Distribution Strategy Using Digital Marketing - Assignment Example

Question I

Accor’s current distribution strategy

Accor’s current distribution strategy involves the use of online platforms which accounted for 35% of the sales made. The strategy is mainly based on a 60/40 relationship between direct bookings from its own digital efforts through its website and the indirect bookings derived from the partnership with OTAs.

The distribution strategy can be summarized as:

Service provider (Accor) ---------------------------- Consumer

Service provider (Accor) ------------- Agent------------------- Consumer

The value of the OTA relationship to the company

The existing OTA relationship with the company is valuable. This is because they assist to bring in new customer bases in certain regions of the world where the company has not penetrated. A key challenge however in this relationship is that Accor has to pay OTA commission. The commission is actually quite high.

Accor should proceed with the working relationship with OTA. As Dent, (2008) argues, the main objective of a distribution strategy is to get the product to the customers. An effective strategy should therefore not just get the product to the customers but it should also ascertain that a wide population is reached by expanding the customer base. OTA is also beneficial because it brings to the company first timers. Increasing the number of first time customers is advantageous because when retained they may join the loyal customer category. What is evident is that the relationship with OTA generates new customers for the company. This basically implies that this relationship is valuable in growing customer bases.

Also as noted from the case, although Accor’s management acknowledges that OTA eats too much the partnership is still beneficial. OTA has a long standing reputation in e-commerce and as a result its standing there is needed to maintain the relationship prior to Accor coming up with a more prolific and renowned e-commerce distribution platform.

How to manage the relationship

In order to manage the existing relationship between Accor and OTA, one of the plausible approaches is to ascertain that the new customers brought in by OTA are provided with effective services which in turn will make them loyal customers. The loyal customers will then make direct bookings from Accor’s website. The relationship will therefore solely be based on finding new customer acquisitions. This will reduce the conflicts that arise within the distribution channel. In most cases with the rise of e- distribution systems, conflicts often arise between hotels and e-wholesalers. A study conducted by Myung et al (2009) disclosed that the partnership between e- wholesalers is often a controversial one due to areas of conflict such as the need to control prices, similar customer bases and the development of direct web channels by hotels. In order manage the relationship between the two partners the role of OTA should precisely be cut out which is finding new customer acquisitions. This will assist in preventing further conflicts that may arise in the relationship.

Adopting an effective control mechanism is another viable way of managing the relationship between the two partners. This can be done by implementing a contractual control and ensuring that the requirements of the contract are maintained at all times. The contractual control is basically a mechanism through which the two parties clearly describe their rewards and responsibility in the distribution channel. Each party is therefore obligated to meet the requirements of the contract at all times.

In order to manage the relationship, there is also need to evade the existing pricing conflicts that may emerge between the two partners. As noted from the case Accor believes that OTA charges are very high. This basically implies that the price conflicts are bound to occur at some point. In order to effectively manage the relationship both parties should precisely outline the price that would cover the distribution cost in a fair manner.

Communication is another vital element of maintaining the relationship. In order to develop an effective distribution relationship the two partners should actually communicate. This will assist in problem identification and also finding amicable ways of resolving the problems. Although OTA has many other partners in the hospitality industry, it is vital for Accor to constantly indulge the agency in communication.

Question 2

What Room Key adds to the Distribution Strategy?

Room key was founded by a consortium of six hotel brands with the aim of offering both hotels and their guests’ alternative to third party booking services such as the online travel agencies (O.T.A’s)

Integrating room key to the distribution would actually increase the efficiency of direct booking. In most cases the direct bookings offered by the Accor website were a bit limited to the sense that only the loyal were able to make direct bookings more effectively. With the room key initiative even new customers from far regions.

Also Room key would also assist to capture shoppers or customers who were leaving the hotel brand without making any bookings. In most cases sometimes shoppers visit a site yet they do not make any sort of bookings. This actually accounts for 95% of visitors. Room key is therefore beneficial in intercepting this customers by rerouting them back to the brand. Such an application is therefore beneficial to Accor based on the fact that the earlier distribution channel do not facilitate the capturing of customers.

Room key would also be beneficial in expanding of business; with the advent of room key, Accor would have the ability to reach a wider, effective audience. The consortium has built a wide base for capturing customers this therefore expands the number of customers for the company.

Minimizing lost business is another benefit that can be derived from the Room key initiative. Customers are sometimes lost when the distribution challenge is not able to capture and maintain them. The Room key initiative has the potential to capture and also retain customers. The partners expressed the view that they were confident that the initiative had the potential to drive their business. Although they enjoyed a confident relationship with OTA, Room key would definitely provide a confident mix for the hoteliers. By improving direct bookings and also capturing lost customers, loss of business will be reduced therefore making the distribution strategy more efficient.

It can be stated that the Room key initiative will also be beneficial in price reduction. One of the essential factors is that of pricing. The Room key initiative intends to offer low prices. This therefore implies that it is more prolific than the high costs offered by OTA.

