News | May 26, 2011

The End Of Channel Management As We Know It

By Jean Francois Mourier, CEO, REVPAR GURU

With today's hastened technology, revenue channels emerge almost instantly. If it's not an entirely new channel that emerges, it's an evolution from one channel into another, such as the mobile channel, which has grown exponentially in the last two years. With each new channel comes an entirely new fee system and distribution network that adds new, sophisticated levels to revenue management. Automation through software is bringing an end to traditional channel management as we know it, freeing up the RM to look beyond channel management, towards new strategies aimed at higher yield and revenue optimization. Let's take a brief look at the evolution of channel management to get a better idea of why the "end" is near.

Early Booking
Our starting point is the mid-seventeenth century, when channel management simply didn't exist. Guests arrived. If there was a room, they stayed. Easy enough. During this period, there was no reliable way to guarantee an arrival date, much less send word ahead to reserve a room. This all changed in the late eighteen-century with the mail service that would eventually become the U.S. Postal Service.

Postal service gave customers a reliable way to reserve lodging, either through direct mail, or through their intermediaries (the first continental example of travel agents). Fast forwarding through the decades, the telegraph brought in a faster way of booking and reserving, finally giving way to the telephone in the early twentieth century. Along the way, hotels began to develop their own central reservation systems (CRS) to keep track of available inventory and pricing.

The Airlines and GDS
During the 1940s and 50s, airlines fostered a relationship with travel agents and their hotel networks, forming a loose network of travel industry providers. The major airline companies injected rapid technology into an agent-hotel relationship that had remained virtually unchanged for the first half of the century.

By the end of the 1970s, the airlines offered travel agencies the first electronic systems for checking availability and reserving airline seats—the global distribution system, or GDS. Each airline developed its own GDS; for example, American used its proprietary system Sabre, and Apollo served as United's GDS. GDS systems were revolutionary software platforms for updating system reservation status and optimizing yield based on availability and demand for air travel. Eventually, airlines allowed car rental companies and hotels to integrate their reservations into each proprietary system—at a cost.

While this technology created a cost-effective and more efficient booking universe, channel management became exponentially tougher: each airline had it's own GDS structure and fee system. The multiple layers and differing platforms that agents and hotels had to manage became cumbersome and gave way to an industry that centralized all of the airlines' proprietary GDS systems, updated the reservations and routed information to agents and hotels. Much more efficient, these switching companies added yet another layer to a hotel's cost structure. By this time, it was probable that a single booking would result in three commission costs for the hotel: 1) travel agent; 2) switching company; 3) GDS proprietor.

IDS
In 1994, Hyatt developed an internet channel that bypassed all GDS systems and the internet distribution system (IDS) was born, evolving exponentially into what we have today. While bypassing the GDS systems and cutting some costs, IDS systems still have to communicate with the proprietary GDS systems in order to update availability across channel networks. This, of course, adds multiple layers of intermediary costs. OTAs came on the scene in the closing years of the last century, branching off into an entirely new electronic channel.

Where We Are Now
As you can imagine, each of these channels, sub channels, and intermediary channels add costs (and we have only addressed electronic channels!). Going back to RM basics, we know that every booking or cancellation accounts for a change in availability. And as you can see from this brief history, every channel has its own attendant costs. Each of these costs affects a hotel's yield; thus, in order to maximize every dollar earned through booking, the RM must meticulously manage every facet of every channel. This includes dynamically changing rates for each channel based on availability AND taking into account the associated costs of each channel.

As if that weren't enough, let's throw into the mix non-traditional channels. The phone rings and a customer books three rooms for two nights. The RM, across all channels, must update. Simultaneously, a walk-in books one room for the next three nights. The RM, across all channels, must update. Mere mortals mentally (and physically) simply can't keep up with so many constantly changing variables across so many channels.

You can see where this is going. Effective channel management without the assistance of software is quickly becoming impossible. RMs need to maximize sales throughout a seemingly endless number of distribution channels, and the cost of utilizing each channel must be constantly monitored to ensure the appropriate yield. With the rise in the number and complexity of channels, humans simply cannot keep up—they have had to create a better solution to channel management through software. The resulting efficiency and effectiveness of revenue management software platforms have brought a close to channel management.

Software analyzes and executes. Through split-second algorithmic processes, computer software performs in seconds what RM's strive to accomplish in hours, even days. Software systems can now analyze real-time market data, constantly adjust rates across all channels based on inventory, and perpetually modify OTA page positions twenty-four hours a day. Software not only executes the RM's yield management strategy, software helps define it.

It's become quite clear that the shift has trended towards automated channel management systems, leaving the old processes to wither away. And, as technology evolves, so too does the software. This in turn has created possibilities for expansion that are seemingly endless. The result? A customized tactical software solution that maximizes revenue, and frees up the RM to focus on strategic objectives. Readily available in the marketplace, the RM's tiresome task-filled day just got a lot more productive.

Yes, it's the end of channel management as we know it—not goodbye, but good riddance.

SOURCE: REVPAR GURU

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