
the trend towards re-intermediation, with the big
winners in the growth of the sale of travel online
likely to be the mega-agencies rather than the
travel supplier.
Already there has been evidence of mega-
agencies’ taking advantage of their dominant
market position to change the nature of supplier-
intermediary relationship. For example, many
have introduced the merchant model-a business
process whereby the intermediary negotiates al-
locations of inventory at net rates with suppliers
and subsequently sells these rooms to customers
at a mark up, taking as profit the difference be-
tween the rate negotiated and the price at which
it sells the room online.8 While this might look
like a good deal for the hotel (no commissions or
other transaction costs combined with the abil-
ity to set net rates to reflect the minimum amount
it is prepared to accept for a room on a particular
night), the negotiating power of the online mer-
chants means that they can demand net rates
lower than what the hotel might freely wish to
give. By careful management of their margin, the
intermediaries can then sell such rooms at highly
competitive prices-in many cases cheaper than
the rates being offered on the hotel’s own website!
’ I? O’Connor, “Online Intermediaries-Revolutionizing
Travel Distribution,” Travel & Tourism Analyst, Vol. 1
(2003), pp. 54-78.
110 Cornell Hotel and Restaurant Administration Quarterly OCTOBER-DECEMBER 2003
MARKETING: ELECTRONIC DISTRIBUTION
I
COMMENTARY
An updated overview of the global distribution network
4
Property
website ’
Chain
4
consumer
I
1 website 1
-I
1-1 Travelocity kI- - - - - 7 - - - - - -
-*d Sabre f
4
~ Expedia +------;
v-1
World- GDS
q-Travel-agents’ terminals -
span e- switches
~
(e.g., Thisco. -
4
Travel-agent
Wizcom
sites
Galileo +
Corporate-
travel t-
solutions
t
your-own-price sites,
auction sites,
r-i 4
1 late-availability sites) k
t
- - - - - - -
t
_ _ _ _ _ _ _ .
Tour
= On-line interface - - - - - = Extranet-based merchant model
OCTOBER-DECEMBER 2003 Cornell Hotel and Restaurant Administration Quarterly 111
COMMENTARY
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MARKETING: ELECTRONIC DISTRIBUTION
(O’Connor’s study of online pricing found that
the mega-agencies frequently offered the cheap-
est prices for hotel rooms, particularly at the up-
per end of the market.9) Of course, hotels are
always free to refuse to participate, but, in classic
fashion, nobody wants to be the first to leave the
online agencies and thereby risk losing out on
large numbers of potential (if low-yield) book-
ings. Recently, and perhaps belatedly, the indus-
try has started to react to this threat on both an
individual and a collective basis. Many of the
larger chains have begun to actively discourage
their properties and franchisees from giving low
rates to the online merchants, and have started
to promise consumers the lowest price on their
own branded website.” In addition, the hotel
chains have begun acting together to try to fight
the dominant power of the mega-agencies and
regain control over electronic distribution. Fol-
lowing a similar strategy to Orbitz in the airline
sector, Hilton, Hyatt, Intercontinental,
Marriott, and Starwood have joined technology
provider Pegasus to establish TravelWeb, in a bid
to wrest control of online pricing and merchant-
model arrangements back from the online inter-
mediaries. (A similar initiative-WorldRes-is
underway in Europe.) By facilitating direct
connectivity to multiple small online channels at
a reasonable cost, the chains hope to reduce the
power of the large mega-agencies and help hotels
achieve a wider distribution of their product.
The ease with which consumers can find in-
formation has also made pricing over multiple
channels problematic. There is evidence that cus-
tomers search several online channels before com-
mitting to making a reservation.” In addition, a
variety of online tools (for example, Sidestep,
9 O’Connor, pp. 88-96.
lo The structure of the hotel industry though makes
concerted action difficult. See: G. Piccoli, l? O’Connor,
C. Capaccioli, and R. Alvarez, “Customer-relationship
Management-A Driver for Change in the Structure of the
U.S. Lodging Industry,” Cornell Hotel and Restaurant
Administration Quarterly, Vol. 44, No. 4 (August 2003),
pp. 61-74.
‘r See: Forrester Research, “Travel North America Consumer
Technographics Survey &Data” (Cambridge, MA: Forrester
Research, August 2000).
