IN-DEPTH: Starwood’s Devdutta Banerjee on why is it important for a hotel company to build credibility and ensure that its prices will be in parity irrespective of the distribution model.

Published: 15 Sep 2010

IN-DEPTH: Starwood’s Devdutta Banerjee on why is it important for a hotel company to build credibility and ensure that its prices will be in parity irrespective of the distribution model.

By Ritesh Gupta

Both direct and indirect channels are consumer requisites and strategies for both should be aligned to maximise value.

In this context, it has to be ensured that a company should not have disparate systems running disparate channel content and pricing. It is significant enough to ensure that for all transparent systems there is a single source of rates and inventory to ensure parity.

“Problems arise when you don’t have parity and eventually the hotel suffers,” says Devdutta Banerjee, Regional Director - Revenue Management, India , Bangladesh and Nepal, Starwood Hotels and Resorts.

“As online gains traction, it is critical that there is a systemic interface to drive rates and availability across all channels of distribution. One of the problems that plagues hotel distribution as against airlines is that, in the hotel industry, there is a lot of fragmentation. This leads to one player undercutting the other in terms of distribution margins, specially the smaller players,” Devdutta told EyeforTravel’s Ritesh Gupta. “In the long run, this is detrimental but not too many small players are concerned about the long-term impact on business as against the large operators who are in for the long run.”

Devdutta spoke about the main considerations in formulating a distribution strategy. Excerpts:

Changing a hotel’s market mix does not happen overnight even as one reacts to changing market conditions. Would it be right to say that those suppliers, who have been focusing on going direct to consumers, have lost out on indirect channel partners?

Devdutta Banerjee:

This is an eternal dilemma. To woo the OTA business or to go direct. While hotel marketing funds are limited, OTA have much more at their disposal. One has to drive a healthy balance and a long term strategy to deal with this anomaly and eventually come to a balance with both sources of business. In a market where there is a wide choice, the brand players have loyalty, but the retail customer may be driven by priorities other than brand.

In the long run, once you have built the credibility that your prices will be in parity irrespective to the distribution model, the customer will come to you. We acknowledge that OTAs are partners and will play a significant role in driving the fast growing online market, but the set of customers who come to our brand sites are those who are brand loyal and are keen to experience what we have to offer. From a personal standpoint, when I choose to travel, I do look at OTAs and brand sites and book airlines based on my motivators and conveniences at that point in time. I am sure this is exactly what happens when people book hotels as well.

The nature of the lodging business is that there are always peaks and troughs of demand related to the supply available in any given market. This can be seasonal, development-related, or economic. What factors do you take into consideration for all five channels - hotel direct, voice / reservation center, 3rd party Internet, brand web and GDS / agency – as the external environment varies?

Devdutta Banerjee:

All factors are critical and the degree of importance changes with changes in external factors and economic climate prevailing at the time. New hotels appearing in the competitive landscape also make an impact on the channels of distribution. Holistically speaking, one has to manage the business and keep an eye on the cost of distribution as well. Brand awareness and image plays an important part in our distribution strategies. Certain channels have more influence in certain parts of the world, or on certain age or gender based demographics and so on.

Significantly when it comes to controlling costs, do you think hoteliers often miss out on technology costs and support costs? Also, ideally, if the focus is on highest revenue customer with the lowest required support with the highest lifetime value that books through the lowest cost channel, how tough is it today to manage the same?

Devdutta Banerjee:

There are several key questions that need to be answered.

This is an unfortunate part of the hotel industry. Technology is changing at a rapid pace and more often that not, if you are the first to embrace a new technology then you are investing blindly or are a part that faces the errors in the system, and if you are not the first one, then you lose the first mover advantage. It is critical that there is some investment in integration of the disparate aspects of hotel data that can give us a birds’ eye view of the business and allow us to drill down as well to the minutest detail.

Most hotels have had investments in technology, but these systems don’t often talk to each other. Accounting software wont talk to the marketing data which wont talk to the PMS etc. Some hotels and software companies have recognised this challenge and are working towards integration but there is a long way to go.

The aspect of the cost of the channel should not be looked at in isolation but as a part of the cost of acquisition of a new customer. While distribution costs may appear to be high, one does not consider the cost of acquiring the customer through six sales calls etc while making this comparison.

In case of hotels, customers are purchasing more than just a convenience. Customer decision making is influenced by a mix of tangible and intangible benefits represented by the brand or the physical asset. For their part, OTAs say that they offer tools that help consumers discover value as a function of the benefit that matters to them.How do you think OTAs have played their part in today’s environment?

Devdutta Banerjee:

To an extent, OTAs do commoditise the hotel offerings. However, if you were to look at the overall production numbers, the branded hotels contribute far more than the unbranded offerings to the OTA business.

Like every other business, OTAs will evolve and you will have differentiation in terms of the clientele as there will be consolidation in the OTA space and they will try to create differentiation to gain customer loyalty.

One cannot run a sustainable online business based on lowest price, when every other OTA is offering the same and the hotel website is guaranteeing the same as well and an OTA is not exactly a Blue Ocean Business.

There is already a move towards integration of non-transactional sites like Tripadvisor with the transactional OTAs and soon there will be further integration into a pay per click model as well. Is there a defined timeline for it is something I cannot assure you of, but the fact that the OTAs will integrate from pure business models into hybrids is a given.

Online channels allow hotels to be more dynamic in fast-acting in their rate management strategies. OTAs say the very dynamic nature of online channels does make them the most effective channels for quickly driving demand and occupancy via pricing strategy flexibility. Discounting, when applied in a targeted and strategic manner, should positively impact occupancy and revenue. Are OTAs associated with “last minute” production or do you think there are strategies in place for months or even 365 days a year?

Devdutta Banerjee:

1. In this online enabled world there is no place for targeting a specific geosource unless its language specific or specific to an event happening like Eid holidays in the Middle East and Christmas Holidays in Europe etc.
2. Hotels need to have strategic options as well as tactical options in place to react quickly to the changing environment.
3. OTAs like any other channel have a lead time and a booking window and these have trends and are measureable and one has to ensure that rates and availability are in sync in that window to have maximum impact.
4. “X” % of the business will happen outside of the tradional booking window for that channel and that hotel and that has to be monitored on a case by case basis. As an example, in a high demand compressed market scenario, it makes sense to sell out last or in some case not even sell out completely and you could make much more that the others.

The industry has witnessed the emergence of a new referral marketing platform that intends to reach out to friends, families and followers of existing customers on different social networks. Such platform allows businesses to engage and reward their customers. How do you assess such developments pertaining to social media?

Devdutta Banerjee:

Starwood is the first hotel company in the world to embrace social media marketing in a big way. Not only do we acknowledge its importance, we have dedicated resources to analyse trends and feedback and device strategy for our social media. Twitter, facebook, flicker, youtube, tripadvisor, flyertalk etc are a part of our online social existence and while it may not be possible for us to monetize the impact of it in accounting terms, the soft impact of it can be felt all over.

We have dedicated SOPs for managing social media and the same is reviewed by senior management at both divisional and global levels.

We may also be the only company that engages full time resources to monitor online comments across all major social platforms and assist hotel management to manage the same.

Our applications on iPhone, Blackberry etc were game changers and we are at the cutting edge of understanding shifts in customer behaviour patterns.

Any service organisation that ignores social media will do so at its own peril. In fact Starwood Hotels has its own platform for our guests to share experiences in the hotels at www.thelobby.com.

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