Pandox's Director of Distribution Breaks Down How to Analyze the True Cost of Distribution
If you don't have a good understanding of what your actual cost of distribution is for each channel, it's very hard to know is this the right decision or not. And then you continue, but you will obviously feel it on the bottom line. So that's a big focus for us.
Speaker 2:From Hotel Tech Report, it's Hotel Tech Insider, a show about the future of hotels and the technology that powers them.
Speaker 3:Today, we're speaking with Yans Ighlam, director of distribution at Pandox, a hotel ownership company with a portfolio of 160 branded and independent hotels across the Nordics and Continental Europe. In our conversation, we learn all about how Jens approaches channel management and distribution costs for his properties. You'll want to listen to this conversation and hear why direct bookings are not always better than 3rd party. Thanks so much for taking the time to speak with us. I'm curious first to learn more about your current role.
Speaker 3:And if you can tell me a bit about Pandox, what you do for the company, how you got into that role, we'll go from there.
Speaker 1:Yeah. To start with, my background is in revenue management. So I worked a few years for Accor before I joined Pandox, which is almost 8 or 9 years ago. In my current role, I'm in charge of distribution for the operations part of Pandox. Pandox owns about a 160 hotels in the Nordics and Continental Europe as well as UK.
Speaker 1:So, my role is pretty cool. I have loads of different types of hotels to work with. We have brands, both international and regional. We have independent hotels. We have city center in primary capital cities, we have in regional destinations as well.
Speaker 1:So let's say it's a big interesting mix of properties to work with. And in general, my big focus since since a few years has been to lead also the distribution cost strategy of DOTAL, which means managing cost of acquisition for all of the properties. So it's a big mix of managing the contact with the brands, the franchise, obviously, the hotels themselves or the management companies that are involved.
Speaker 3:So I'm curious to learn about what kinds of technology you use to help you manage your distribution operations. What would you say is the most critical technology partner you have, and why is it so critical?
Speaker 1:So I think, in general, it's a very customized approach. As a hotel owner, it pretty much goes hotel by hotel. We're not a chain. So every property has its specific needs, and that's kind of how we tailor also our strategy. In general, I think the core systems for, let's say, the hotel to be successful, the PMS, the CRS, and, let's say, the connection to channels and for that whole process to work smoothly is essential for any other system to work.
Speaker 1:So from, let's say, the higher level perspective, I think those systems, we choose very carefully. And in the end, those systems are also the ones that kind of chooses the ecosystem of the other system that needs an interface and needs to speak with, let's say, those. So they kind of puts us on a little path down of what we can use. So those are kind of from a high level from the hotel perspective important. In my role specifically, BI plays a big role to have real time data on the current situation of hotels of where they stand.
Speaker 1:So for instance, I keep close eye on the pacing and the performance of channels, also the visibility of those. One of the sad things I would say about how I currently work is that one of the main systems that I spend time in, probably not the most, is some of the extra nets of OTAs for instance because we still need to extract both information from there, which we don't get into our BI tools. But we also need to put into place tactics and we need to use some of the tools that are only available there, which might be one day or not. Currently, the way we have to work to achieve short term, let's say, revenue target, let's say we wanna reach a certain, level of revenue within a month, we need to put into a place to impact things. Maybe we need to do promotions.
Speaker 1:Maybe we need to do something to increase visibility. These are still things we need to do in the back end of those type of third party partners. So that's, I would say, from a sort of high level technology perspective, you hope, obviously, you could have everything in one place and manage it from there, but that's not really the case yet, specifically since we have a pretty sort of diverse portfolio of hotels.
Speaker 3:I'm interested to dig a little deeper on the tech stack component. How do you weigh the benefits and disadvantages of having unique tech stacks for many of your properties versus potentially bringing them all onto the same tech stack?
Speaker 1:That's kind of always the dilemma. Right? Like, there are a situation where we have sort of been with tech partners thinking kind of also then provide a suite of products, not only like across properties, but also let's say for one property, you could have technology providers that can provide, let's say, full suites. You have to decide you want kind of that specialized that one company that does one thing really, really well to do that. Let's say a booking engine and then another a partner that does, let's say, channel management really, really well.
