Liquid Inventory: Online Bookings and Distribution for Small Tourism Operators

We launched our new OM4 Forums today, and immediately got an excellent question. I’ll pararaphrase it as follows:

What options are there for generic booking services? What do they cost, and do they tie an operator down?

In a moment I’ll answer that question partially and refer to three solutions that are worth looking at - RoamFree, ChannelManager and FrontDesk/V3.

But first a bit of background (free free to skip ahead if you just want to see the solution information).

Jane and I have been actively discussing the issues assocated with inventory management and bookings. It has arisen on multiple occasions as we help tourism operators migrate to our web platform, or establish a new web presence.

No worries, I originally thought, a bit of research and we can write up a useful article explaining the options.

As if.

Jane and I have spoken to more than a few solution providers. Even with their assistance, it is difficult even to understand the options. Let alone explain the vast number of permutations in a way a small to medium tourism operator will find useful. Too much information is not helpful. Neither is too little.

There are many choices on offer, and I sympathise with tourism operators, as it is easy to be confused. In general, the information you need to know is not available on websites. And in some cases (like which distribution outlets are included with online distribution solutions), we just haven’t been able to get the information are after. The websites of the solution providers are not up to date. Speak to the right person, and you will get answers. But it pays to know what questions to ask.

Add in to the mix that the story is very different depending on whether you are looking at bookings for accommodation, tours, events or restaurants. Or if you are associated with a destination.

Why so much complexity? The main reason is because things are changing so fast. New technology is changing the tourism industry in a big way. Technologies that emerged some years ago are now available in commercial form. And the industry is consolidating, with larger providers buying up smaller ones and integrating their solutions.

What does this mean for small to medium tourism operators?

Two concepts that are very important to understand are Online Distribution and Liquid Inventory, as they are driving major changes in the industry.

Online Distribution. For accommodation providers, Distribution used to mean rooms being booked by customers through travel/booking agents, tour operators, travel wholesalers and visitor centres. Online distributors emerged as the web matured and they have grown rapidly, to the point where online distribution is a major part of the tourism industry.

Liquid Inventory. I haven’t found a generally accepted name for this yet, so I tend to use the term Liquid Inventory. Liquid Inventory (rooms) can be offered through multiple distribution outlets (such as major travel websites like wotif.com and xpedia.com), and bookings made through any one outlet reduce the available inventory for all outlets.

When many distribution outlets use and dynamically update the same available inventory, the inventory level is liquid. Industry wide inventory liquidity is definitely not with us yet. But the networks are growing at a breakneck pace, and existing liquid inventory networks are already a force to be reckoned with.

With online distribution widsespread but liquid inventory not readily available, many tourism operators had to get used to allocating their inventory across several channels. If inventory sold out in one channel the operator would have to de-allocate the others to avoid over booking. Or just deal with over booking situations if and when they arise (just look at the airlines).

When a small number of outlets were involved, this wasn’t such a problem for the tourist operator. But when you have thousands of online booking outlets accessible, ranging from very large to very small, the problem of over booking is a lot harder to deal with.

With Liquid Inventory, a single available inventory level for an operator is dynamically updated no matter where a booking comes from. This means an operator can use a far wider range of distribution options, without having to manually manage allocations/de-allocations or worry about over booking. With such a wide range of options available, it is possible to test new outlets and optimise for profitability, instead of relying on a few distributors to deliver the goods year in year out.

With online distribution going from strength to strength and liquid inventory options becoming accessible, big industry changes are afoot. There are many choices available right now, and there are going to be winners and losers.

Jane will be posting some more detailed information in the future. In the meantime, here is a model that may help you assess your options.

Breaking Down the Problem

The first stage is to break down the problem into manageable chunks. We are first of all focussing on small to medium accommodation providers. While Jane and I were interviewing Shane Crocket of V3 Leisure, he proposed a generic model for tourism operators that struck us as very useful. While Shane’s company is one of the solution providers we are looking at, we found the approach was indeed generic and useful for assessing the options, so we have stuck with it (and even extended it a bit).

Question 1: Size/Type of Business

How big are you and what kind of tourism operation do you run? Options are quite different depending on your size and type of business. Our focus is initially on small accommodation providers, from 1 room to 50 rooms.

Question 2: Inventory Management and Direct Bookings

How are you going to manage your inventory (how many rooms you have available to be booked) and process direct bookings (counter, phone, fax, email)? Decisions you make here may have a big impact on how efficiently you can run your business. Small operators might manage inventory and direct bookings with pen and paper or a spreadsheet.

