Faculty & Research
Hoteliers face strategic challenges as electronic distribution channels continue rapid evolution
FOR IMMEDIATE RELEASE
Linda Myers, 607-277-5035, lbm3@cornell.edu
With the migration of hotel-room distribution to the internet, hotel chains face two key strategic challenges, according to a new report from Cornell's Center for Hospitality Research. First and foremost, hotel chains must avoid commoditization-in which price becomes customers' main (or only) consideration for booking a room. Second, hotels must maintain control of their distribution, even as a host of intermediaries vie to gain control of distribution channels.
Cornell faculty members Bill Carroll and Judy Siguaw detail the strategic challenge facing hotels in their report, "Evolution in Electronic Distribution: Effects on Hotels and Intermediaries." The report is available on the CHR website, by clicking here.
Because hotel room distribution is migrating to the Internet, hotels run a great risk of commoditization since the Internet has made pricing tactics relatively transparent. Carroll and Siguaw suggest that a chief way to offset the trend toward commoditization caused by price transparency is for hotels to carefully manage listings with wholesalers and, where possible, to provide customers with information that supports and differentiates each brand, so that consumers can distinguish among various services by their attributes, rather than just by price. "Hotels must rethink their tendency to simply want to place heads in beds. Early data indicates that hotels that rush to the on-line wholesalers to fill rooms may be decreasing long-term profitability and devaluing the brand," says Professor Judy Siguaw. Retaining control of distribution is a complex challenge, given the variety of intermediaries that seek to distribute hotel rooms. Intermediaries include global distribution systems (GDSs), distribution-service providers (DSPs), third-party wholesalers (e.g., Expedia, priceline.com, Hotels.com), and traditional travel agencies. Complicating hoteliers' effort to drive bookings through their own proprietary websites, the third-party sites have created strategic approaches to encourage hoteliers to distribute rooms on their sites. 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.
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 is to shift market share toward a particular hotel or chain, but only if the hotel or chain is willing to pay a large price.
An economist, Bill Carroll, Ph.D., is a visiting assistant professor at the Cornell University School of Hotel Administration, where Judy Siguaw, D.B.A., is J. Thomas Clark Professor of Entrepreneurship and Personal Enterprise.
The full report, entitled "Evolution in Electronic Distribution: Effects on Hotels and Intermediaries," is available at http://www.hotelschool.cornell.edu/research/chr.
About The Center for Hospitality Research
Based at the Cornell University School of Hotel Administration, the goal of The Center for Hospitality Research is to inform scholarship in hospitality with an industry perspective. The Center's mission is to bring together the best insights of scholarship in hospitality and industry expertise. Development of the CHR's research efforts is augmented by industry perspective from its advisory board and its 26 industry sponsors and friends. All CHR studies are posted on its web site: http://www.hotelschool.cornell.edu/research/chr.