Speaker 1:But then sort of you have to see, like, what's the uplift that you could expect by having that additional? I think that's the analysis we try to make is to say, okay. If we do decide to do the work, let's say, to have different providers, and let's say, rather than just few, like, what's the uplift that we can get from that? And if it's in an area where we know, okay, this will not be a game changer anyway, maybe this will be just like a a little bit of a small uplift and not have a huge impact overall. We might go kind of more with the standardization go down the standardization path.
Speaker 1:But I think in general, like, we try to make decisions based on where we see, okay, this is kind of a big area. Like, this will make a difference in terms of, let's say, revenue performance or even net revenue performance. And if we think it it will, then, yes, we will do that. But if they're small increments, so we kinda need to prioritize in that way. I think, like, specialists, I think, generally, when it comes to the agency part of things, I think hotels sometimes underestimate the actual cost of like what they're actually paying for that support.
Speaker 1:And that's a little bit of where the focus on distribution cost also comes in to understanding, like, your total cost of distribution. So it's easy to have, you know, an agency on retainer that provides, let's say, marketing, that provides branding, that provides digital marketing services, and then kind of seeing your potentially your brand dotcom revenue grow as a result. But if you don't keep track of what you're actually paying for, and it might have been the case that you would have been better off getting that revenues through other channels because it was just too costly. And I think if you don't have a good understanding of what your actual cost of distribution is for each channel, it's very hard to know, is this the right decision or not? And then you continue, but you will obviously feel it on the bottom line.
Speaker 1:So that's a big focus for us. Well, for many years, but even more now, we're moving on from a period where we have top line growth of double digits. Every year, we will not have that. At least in the last couple of years, we will probably not have that next year. And it also means that those the decisions on what we spend becomes more critical.
Speaker 1:Right? Because to give an example, we're doing revenue budgets now, and then we're factoring in all distribution costs. So we look at what, obviously, direct distribution costs like commission and transaction costs and, franchise fees to the brands, etcetera. So we calculate what our net is. And we were doing some budgets where we're seeing 3%, 4% uplift, but those hotels were actually not doing a net revenue growth because of the shift in channels and the amount that we were about to invest in sales and marketing to drive that revenue.
Speaker 1:So that's important to us to keep a very close eye on, like, what is this channel mix going to? What is it going to cost us? How much of the revenue that we think or that we will generate? How much of that are we gonna keep? So that's a big focus moving forward.
Speaker 3:Could you tell me a bit about how you approach distribution cost? What specific metrics are you looking at? How are you measuring it? What are your goals?
Speaker 1:In general, I would say, like, we have a very channel agnostic approach to how we set our business strategy. So it really doesn't matter to us whether we drive that business through an OTA, through GDS direct, or even if it's group business, as long as it drives the most net revenue. So we have a few different kind of guidelines that we follow, a few metrics that kinda points us in the direction of where we wanna go. So we look first at the direct acquisition cost, so what we call a channel yield. So we look at, okay, how much are we paying for a specific booking that we can really track down to say, okay, we know that a booking coming through GDS will cost us a pass through fee of $7, and we know that the commission to the agency is 10%.
Speaker 1:So things like that we keep track of. And then we also look at sales and marketing efficiency for all of our hotels. So we look at, okay, how much do we get back in net revenue for every euro spent? So the kind of our return on, say, total sales and marketing, and that includes payroll, that includes your cost of website, your booking engine, all your technology, your Google spend, etcetera.
Speaker 3:Are you looking at that on a reservation level? So are you attributing some of your website hosting fee to a reservation level?
Speaker 1:We have 2 buckets. So everything that we can allocate to reservations, certain things like a website hosting, is hard to allocate to a reservation. Like photography, we include, but it's hard to allocate to a booking. So that we have kind of our what we say is our indirect acquisition costs. We allocate to, let's say, the whole hotel.