It can be stated that the partnership deal in Room key is actually controversial. As a result despite the benefits that can be derived Room key is not a good distribution partner. A key factor is based on the terms of partnership offered. The two options offered are be beneficial and at the same time detrimental. Becoming an equity partner which needed an upfront investment and providing an opportunity to share the profits is cheap but is not beneficial because the Room key initiative has not yet captured the market. Signing in the commercial partnership on the other hand is expensive. It can therefore be argued that Room key is not a good distribution partner.

Question 3

Accor should consider the equity partner option as compared to the commercial partner alternative. The first reason behind the selection of the equity partner option is the fact that Room key is gaining market dominance and customer preference over the traditional OTA’s. Even though becoming an equity partner requires Accor to pay an upfront sum to the tune of €10 million, the company has the opportunity of sharing in Room Key’s key profits. Accor should not become a commercial partner to Room Key since Accor would have to pay Room Key a higher commission on every booking that the company receives. In the long run, even though Accor does not have to incur the initial upfront investment under the commercial partner option, the increasing prevalence of Room Key in making online hotel bookings over the OTA’s implies that Accor will pay a comparatively larger sum following the increase in the number of hotel bookings facilitated by Room Key.

Since both options face similar costs such as communicating with new properties, development of new digital infrastructure and the changing of customer marketing messages, the equity partnership is the better option for the company. From the statement of Room key’s CEO, Davis, it is evident that Room Key has portrayed significant improvements in delivering value to the member brands. By July 2012, Room Key had in excess of 14 million unique visitors thereby confirming that it was delivering traffic to the websites of its equity partners. It is apparent that the more Room Key is able to increase traffic on the websites of its equity partners, the greater the returns realized by the partner brands. The increase in returns also emanate from the fact that the equity partners will be sharing the key profits realized by Room Key. It is interesting to note that Room Key’s monthly visits had surpassed 14 million in just 8 months.

The assumed 10% commission paid by Accor to Room Key in the event that Accor has decided to be an equity partner is the other better option as compared to the 15% commission that Accor would pay to Room Key in the event that it embraced the commercial partnership option. With the increasing number of customers, it is worth noting that Accor would require a limited amount of time to cover the upfront amount required to become an equity partner. However, if the company decides to adopt the commercial partner option, the firm will pay the 15% commission on all bookings facilitated by Room Key. At the end, it is apparent that the commercial partnership option would be more expensive than its equity partnership alternative. However, the partnership with Travelocity implied a different turning for both the commercial and equity partners. Apparently, the partnership opened the closed partnership loop by availing more options to the customers and reducing the successful bookings of the equity and commercial partners. In such a case, commercial partners would still pay higher commissions to Room Key in the event of a successful booking as compared to the equity partners.

However, in the case that Room Key opts to close its loop once again, it is apparent that Accor should consider the equity partnership option over its commercial partnership counterpart. The decision of Room Key to enter the Travelocity partnership targeted to improve its image rather than improve the returns realized by the member brands. Therefore, guaranteeing hefty returns on the part of the member brands requires the re-establishment of the closed loop to limit customer bookings to the hotel rooms offered by the member brands only. Before the decision of OTA’s to revise their commission rates, the lower commission offered by Room Key would still convince customers to place their bookings in the hotels of Room Key’s commercial and equity partners. Regardless of the decision of OTA’s to lower their rates, direct sales has turned out to be an increasing trend that has seen hotels focus on holding back their inventory. Consequently, there is greater likelihood that Room Key will continue to thrive for an extended period thereby guaranteeing profitability on its commercial and equity partners.

Question 4

In order for Room Key to be successful, it is imperative that the company should devote all its efforts towards increasing the value that it offers to its member brands. Towards achieving the objective, the first strategy is to shift to the closed loop strategy. Apparently, the company operated on the exit-traffic strategy that provided customers the last option of finding a suitable hotel at a time when the individual was pondering on leaving the webpage. However, it is also important to observe that approximately 90% of Room Key’s traffic of customers emanates from the sites of the founding brands. Therefore, regardless of the massive growth that the company is witnessing, it should endeavor to limit the cluster of companies to the founding hotels only. The long term success of Room Key also depends on its ability to enlarge the closed loop. Forming partnerships that aim at introducing other brands that attract huge customer traffic would also guarantee sustained growth for Room Key. The fact that only 2% of its visitors emanated from either natural or paid search implies that the company should concentrate on maintaining the cluster of the founding brands. With the advent of direct sales, Room Key should also offer comparatively lower rates that will convince the founding companies to continue using its services rather than deciding to invest in direct sales: an endeavor that requires the purchase of online infrastructure.