TravelAxe, and Kelkoo) are also available to help
travel buyers comparison shop among multiple
sites with practically a single click. Such price
transparency places downward pressure on rates,
even though research has shown that this type of
reactive discounting rarely results in higher vol-
umes of bookings in the long term.12
The downward rate spiral is amplified by the
business practices of the online intermediaries,
who employ “market managers” to encourage ho-
tels to further reduce their negotiated rate in re-
turn for better placement on hotel listings. Con-
sumers are also learning that they can often find
better prices by waiting until the last minute to
make their booking. In fact there is some evi-
dence that this is leading to channel cannibaliza-
tion. While the web promised incremental busi-
ness by allowing hotels to reach customers whom
they could otherwise not have attracted, in prac-
tice many of the customers who book online
would have booked the hotel in any case. The
difference is, however, that the price that those
customers have obtained online results in a
far lower yield for the hotel than if the booking
had been made in the “normal” fashion. Even
worse, some of the more street-smart customers
are booking rooms far in advance, monitoring
the online channels for better prices, and,
when possible, cancelling their original reserva-
tion to rebook at a cheaper rate closer to the ar-
rival date. Failure to discourage or prevent such
practices could potentially have a drastic effect
on profitability.‘3
Ownership of the customer is also an issue that
hoteliers urgently need to address. As has been
discussed above, the online intermediaries are at-
tractive to consumers as a result of their conve-
nience, their rich feature set, and their competi-
tive prices. Consumers booking on these sites are
nearly always likely to find a product that meets
their needs. In most cases, the mega-agencies of-
fer them choices, in contrast to hotel chains’ sites
that may not have a property in the desired loca-
‘a C. Enz, “Hotel Pricing in a Networked World,” Cornell
Hotel and Restaurant Administration Quart&y, Vol. 44,
No. 1 (February 2003), pp. 4-5.
I3 Ibid.
112 Cornell Hotel and Restaurant Administration Quarterly OCTOBER-DECEMBER 2003
MARKETING: ELECTRONIC DISTRIBUTION
I
CCIMMENTARY
tion or may be booked for the dates requested.
Given such a performance, where are customers
likely to look the next time they want to make a
booking? In addition, many of the online agen-
cies are trying to enhance brand loyalty by devel-
oping customer-relationship-management solu-
tions that recognize frequent and high-value
customers and use electronic-marketing tech-
niques to develop a closer relationship with those
customers. While hotel companies may be invest-
ing millions developing and enhancing their
brands, is that money well spent if consumers
end up using the online intermediary as the
solution to their travel booking needs?
Cdl to Action
The 1993 article presented an important call to
action to hotels to start using the developing
GDSs to sell rooms lest they be put out of busi-
ness by those competitors that do so. Today the
situation has changed. Not only does a hotelier
face competition from other hotels as to which
room will be bought by the consumer, hotel
brands also face competition from the online in-
termediaries as to how that room will be sold.
Given all the benefits that such sites offer the
travel purchaser, hotels urgently need to take ac-
tion to regain control over the distribution of their
product. As interested industry observers, we
would suggest that hoteliers concentrate on the
following:
l Develop an understanding of the electronic-
distribution environment. It is only by be-
ing aware of the options available and the
implications of using or not using each
one that hoteliers can start to develop an
effective distribution strategy. Different
channels serve different customers and are
best suited for use at different times and
with different objectives. Which online
intermediaries are most important in the
geographical markets that you actively
target? What type of business model do
those intermediaries use? What are the
costs (initial, periodic, and transaction)
associated with using each channel? Does
using the channel tie you into a room al-
location or does it operate on a free-sale
basis? Does the online intermediary pro-
vide an electronic interface with your ex-
isting reservation system to obtain inven-
tory and rates, or must you manage them
manually using an extranet-based inter-
face? These are just some of the key
questions that must be answered.i4
Develop a clear and logical electronic-
distribution strategy. Currently most hotels
use a shelf-space approach to electronic
distribution-presuming that being
present on as many channels as possible
is the best position. However, this tactic
largely ignores the issue of complexity.
As the number of channels increases, the
cost of the infrastructure necessary to sup-
port those channels increases, and inven-
tory and rate have to be managed in mul-
tiple locations, again leading to higher
costs.‘j Instead of trying to be everywhere,
select those channels with the most po-
tential for addressing your markets, and
work actively and closely with the chosen
vendors to try to maximize exposure on
these channels. Distribution strategy is as
much about deciding where not to be and
who not to serve as it is about seeking
broad representation and setting prices.
