This is part 2 of our 5-part Revenue Management series. Read our Introduction to Revenue Management, Part 1, Part 3, Part 4 and Part 5 here.
“If you control your distribution, you control your image.” – Bernard Arnault
When you think about your channel management strategy, think of yourself as a supplier looking for the most effective distributor. More specifically, a combination of distributors that are each competing with your (higher margin) direct sales channel.
The ideal state is to sell everything directly from your website and pay zero commissions to third party companies. In order to deviate from this, they have to be offering you significant value for your money.
We like to look at three key factors when assessing a distribution strategy.
1. Aggregated Demand
Your distribution partner must have a proven ability to drive a lot of eyeballs to your product. The value they add is aggregating demand across a category of goods beyond what your product or business is able to generate itself.
In other words, they can bring in everyone who is looking for a travel experience similar to what you provide. The drawback is that they put your directly next to many of your direct competitors.
Online Travel Agents (OTAs) are, collectively, powerful demand aggregators across every category of Travel and Hospitality. When used and managed effectively, they can be a tremendous top line demand generator.
2. Targeted Audience
Different OTAs may appeal to different market segments. OTAs often claim to have the best rates. While this may not be true, it may attract a specific type of bargain shopper who isn’t suited to your upscale tour or attraction experience.
At the same time, you might be forced to provide your tickets at a reduced price as well as the steep commission rate the OTA requires.
On the other hand, an OTA might attract a more upscale audience that what you’re used to. It’s important to qualify and continue to measure the market segment and type of traveller that each OTA is tailored to.
It’s often difficult to get your unique brand messaging across when selling through indirect channels. Your own website will always allow for the most control over your customer experience.
One big advantage of 3rd party sellers have is a much higher degree of buyer intent. When they visit your website, they might simply be doing research for a future travel experience. When they go to an OTA or reseller, they are likely more ready to buy.
Most likely, you’ll find the most urgency through local resellers and concierge programs. A hotel or local business is an aggregator of demand to a smaller degree than an OTA, but of higher relevance to the buyer at hand.
Partnering with these people can be a great referral source for your business, particularly if the services complement each other very naturally.
A hotel on the water could feasibly refer a lot of customers to a nearby boat tour, for instance, because they already have a captive audience which are likely in the same target market segment.
3. Profit Maximization
Finally, and most importantly, you must achieve a measurable return on investment from distributing through your new partner that justifies collaboration instead of selling direct.
Top Online Travel Agencies come at a price tag of 20% or more of your ticket price. Do the math on how many customers you need these channels to bring in to make your commission and management time worthwhile.
With an assortment of high purchase intent channels feeding your business customers, you are now operating from a position of strength in pricing power. Generally, in periods of high demand, you will limit your customers from less profitable channels and increase those from higher profit channels and begin testing for price discovery.
Applying the above concepts specifically to the Tours and Attractions space, we can examine some of the channels available to reach your customers.
- Direct Bookings
- Online Travel Agents
- Resellers/Deal Sites
If we were to look critically at each strategy, we could score them based on our above criteria:
Armed with your backlog of information on when to expect periods of high demand, you can now think of each channel as a “tap” that you can turn on and off to influence Supply and Demand to your highest performing channels.
- In periods of high demand, you seek high Target Audience and Profitability score channels and increase prices.
- In periods of low demand, you may use high Demand Aggregation channels and decrease prices to focus on achieving a satisfactory volume.
You should create a list of all your rates, categorized by the margins earned or discounts offered. Figure out your Base Rate or breakeven rate and build a few tiers of more profitable rates.
During periods of high demand, close the tap to your least profitable channels, move up on your rate scale to a higher level - and watch your profitability soar.