Speaker 1:So when we put these 2 buckets of indirect and direct acquisition costs together, we get kind of the total picture, and we calculate a metric which we call net repar capture rate. So that's your RevPAR with markup for net rates, etcetera, divided by your net revPAR. So this shows us kind of the total distribution efficiency of the hotel. So that metric is kind of there. Also, when we set our goals for the year, we obviously aim always to see, okay, how can we grow net RevPAR?
Speaker 1:How can we get more net revenue? But we also then look at, okay, is this hotel going to be more efficient or less efficient than last year? And that obviously plays a pretty big role then in our estimations and in the budget process, whether we sort of were happy with the number or not.
Speaker 3:Is this metric something you're looking at only for direct reservations or are you calculating the same type of metric for third party bookings?
Speaker 1:For all. We do for all. So we have a channel. Every channel has its yield. So generally, OTA and then minor channels.
Speaker 1:We have brand.com with minor channel, metasearch, paid search, organic, etcetera. We have GDS per rate type. We look at Total Direct, of course, groups, negotiated accounts, etcetera, CRO, voice. So we have all that. And obviously that when we kicked off, I think 7 or 8 years ago, we did Excel based calculations because there was nothing to do this with.
Speaker 1:You needed like, there was no system to do it. Now since, I think, 5 or 6 years, we worked with a BI tool called GeoAnalytics, which has a distribution cost module, which makes this possible because it's not, it's too complex to calculate this yourself. So we have all our contracts, let's say, distribution contracts set up in the back, and then it calculates every day for us to give us a view. And that's kind of where I spend most of my time after they will take extra nets and sort of look at, okay, which channels are performing, which are not? Where are we spending a little bit too much?
Speaker 1:Where are we spending too little also happens. See, like, we can see, okay, maybe I see brand.com is not performing very well. And then if I see, okay, we have a very high yield, it might mean we haven't spent enough on Google Ads. So we try to balance the performance of the channels. Because normally we know that if we're not spending enough on brand.com, revenue tends to be lower, and then we're missing out on opportunity because we're probably getting that business through OTAs, which are more expensive.
Speaker 1:So that's kind of the balance. And I think in the end of this month, we're rolling out a second, kind of the second version of distribution costs where we hopefully will have even more granular detail into kind of where we stand at any point in time.
Speaker 3:What's the name of the system again that you use?
Speaker 1:GeoAnalytics. GeoAnalytics.
Speaker 3:How have you seen your distribution cost improve by using a system like this? What kinds of opportunities have you noticed for cost savings or more revenue growth on a particular channel? Do you have any examples to share?
Speaker 1:In the 1st years, I think the main optimization that you have because the fact that the landscape is complex. Right? Just because you know that a certain channel is cheaper than another, you're not able to kind of say, okay, I'm going to optimize and only drive brand.com or that this specific OTA because it's cheaper. I think more of the optimizations that we've been able to do is because we've been kind of smarter because we knew at any point in time, like what a certain channel costs us. Like for instance, we had an example of where one of our brands were changing the distribution for a certain channel at one of the franchise brands we were working with.
Speaker 1:So they were moving from kind of channel management to GDS connectivity. But we knew that for this particular tile, the pass through fee on GDS was really high. And even though the kind of gross percentage, you'll have a 2% lower commission, it would cost us tens of 1,000 of euros extra per year to make that switch. So it didn't make sense. Economically.
Speaker 1:It wouldn't present any additional revenue, but it would just cost us more. And I think just by now understanding and knowing that it's basically having the full picture, right, of costs. And so I think that is one thing. Another thing, of course, it allows us very also to be very grounded, specifically like investments and driving direct. Right?
Speaker 1:Because now we know very, very clearly, okay, this is our channel yield. Like, this is our overall distribution cost yield. This is how much we can spend. We can't spend more than that. Because if we do spend more than that, we'll end up doing unprofitable kind of investments.
Speaker 1:So I think overall, like, it gives us kind of always kind of a constant time on the pulse to see kind of, okay, where do we stand? Like, should we make this decision or not? So it's really kind of helping us to inform us on a relatively high level. Ideally, I mean, where do we want to go? We want to go to a place where revenue management systems take this into place dynamically.
