Cornell Experts Propose Strategies for Hotels Challenged by Growing Internet Room Bookings by Custom

Hoteliers must do a better job of managing the Internet distribution channels for their hotel rooms, say two Cornell University faculty members in a new report.

By 2005 an estimated 1 in 5 hotel bookings will be made online, up from 1 in 12 in 2002, note Bill Carroll and Judy Siguaw, both affiliated with The Center for Hospitality Research (CHR) at Cornell’s School of Hotel Administration. Hotel chain web sites will control only half of those bookings, say the researchers, with online third-party intermediaries capturing the other half. And that’s not counting bookings based on Internet research but made via a phone call.

But hoteliers can avoid losing room share to third-party Internet competition, say Carroll and Siguaw, by following this strategy: Replace “commoditization” – in which price becomes the customers’ main (or only) consideration for booking a room – with informed choice; and maintain strategic control of distribution channels for room sales, including those turned over to intermediaries.

Carroll and Siguaw detail the strategic challenges facing hotels from third-party intermediaries via the Internet, and they offer solutions in their report “Evolution in Electronic Distribution: Effects on Hotels and Intermediaries.” It is available on the CHR web site, http://www.chr.cornell.edu.

The researchers suggest that a chief way to offset the trend toward wholesale, low-priced rooms dominating sales via the Internet is for hotels to manage listings with wholesalers carefully and, where possible, to provide customers with information that supports and differentiates product and brand. That way consumers can distinguish among various services by their attributes, rather than just by price.

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“Hotels must rethink their tendency to simply want to place heads in beds,” says Siguaw. “Early data indicates that, as hotels in general rush to the online wholesalers to fill rooms, they may be decreasing long-term profitability and devaluing the brand.”

Carroll says: “Retaining control of distribution channels for hotel room sales is a complex challenge, given the variety of intermediaries vying to sell rooms for hotels – among them third-party wholesalers like Expedia, Priceline and Hotels.com, as well as global distribution systems (GDSs), distribution-service providers and traditional travel agencies. But they should try.”

While it’s preferable for hoteliers to drive bookings through their own proprietary web sites – which many are doing in concert with other marketing efforts – the vendors of third-party sites sometimes offer hotels and chains strategic advantages that are hard to turn down, Carroll notes. He and Siguaw acknowledge that, as a practical matter, hoteliers almost always must use some kind of discounted distribution through third parties to clear their inventory of unsold rooms. The critical issue is to manage that distribution strategically, they say.

Carroll and Siguaw’s report depicts a lively industry in the midst of rapid evolution. To gain hotel room listings, for instance, some intermediaries, such as travel agents and GDSs, have developed a value-added strategy of providing additional services to their customers and packaging hotel rooms as part of travel packages. Indeed, all intermediaries – and the hotel chains themselves – are attempting to provide services or incentives to encourage customers to book through their channel. One competitive advantage that third-party intermediaries can provide hoteliers is to shift market share toward a particular hotel or chain, but only if the hotel or chain is willing to pay in price and inventory, the authors note. Before signing on, hotels should determine whether the benefits outweigh the costs.

Siguaw is the J. Thomas Clark Professor of Entrepreneurship and Personal Enterprise as well as an associate professor of marketing at Cornell’s Hotel School. Carroll is an economist who is a visiting assistant professor at the school.

The Center for Hospitality Research at Cornell’s School of Hotel Administration brings together the best insights of scholarship in hospitality and industry expertise. Research efforts are augmented by an industry perspective from the CHR’s advisory board and 27 industry corporate sponsors and friends. For more information, see the center’s web site, http://www.chr.cornell.edu
or call (607) 255-9780.
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