Towards achieving the objective, Room Key’s marketing strategy should focus on enhancing the value that it delivers to its member brands. Room Key’s decision of entering the Travelocity partnership implied that the firm did not target to limit the bookings to the founding member brands in the closed loop. On the other hand, the company wanted to realize as many bookings as possible even if the objective subjected the founding member brands to stiff competition from OTAs. In the event that Room Key continues with the strategy, then it is imperative for the company to charge commissions that are lower than the rates charged by OTAs. Moreover, the commission charged to member brands should be comparatively lower than the cost that the brand can incur in introducing direct sales or attracting traffic to the direct booking company websites. By so doing, Room Key will be able to retain the already existing bands as well as beat competition posed by OTAs. The 25% commission that OTAs charge their partners is higher than the 10% commission and approximately 15% commission that Room Key charges its equity and commercial partners respectively. Therefore, member brands prefer Room Key’s services to the services offered by OTAs due to the reduced commissions that the firm charges for its services.

The first way through which Accor can help Room Key to be successful entails the decision of the former firm to enter into any partnership with the latter company. Irrespective of the type of partnership; whether equity or commercial, the 10% and 15% commissions that Accor would be paying to Room Key implies an increase in Room key’s profitability. Moreover, the €10 million upfront money that Accor would pay to Room Key before becoming an equity partner is a plus in the earnings realized by the company. Apparently, there is a positive correlation between the earnings of a company and its successful performance. After entering the equity or commercial partnership with Room Key, Accor can also ensure Room Key’s success by maintaining the contract. By so doing, it is that Room Key would continue realizing returns from customers that book Accor’s hotel rooms. However, the decision of Accor to either withdraw from the contract or fail to enter into the contract implies that Room Key will not benefit from the bookings placed in the company. Finally, Accor should offer exceptional services to its customers to generate return traffic. When the customers return, they will follow the initial procedure of booking via Room Key to access the hotels of the company. In the process, Room Key will realize more commission from the placement of the bookings thereby remaining successful in the market.

Question 5

There are a number of areas that Accor should focus its digital efforts. Additional digital investments in property performance and guest experience will play a pivotal role towards enhancing Accor’s success in embracing the digital transformation. The implementation of POS systems with particular emphasis on guest check-in is one of the areas that require digitalization in the hospitality company. Accor could also implement the check-in capabilities on kiosks and mobile devices to enable guests to bypass the standard check-in procedure. The hotel would send a digital room key to its customers that intend to check in using the system. The POS system should also have the capability of using the lodging information provided by guests to analyze lodging preferences, past dining orders, prior purchases and buying habits (Intel Retail, 2013). By so doing, Accor would be able to provide better services and personalized options for its loyal customers.

Accor could also make an unlimited use of digital signs. Some of the known uses of digital signs include the display of directions and greetings, branding, information about travel updates, meeting schedules and weather. The use of digital signs would guarantee interactivity since it is easy to update the content and display HD video and graphics. Finally, Accor can also implement the cloud-based management of content to enhance the distribution of messages and content. The Intel Retail Client Manager can offer such services thereby enabling easy paid advertising, and the availing of the right information to the right individuals at the right time (Intel Retail, 2013).

The booking of hotels is the main part of the value chain that is ripe of intermediation. This explains the reason why Accor intends to hire the services of Room Key to attract customers to its website as well as enable them to book rooms. Using intermediaries at the stage of the value chain will increase the customer network of the company since online booking agents such as Room Key and OTAs have access to many customers. The fact that Accor owns a digital footprint that performs similar roles as the Room Key implies that the section requires disintermediation. The disintermediation process can entail the use of Room Key primarily for attracting customers to Accor’s website; after which the latter firm will take over the online booking process. By so doing, both firms will eliminate the duplication of roles. Following the allocation of the booking role to Accor, it is possible for both firms to negotiate on a possible reduction of the commission.

There are other intermediaries in the online booking of hotel rooms. Examples of the online intermediaries are Priceline, Expedia and HRS. Examples of Priceline sites include Agoda and Booking.com. Expedia sites include Venere and Hotels.com. Finally, HRS sites encompass Tiscover and Hotel.de (Schegg, 2014). Accor can use the firms as intermediaries in the online booking of rooms following the ability of the online booking sites to access a large network of global customers. Accor also has the option of hiring the services of traditional intermediaries such as tour operators and travel agencies. Accor can collaborate with online intermediaries by entering into either equity or commercial partnership with them. By so doing, the online intermediaries will attract online customers to Accor’s website thereby prompting them to book rooms within the hotel. The online firms may perform the dual roles of looking for guests and passing them through the booking exercise. Alternatively, Accor can opt to handle the booking exercise and leave the role of looking for guests to the online booking companies. The company can also collaborate with traditional intermediaries by leaving the role of guest hunting to the intermediaries. However, upon the arrival of the guests at the premises of the hotel, Accor would take the responsibility of booking the customers. Being a firm in the hospitality sector, Accor can only partner with the intermediaries instead of competing with them since even though both firms have overlapping roles at one point, their final objectives are different.