Speaker 1:Right? I know there's, like, little bit of features around that can do some of that. The challenge is, the moment, even with legislation in the EU now kind of changing towards no penalization for hotels, which, let's say, don't provide rate parity, so that's normally shouldn't be allowed anymore. It's still really not a 100% the case, and I don't think a lot of hotels are yet comfortable having a lower rate direct because they know the consequence or the potential consequence even though but it's really fresh, so things might change. But the fact that this is always kind of in the back, it also means you cannot allow, you know, revenue management systems to go wild in terms of sending certain rates to certain more profitable channels.
Speaker 1:But, I mean, ideally, that's kind of the direction. Right? If we could one day be there where we had technology that kind of could make the most profitable decision. Because now we have revenue management systems, which sometimes optimizes top line. Right?
Speaker 1:Which is good. But as a hotel owner, you might be more interested in, let's say, the net revenue level of that.
Speaker 3:And another piece of data that it sounds like you are incorporating is some data from the OTA extranets. What data are you pulling out of there, and are there any modules in there that hoteliers should be paying attention to?
Speaker 1:So I think a lot of the especially for the independent hotels, visibility is is really critical, right, to kind of get the eyeballs, to get the volume in. So we keep close eye on how well positioned we are and you can get some information. There are some rates shoppers out there like Lighthouse. They provide some good data on your ranking, etcetera. So I think that's something we look at, although that data is not super dynamic either.
Speaker 1:It's like the sort of depends on where you're on the world and device type, etcetera. So that's some of the things we look at. But I think the most useful data is more on the market share side of things to compare yourself on because the growth historically has been really, really high. So many times, even if you're growing, you're really not getting enough. Right?
Speaker 1:I think what's important is to look over time, what has been your share in, let's say versus your peer group or in your market and what is it now to kind of see and then kind of look to see at what level am I happy in a certain period, like, where should I be? And then kind of try to move towards that. So I think that information is something that's hard to get into BI systems. I mean, we can slice and dice as much as we want our own data, but sometimes we need to understand kind of why are we not getting what we're getting. Is there more out there?
Speaker 1:And that's the data that we can get from there.
Speaker 3:Have you worked with or are you working with a channel management vendor or a PMS vendor that supports some of this functionality through their systems? I know there are some channel managers where, for example, you can activate a promotion on Booking.com through the channel manager without having to log in to the extranet. Is that something that you're doing?
Speaker 1:We've been doing some of that. So kind of the challenge is that they don't cover all of them. So even if you did did it in 1, then you would have to go into the other 2 that they don't support. And in general, the OTAs have done really well. At least the the 2 big OTAs is that they've done the extranet very user friendly, which some of the channel managers aren't.
Speaker 1:So it kind of has led to, I think, hotels and people on property that will be setting up the promotions. They will kind of prefer to use the more user friendly option. And then they kind of have the challenges that there's added new functionality kind of all the time, which are then not available through that. So it kind of also pushes you to use the extranet instead. So, yeah, I think it's there, and I think it's been good.
Speaker 1:I know some have been using it. And if you're using, let's say, only that promotion, I think, let's say, on those features, yeah, I think that's a good option.
Speaker 3:I'm curious to go back to the reporting piece then. So for 3rd party channels, you have a few different levers at play. You have the increased commission. You have rate discounts, marketing campaigns. How do you assess which one of those has been most impactful on your dashboard in GeoAnalytics?
Speaker 3:Does it show you the breakdown of you paid this many euros in extra commission, or you discounted this many euros through a promotion, does it show you at that level of granularity what the performance has been like?
Speaker 1:So we set up so if you do, for instance, a commission override, we set up that on kind of as a campaign override so we can see them what the overall net is. Then you have cost of discounting, which is really interesting topic because that's huge. Right? That is a completely different level. And if the absolute biggest cost of discounting, I think, for the majority of hotels are the member programs.
