Since the rise of online distribution sales in the early 2000s, new tools and systems have developed to enable accommodation operators to sell online. Continuously evolving revenue management strategies and dynamic pricing, including exclusive pricing on third-party platforms, result in persistent price variations across different sales channels.
Channel managers have become a handy solution for managing various third-party channels and avoiding discrepancies in availability and pricing, thereby helping to scale up online sales. Additionally, to uphold best price guarantees on proprietary channels, rate comparison widgets on hotel websites have proven useful in improving booking conversion rates.
Today’s available distribution solutions enable hotels to boost their online presence and sales capabilities across numerous markets and channels. Real-time updates on availability, rates, and inventory across diverse channels have not only expanded reach but also enhanced business performance, particularly with the implementation of dynamic pricing for effective demand management.
Dynamic Inventory: This is an approach where the physical hotel room is decoupled from the product being sold. Instead of a one-size-fits-all model, a single room can be marketed in various ways to different customer segments — think of it as a chameleon changing features to suit the environment.
Feature-Based Inventory: This method takes inventory management to a microscopic level, focusing on the individual attributes or 'features' of each room. Instead of broad categories, every characteristic of the room adds value and can be tailored to meet the specific desires of each customer.
While there have been notable advantages, this approach has also introduced new challenges. Accommodation providers categorize their inventory into standardized, static, and simplified groups. Such simplification is necessary to manage numerous variations without overwhelming customers with choices. However, this approach has compromised product positioning, personalization, and the automation of reservation processes. On top, third party channels impose standardized naming conventions to ensure comparability for guests. These generic labels frequently fail to encapsulate the distinctiveness of individual hotel rooms. For example, the term "standard room" might signify vastly different things between hotels, even if they share the same brand or locale.
Issues with Standardization:
· Oversimplification of product offerings
· Compromised product positioning and personalization
· Automation of reservation processes hindered
Towards a New Era: Accommodation Inventory Re-defined
While pricing models have shifted from static to dynamic, inventory management for accommodation businesses has yet to experience a similar level of innovation. We propose two groundbreaking concepts: 'dynamic inventory' and 'feature-based inventory,' which are set to deliver transformative changes and grant greater control to accommodation operators.
Concept 1: Dynamic Inventory
Dynamic inventory separates the tangible hotel room space from the actual product on offer, allowing hotels to market a single room in diverse ways. For instance, room #101 might be promoted as a Junior Suite, a Family Room, or a Day Office, with each variant being available across different sales channels at distinct prices and conditions. This concept mimics a good salesperson who would describe the same physical product, highlighting different features according to the potential buyer's needs.
Concept 2: Feature-based Inventory
Feature-based inventory emphasizes granular inventory management by adding actual attributes to each physical space unit, rather than relying on a simplified categorization of room units. It decomposes a physical space into multiple experience touchpoints.
The combination of these two concepts, dynamic and feature-based inventory, is the basis for powerful new AI-driven solutions for sales, revenue management, distribution and novel operational automation!
To understand the impact of redefining inventory management, consider how similar innovations have revolutionized other industries. Take IKEA, for instance, whose success can be partly attributed to its innovative flat-pack inventory system that significantly cuts costs while boosting efficiency and affordability.
Individualized Inventory Distribution - A Real-Life Example
Dynamic inventory and feature-based management give accommodation providers a revolutionary new method to overhaul their distribution—what we call 'individualized distribution.' This approach lets them showcase their rooms in many different ways across various sales channels. For example, a hotel could customize a room to be a 'budget-friendly single' on one website, while marketing the same room as a modern single with a view' on another, depending on the audience they’re targeting.
For instance, a leisure hotel in a secondary city in Germany, which has adopted this innovative approach, has begun offering 'Lucky Rooms' through selected Online Travel Agents (OTAs) while providing hyper-personalized options on direct channels. Initial outcomes indicate a notable enhancement in guest satisfaction across all channels. Guests who booked a 'Lucky Room' via an OTA were pleased because they anticipated the 'anything could happen' aspect of the 'Lucky Room' concept, while those who booked directly received precisely what they expected. At the same time, the average rate of room sales has increased since the Lucky Room was not the lowest-priced room product, and guests paid, on average, 20% higher rates for personalized room products through direct channels.
A new era for Distribution
The advantages of an individualized distribution are significant: hotel operators gain unprecedented control of their distribution mix and deeper insights into their inventory, paving the way for smart room assignments, more effective upselling and a richer digital experience for guests and the opportunity of providing a better incomparable booking experience through their direct channels.
Tech Stack Example – practicing Individualized Distribution
Explanation: rooms are clustered in a standard category, however there are differences between each room (be it because of unique furniture or because of room location, views or bedding). These same rooms can now be categorized dynamically and soled in different clusters to different distribution channels as well as directly through the hotel website, including as a single room with its features.
Combining dynamic inventory with dynamic pricing enables accommodation providers to implement novel distribution and brand positioning strategy along with fully automated operational reservation processes, giving power back for accommodation operators within the travel value chain.
The Advantages of Adopting Dynamic Inventory
To grasp the potential of a new, intelligent approach to inventory management, let's revisit the IKEA example: Owing to the flat-pack system, IKEA also practices low-touch operations, where customers pick up and assemble the products themselves, allowing IKEA to offer them at lower prices.
The associated benefits of dynamic inventory management also yield multiple advantages for accommodation operators, including:
1. Tailored booking experiences for the guests incentivizing direct channels
2. Elevated rates due to direct upselling and customized room offers
3. Automation of room assignments and optimization
The Power of Individualized Distribution, when combined with dynamic pricing, allows inventory products to be presented in a multitude of formats across various sales channels. Hotels gain the flexibility to create an extensive range of room product combinations, each tailored for specific channels or customer segments. This personalized approach, known as 'Individualized Distribution,' gives control back to operators, enabling them to strategically manage product distribution and, if preferred, prioritize direct channels.
Conclusion: The Future of Inventory Management
The potential benefits are immense, affording operators unmatched control and insight into their inventory dynamics, and establishing a foundation for intelligent room assignments, upselling, and the comprehensive digital guest journey.
Flexibility: Hotels can create a range of room product combinations.
Control: Operators can manage product distribution strategically.
Direct Channel Prioritization: The ability to focus on direct bookings if preferred.
As we step into this future, operators are not only optimizing their current operations but are also paving the way for innovations that could redefine the hospitality experience.
Your journey towards individualized distribution and smarter inventory management begins here. Dive deeper into these concepts with our educational videos and detailed blog posts, or start a conversation with our team to explore how these strategies can be tailored to your business's unique needs.