Why hotel distribution costs should matter to procurement managers

Jon West
posted by Jon West
16 October 2014

Jon West, managing director at HRSHotelier distribution costs have a direct impact on the preferred rates that procurement managers benefit from and it is for this reason that they should be taking a closer look at the systems powering their corporate travel programmes.

In fact, many travel and procurement managers are unlikely to be aware of how much their preferred hotels spend on distribution.

This isn’t just when it comes to commission payment to TMCs but enhanced incentives, sales and marketing funds and other hidden costs within the supply chain. From a gross booking value of £100, the hotelier can lose as much as £30 in distribution and channel fees.

So, when hotels distribute rooms more efficiently, they can save up to 30% of their costs. Even fewer will have considered the true impact of those distribution costs on their preferred rates and whether by helping hotels on their corporate programmes to select lower cost channels they can use those savings to leverage incremental savings for themselves too.

Both the number of ways of booking a hotel and the costs of delivering a hotel booking through each of these channels has changed dramatically in recent years. However, the challenge for hoteliers remains the same; identifying the channels that produce the best yield in terms of occupancy and rate.

Traditionally there have been four ways for corporates to drive down hotel costs:

1. Consolidate hotel bookings into fewer suppliers

2. Substitute cheaper alternatives for existing partners

3. Strong negotiation

4. Reduce processing costs through online adoption. However, the scope for procurement managers to reduce processing costs is gradually diminishing as online adoption rates rise.

A fifth way to drive down costs has now emerged; helping partner hotels to reduce their distribution costs by channelling bookings into low-cost channels and leveraging the hotelier’s saving to secure lower rates or incremental added value benefits.

Ultimately the buying community holds the key to reducing their hotel suppliers’ distribution costs by controlling and specifying the channels through which their hotel programmes are distributed. Changing distribution channels lowers costs and allows hotel rates to be reduced because of the savings made as a result.

Therefore, if you don’t fully understand the cost of distribution you won’t be able to negotiate hotel rates effectively. In order to retain the power to generate additional savings for your company as well as your hotel partners you need to take a closer look at the systems powering your travel programmes.

 John West is Managing Director of HRS UK and Ireland

 

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