Speaker 1:Right? So booking a genius, superior rewards, also Hilton honors, you could also call or Radisson rewards or or IHG. You could also call cost of discounting, and those are the private rates or the member rates. Right? Which inevitably, since we look at net ADR, we kind of will see it.
Speaker 1:Right? Like, it's deducted then, and we'll be able to compare like for like. But I think what's interesting is that and this is, I think, one of the things that the industry, like, and technology provider needs to move in the direction of is we have these whether you're a brand or you're an independent, you're having a lot of private rates. And I would say you have more private rates than non private rates in your PMS. So you've paid then sort of that additional discount.
Speaker 1:And when we look at rate shopping and when we use revenue management systems, we look at bar rates and we look at public rates. So what do these revenue management systems do? They optimize based on also the pricing that they see, let's say, in your comp sets and what you're pricing. And they're looking then at the rates that are actually not booked. They're all public, so they're not there.
Speaker 1:And then you have the rate shoppers like Lighthouse. They don't provide the private rates. They provide some information of who does it, but they don't shop those rates. So what does the revenue manager do? They look at the rates that are available, and then they're like, but then I have to take out 10% because I know I have the private rates and then so they're kind of having to do their own little excel on the side.
Speaker 1:So that's obviously a lack of functionality that exists, and it impacts also a lot the pricing systems. Not only in terms of, like, the information that they give, but the optimization. Right? Like, if they don't look at the prices or the rates that are actually being booked, how can they then provide the right recommendation? So no.
Speaker 1:And, you know, the big brands and the bookings that are being made online, you're almost not able to book a rate that's not a private rate because you become a member and then you unlock it. Right? And the same for, I mean, for OTAs, you know, you have 70, 80% of your bookings are through Expedia Rewards or BookingUpcom Genius. So that is kind of a some kind of gap there, I think, in how we look at public pricing. And it's grown so fast, and they've become so big.
Speaker 1:And then you have also I read a skipped article that came out the other day now that also, you know, the brands are continuing to expand alliances and partnerships to can provide even more choice to members. So everybody's kinda working on it, right, to increase their customer base that will be booking those rates. So it's not going to stop. It's going to be more. And because we have this, I would say, fake loyalty sort of paywall or whatever you want to call it, which you need to go behind because public rates, you can't do it with public rates because it needs to be, which probably came from rate parity at some point in time that it need the public rates needed to be, you know, equal to not upset anyone.
Speaker 1:And now I think we're probably at a time where we need to find maybe a better way to do this, or the systems need to adapt to do things a little bit differently.
Speaker 3:We've talked quite a lot about the 2 big OTAs. Is there any new player, any new OTA that you think will be more popular in the next couple years?
Speaker 1:So a lot of well, in Europe, I think, for our properties, there's a lot of hope for Chinese travel to kind of rebound and come back to, let's say, 2019 levels. So I think trip is interesting. I mean, Agoda is already doing quite well. So those are probably ones we worked with before. In terms of new to kind of come and compete with Booking Expedia, there's nothing we're, we're expecting.
Speaker 1:I would say, I think in general, like that is coming back to sort of the, for a lot of our properties. Obviously, if you're a branded property, you have a lot of connectivity that's in place and it's pretty streamlined. If you're an independent hotel, a lot of hotels are kind of having this like, when we came back what we spoke about earlier about prioritizing the impact that it will have versus the time and effort to maintain another channel. It's not super time consuming once it's there, but it is another channel to always consider, especially if you're a dynamic hotel, which do campaigning and set up new rate plans and, you know, sort of always want to animate your visibility, then there's another partner to consider. And if you don't do it and you don't give it to them, like, what's the point?
Speaker 1:So I think in general, there's obviously I think a lot of hotels see the benefit in diversification and giving less leverage sort of to have less risk. And I totally appreciate that, and that's something we surely will discuss in budgeting process now and strategies for next year, so how we can diversify. But we many times come back to the fact, you know, k, like, what impact can we really expect here? There's quite some time that needs to be spent to set up and maintain. Unfortunately, many times it just doesn't make sense.
