Travel Analytics Blog
Margin Management Matters in Travel Product Selling
Posted by Sonja Woodman on Tuesday, January 19, 2016
Hotel distribution is complex and margin management is vital. It’s complex because hoteliers need to get the word out as far and wide as possible about their available inventory – before the opportunity to make money out of it perishes, literally. Waiting for people to visit brand.com is one option, but in today’s global competitive market there is a compelling need for hotels to use a myriad of channels to make sure that the inventory gets sold in time. So no hotel relies on a single distributor to get their availability out there, but uses many channels, including multiple hotel wholesalers.
Adding a wholesaler as an online sales channel broadens the hotel distribution network. They are essential middlemen connecting supply to demand. Hotels gain access to new global markets and see their all-year round occupancy improved, which can help them adjust to seasonal fluctuations. On the one hand, wholesalers give the global community of leisure travel self-bookers access to a full range of properties around the world, while on the other hand they offer opportunities for hotels, allowing them to access different client segments and sub-segments in any country. For example, wholesalers are experts in targeting certain travel segments such as budget, up-market, beach resorts, cities, particular regions or destinations, etc. They are renowned for bringing to the hotels robust distribution platforms and specialisations to reach fresh markets.
Wholesalers – Helping hoteliers shift rooms with reduced risk.
Wholesalers contract allotments from hotels (at discounted prices or via commissions), and resell these allocations with a mark-up to tour operators, travel agents and even other wholesalers across the globe. So these allotments become the wholesaler’s inventory in which he has invested his resources, research and market commitment. Wholesalers commit to a certain volume at a certain purchase price, and they can resell at a price they set. In some cases unsold inventory can be returned back to the hotel supplier before the expiry date, for his the hotelier to dispose of with heftier discounts. This is where flash sales and the last minute market steps in. So although hoteliers use different distribution channels, they are very selective about which ones they pick, hoping to select those that will successfully sell their allocation. So the wholesaler is likely to have worked long and hard in building a relationship with the hotel to win the allocation to add to his portfolio. Then it is a win/win relationship because the hotelier perceives the wholesalers as partners that help them move inventories efficiently with greater exposure and reduced risk.
With so many distribution channels to choose from, there is a likelihood that a number of intermediaries are selling the same inventory, in other words the same hotel room in the same hotel and location is being offered for sale by multiple outlets. It then becomes a crucial matter of speed and price to make sure that the available inventory from these channels gets included in the options made available to the buyer at the point of purchase. However, price also brings margin considerations into play, especially when a wholesaler holds or accesses inventory from multiple sources. Not all margin agreements are equal.
Margin management can be summed up as understanding where the money is being made or lost. This might sound straightforward, but even larger firms have trouble optimising the difference between a good deal and a great deal, where the opportunity to sell rooms has been achieved at the optimum margin.
Analytics and in particular intelligence from XML shopping streams can also help wholesalers manage their inventory levels and fine tune their system business logic to factor in margin implications when responding to searches with their offers.