Wednesday, September 27, 2006

Travolution@PhoCusWright Brussels - Who are you kidding?

All the hype over direct distribution was somewhat deflated during the first day of the PhoCusWright conference, as leading hoteliers admitted they don’t really know the true cost of pushing inventory through direct channels.

Earlier in the day, TravelCLICK had estimated the cost of direct distribution to be about one-third of the average GDS fee (including representatives’ fees) and a quarter of the price of OTAs.

But hotel delegates pointed out that the direct distribution costs, which TravelCLICK had estimated to be about USD$7.50, does not include the cost of building and maintaining a supplier’s own site, or the cost of paying a third party for top placement (eg Google, which some suppliers say can cost around €5, depending on the search term).

“We don’t know what the direct cost of distribution is, because we need to take into account so many different factors, such as marketing costs and incentives,” Kristie Goshow, group director, e-business development of Jumeirah told attendees during an afternoon panel.

“Let’s not kid ourselves, direct is not necessarily the cheapest option, [at least not initially].”

Tricia Holly Davis, freelance journalist


Tim Walters said...

Deflating hype is a noble cause. But short of the twin fallacies of acting as if direct distribution is free and acting as if distribution partners can be avoided altogether, there are a number of sound reasons for the, let’s say, intense interest of suppliers in direct distribution.

1. If the costs of direct distribution are hard to pin down, the costs of indirect often are not. Northwest Airlines paid $180 million in GDS fees in 2003; American paid $500 million in 2005. Even a small percentage of that will go a very long way toward building and maintaining a site.
2. When a supplier does invest in a direct distribution channel today, it can and should be a second-generation, “Travel 2.0” site. Whatever else that might mean, it at least designates that the technologies and services now available can support sites that are more engaging, inspiring, and persuasive; less likely to frustrate; and capable of delivering impressively higher conversion rates. When FatWire customer Mexicana Airlines launched their new site in mid-August, they immediately achieved mid-double-digit increases in online sales compared to previous week, and high-double-digit increases over the same week in 2005. (More information will be available in an upcoming case study.)
3. Even if the cost savings of direct distribution are negligible, the supplier derives the immense advantage of direct customer contact. A number of suppliers have told me that the ability to establish and nurture a customer relationship is so valuable that it would justify paying a premium over the costs of channel distribution.

Bart LePoole said...

Tricia I find it very interesting that you quote Kristie Goshow on the cost of the direct channel when so much of Kristie's presentation was on how much Jumeirah benefits from Customer Relationship Management via direct contact with the customer...

Perhaps you want to review the presentations via your MyPhocusWright login. ;-)