Speaker 1:It's not worth the effort, which is a bit sad. Ideally, I mean, and it's kind of a negative circle there because of hotels, things like that, and they don't sign up and have direct contracts with the smaller players, and nothing is going to change in that sense. So but, yeah, it's definitely I think it happens that we sign up sort of for local partners to kind of provide address a specific market. I think it makes a lot of sense to sort of drive a customer base that potentially the big ones will not reach. So
Speaker 3:Is there anything else that is on your wish list or anything else that you're hoping to add to the cost analysis or even a system that you're interested in implementing in the future?
Speaker 1:On the cost side, I mean, so what we've started looking at now is total revenue, and that makes sense. Right? We're very, very granular on room revenue, but it's only the natural step to look at total revenue. Also, I think for larger size properties with meeting and events, etcetera. Yeah, it needs to move in this direction.
Speaker 1:I think also technology like pricing systems, etcetera, needs to move in that direction. It's, let's say the natural path. So in our updates, we'll have more sort of granularity on that, hopefully. So I think that's one thing. And, yeah, I mean, I think the overall goal for us, which is important, which we noticed pretty quickly when we started having those conversation with hotels around commission costs and that it actually matters, you know, simple things like why does it matter if we get a booking through booking.com or brand.com, which still happens in hotels as I hear, hopefully not in hours, but to kind of get the methodology out, you know, like because what we have done to get these KPIs standardized and kind of known in hotels has taken a while.
Speaker 1:Right? We need to starting sort of with communication, explaining why are we doing this, like, what's NetRevPAR? I just learned RevPAR. Why are we looking at this now? Why it's important?
Speaker 1:And then starting to kind of emphasize it on and keeping it alive, constant reporting, talking about the strategies around implementing budgets, bonus plans, and things like that. So I think that work is ongoing and needs to continue. And I hope that now the new features that are coming up will also make the systems even more accessible, easier to use and understand. Because, unfortunately, it's relatively complex. It's not hard to understand, I think, but it's a relatively complex distribution landscape, you know, with third party partners and metasearch and, you know, where did that booking came in through?
Speaker 1:You know, it was made on some website you never heard, but it came into your system as a booking or com booking. So it it's just relatively complex landscape. And I think to simplify that through technology and and kind of breaking it down in an easy way to understand, hope that's also something we can achieve moving forward.
Speaker 3:Well, before we wrap up, one question I like to end the conversations with. Is there anything that you believe about hotel technology or, in your case, the distribution landscape that you think your peers or competitors would disagree with?
Speaker 1:Maybe that became obvious already, but I think one of the main things is that from my perspective, the sort of direct is always best is not correct. If you have the full picture and you're focused on the profitability of your business, then direct is not always best. Right? So I think that's kind of a mindset because there's has been over the years. Maybe it's become a little bit better.
Speaker 1:I'm not sure. But it over the years, there's been a lot of in the industry, there's always kind of that focus and that talk. And I think also because there's a lot of technology providers which are, of course, focused on that part of the business, so it's in their interest to say, you know, OTAs are evil and you should be driving your business direct. But sometimes if you if you're analytical and you look at the data and you have access to that information, it's very, very clear that it's not always the case.
Speaker 3:Well, I wanna thank you for your time.
Speaker 1:Thanks a lot.
Speaker 3:Take care. Thanks.
Speaker 1:Bye bye.
Speaker 2:That's all for today's episode. Thanks for listening to Hotel Tech Insider produced by Hotel Tech Report .com. Our goal with this podcast is to show you how the best in the business are leveraging technology to grow their properties and outperform the concept by using innovative digital tools and strategies. I encourage all of our listeners to go try at least one of these Successful digital transformation is all about consistent small experiments over a long period of time, so don't wait until tomorrow to try something new. Do you know a hotelier who would be great to feature on this show, or do you think that your story would bring a lot of value to our audience?
Speaker 2:Reach out to me directly on LinkedIn by searching for Jordan Hollander. For more episodes like this, follow Hotel Tech Insider on all major streaming platforms like Spotify and Apple Music.