There are also entry level inventory management solutions available from a number of providers that let you record inventory electronically, with total rooms, direct bookings and availability all accessible to you. The three that we have been focussing so far are:

• ChannelManager
• FrontDesk/V3
• RoamFree

Front Desk, RoamFree and ChannelManager are three entry level solutions worth looking at in this area, with RMS and Hireum relevant once room numbers go over 20, or strata title management is involved. There are other solution providers as well, this is not a complete list of options.

Question 3: Own Website Bookings

How will you take bookings from your own website? For small to medium operators, own site bookings can be very important.

Your options here start with simply providing a phone number or email contact form to take enquiries. Or you can accept payments using a number of online payment providers. In both situations, you have to update your inventory manually.

Front Desk, RoamFree and ChannelManager all provide you with a facility to put a link on your website that enables visitors to book and pay online. Costs vary, and there may be setup costs, payment gateway / merchant account costs as well as booking service commissions involved (sometimes these are reduced or even waived if bookings are taken on your own site). Some providers give you a link to put on your site, which takes visitors to a third party site.

Some collect a planned visit date and number of nights and then take you to the third party site to show availability. Some providers offer options that may reduce your costs in return for a longer term tie in (up to 24 months), while others support more casual options.

Some of the solution providers mentioned offer solutions for tours and events, as well as accommodation. It is worth assessing tour and event bookings carefully. In our experience, usability issues are yet to be fully resolved in this.

Check with providers for full details. You may find it useful to go through your own scenario, write down your understanding of what happens and how much it costs. Then get the solution provider to verify your written understanding is correct.

Question 4: Online Distribution

Once you have sorted out inventory, direct bookings and own-site bookings, consider your options for online distribution. That means, how can your inventory be offered for sale through other online distribution outlets. These might include websites like Wotif.com, Xpedia.com, Stayz.com or LastMinute.com, through visitor centres, automotive clubs or any number of third party websites.

Online distribution options are many and varied, and changing rapidly. Basically, once you have your inventory recorded in one of the online inventory managers, you can choose to make that inventory available through other distribution outlets.

Whether or not your inventory is allocated or liquid (dynamically updated) across outlets depends on the solution provider. There are different technical means of achieving liquid inventory, and you may need to decide what is practical and effective for your business.

The fees you pay for various distribution channels can range from around 2-3 percent to over 30%. The effectiveness of the channels can also vary widely - just because a site gets a lot of traffic does not mean it will deliver bookings for you.

Some channels are very popular with operators, some less so. The three main solutions I have mentioned in this article - FrontDesk/V3, RoamFree, and ChannelManager - are quite different in terms of what distibution outlets they offer access to, and how much this access costs.

This is probably the most confusing and complex aspect of online bookings and inventory management. Good luck, and please share your experiences with us in the OM4 Forums if you think it will help other operators make an informed choice.

Question 5: Affiliate Commissions

So far questions have been focussed on an operator getting bookings for their own inventory. But there are now many options for tourism operators (tours, attractions, destinations, accommodation, restaurant or otherwise) to convert website visitors into bookings in return for an affiliate commission.

Here is how that might work. You run a website that has information on attractions in your area. A website visitor clicks on a Check Availability link from your website, and then decides to book one of the accommodation options they find. As the source of the lead, you are paid a percentage of the booking amount.

Affiliate commissions are not important for every tourism operator. But if they are potentially relevant for your, then it may be worth assessing what affiliate commission options are available and they whether it is relevant for your business.

Of the three main solution providers mentioned in this article, only RoamFree has an affiilate programme. You do not have to have inventory with RoamFree to partipate in their affiliate programme (altough no doubt RoamFree will try to make this attractive if you do have your own inventory). There are also other affiliate programmes (the subject of other articles). If this area is important to you, do your research.

OM4Tourism Involvement.

OM4 and/or OM4Tourism do not have a financial relationship with any of the solutions or booking providers referred to in this article. We don’t take commissions on bookings, or participate in affiliate programmes with the booking providers referred to. Our objective is to help OM4Tourism clients integrate with the booking solution of their choice.

We have researched solutions with a number of service providers. We are happy to talk to more. We won’t accept any money for looking at booking solutions or for writing about them. Solution providers don’t get to edit what we write, although we may ask them to check our material for factual accuracy and point out if they think we have anything wrong.

We do want to help tourism operators understand what their options are in this important area, and to make an informed choice. But we are not offering advice or recommendations. If you want specific advice, we do know of tourism consultants who will review your business requirements and come up with advice for you. Let me know if you want contact details.

Summary

So much for a quick and easy article. We have started this process, and will continue to write about it for some time I imagine. I expect we will see more consolidation, and better solutions and offers appear.

We live in interesting times. Stay tuned for some additional posts from Jane about specific solutions.

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