Once the strategy has been set, make sure
everyone in your company is on board so
that everyone speaks with a unified voice
and implements the same policies. Finally,
re-evaluate your strategy periodically in
light of developments in technology and
the fast pace of change in the electronic-
distribution arena. Set your strategy, but
be prepared to change when the environ-
ment changes.
Develop a comprehensive pricing strategy.
Two approaches are common. One ap-
proach relates the cost of using the chan-
nel to the rates shown there-with lower
‘* O’Connor & Frew, op. cit.
‘ j D. Connolly, “Understanding Information Technology
Investment Decision Making in the Context of Hotel Glo-
bal Distribution Systems: A Multiple-Case Study,” Hotel
and Tourism Management, Blacksburg, Virginia, 1999.
than “normal.‘”
OCTOBER-DECEMBER 2003 Cornell Hotel and Restaurant Administration Quarterly 113
COMMENTARY
I
MARKETING: ELECTRONIC DISTRIBUTION
Peter O’Connor, Ph.D.
(pictured above), is an associ-
ate professor at IMHI (Cornell
ESSEC, [email protected]).
Gabriele Piccoli, Ph.D.
(pictured below), is an assis-
tant professor at the Cornell
University School of Hotel
Administration igp45@cornell.
edu).
prices in low-cost channels and higher
prices on high-cost ones. (Tools such as
TravelClick’s RateView allow you to
monitor multiple channels to ensure that
the strategy is being implemented effec-
tively.) The other approach focuses on
maintaining price consistency across dif-
ferent channels so that irrespective of
where the booking is made, the customer
always sees the same price. In either case,
the objective is to divert the customer
away from the mega-agencies. Take par-
ticular care to develop fences in your rates
to prevent the channel-cannibalization
problem mentioned earlier. Either by
placing restrictions or by creating pack-
ages you need to limit the comparability
of your product. The web is great at effi-
cient comparison of similar things, but
breaks down quickly as the product be-
comes more complex.
l Drive business to your own branded website.
Although the mega-agencies can deliver
volume in the short run, their price-
driven customers are fickle and can be
diverted by competitors offering slightly
lower rates. Moreover, mega-agencies’
adoption of the merchant model means
that the cost of distribution over such
channels is comparatively high. Instead
you should encourage customers to book
through your own branded website-
a difficult proposition. As we speak, the
mega-agencies continue to invest heavily
to ensure that any search for travel online
ends up on their websites. In fact, it can
be quite illuminating to pretend to be a
customer and try to find your own hotel
online, as invariably you will end up on
an online intermediary’s site. While
simple steps such as listing your website’s
address on all promotional material and
correspondence, developing reciprocal
links with selected websites, or bidding on
highly specific keywords can be effective
in making some customers aware of your
site’s existence, the biggest potential lies
in taking advantage of the key facet of the
hospitality business-a closeness with the
customer that allows hoteliers to develop
a real and lasting relationship. Hospitality
operators’ ability to know the customer in
a way that the online intermediary cannot
gives the hoteliers an advantage on which
they must not fail to capitalize.
l Know the customer. More than any other
medium that has gone before, the internet
fosters communication and dialog. Thus,
the web provides operators with the po-
tential to develop a personal relationship
with each individual customer, a relation-
ship that lasts over multiple transactions
and is beneficial for both parties. By adopt-
ing sophisticated customer-relationship-
management techniques, operators have
the opportunity to increase the complex-
ity of the product-through personaliza-
tion, for example-and combat the ease
with which a meaningful web-based com-
parison can be made. By doing so, opera-
tors can lock in loyal customers who are
uninterested in shopping and reduce the
effectiveness of mega-agencies. A focus on
quality, not only quantity, of market share,
and the judicious use of loyalty programs,
can help in this regard.
In summary, the key success factor for using
electronic distribution channels today is active
management. The GDSs discussed by the authors
of the 1993 article have not gone away. Instead
they have become more powerful and have been
supplemented by a highly complex series ofweb-
based channels. This network of electronic-
distribution channels (shown in Exhibit 3) pro-
vides an outstanding opportunity for those
who manage it effectively, but also danger for those
who fail to recognize its importance or do not in-
vest the time and effort needed to take advantage of
its potential. Complacency in the past has resulted
in a situation where hotels collectively have come
close to losing control over the sale of their product
in the online environment. Comprehensive, well
designed, and relentlessly implemented strategies
will curtail this problem, help operators regain
control over inventory and price, and benefit from
the potential of direct sales over the web.
114 Cornell Hotel and Restaurant Administration Quarterly OCTOBER-DECEMBER 2003
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