[MUSIC] Consumers were not always like Joe and Jim with so many options. Back in the 1950s there was originally just group and leisure. From the 50s through the 70s, with a rise in corporate America and global industrialization, more channels became available and became a much larger mean of dynamic business within hotels. Through the late 1980s, companies like Hilton International traditionally broke apart into four simple groups, business, leisure, group, and meeting. These initial reasons for segmentation were for marketing purposes. As we have seen in MOOC one on hotel distribution, over the course of the mid-90s to present, new distribution channels have been emerging faster than the hotel industry has been able to keep up. Back in the mid 90s, there was just a new need for general OTA segmentation to cater to the Expedias and Booking.coms that initially were coming on line enabling consumers to purchase via this new media. Since 2000 the increased presence of Hotel Tonight, Kayak, and other modern channels have made segmentation even more complex. Truly understanding your segmentation and your customers' behaviors will enable you to optimize pricing for the right customers at the right time. Previously, travelers booked directly with the hotels for stay brands as Nat explained in module one. Hotels compete with each other for the consumer and own the relationship directly with the consumer. Since then, there has been a bifurcation of travel brands and now there's a new class of travel brands called the booking brands. Prior to the mid-90s, consumers had no choice but to deal with fragmentation, meaning they needed to reach out independently to each of the stay brands, wholesalers, or human travel agent to be able to get a specific rate. These rates were very structured and siloed, so it was much more difficult to have transparency. In today's terms, hailing an Uber on their application is similar to how you used to go to Marriott directly and book a room. With car service today there is no marketplace like with the hotels. This marketplace effect, cause individual properties to begin to undercut each other's prices, and rate, in the marketplace as a whole then dropped. To continue the analogy, these would be like if Uber, that the drivers control their pricing independently, with drivers willing to barely profit if it means getting more customers. These new booking brands from Kayak to Hotel Tonight have opened up a marketplace of opportunity for the general consumer along with huge amounts of new responsibility for the hotels to manage from fragmentation of types of consumers, in addition to new commission and cost structures. As discussed in module one, the fragmentation of the hotel industry has caused hotel owners and operators to struggle managing these modern day distribution complexities. A new class has made it's way into the hospitality industry as booking brands. As we saw in MOOC one on hotel distribution, they have become the dominant point of entry for consumers. They are giant marketing engines presenting the stay brand hotels and organized in clear fashion for the consumers to make a selection. Many consumers pass through these brands before they decide where to stay. These booking brands are companies with massive power and high market caps such as Google, Expedia and Priceline. From a stay brand perspective, it's hard to compete with them, in terms of online marketing. Stay brands or hotels are very, very good at producing experiences, whereas the booking brands are very good at marketing and being the central point for information for all. You can see that in this chart, produced by & LA Customary Innovation Forum and University of Maryland's Smith School of Business, intermediaries have dominated market share in recent years and their dominance has only gone up over the years of the study. Based on that same study, you can see that over the past few years, consumers have been visiting hotelsbrand.com website less. As a matter of fact, 12% of consumers between 2012 and 2014 shifted from either visiting the hotel's website exclusively, or both the OTA and the hotel website over to strictly visiting an OTA. Throughout the rest of this presentation and the upcoming modules, you will be presented with some best practices to help a hotel shift the current consumer trends in a more positive direction. Collectively, lowering cost and shifting back market share to the hotel or hotel company. Unfortunately, this lack of management has caused the cost to acquire a customer to skyrocket. As we saw in MOOC one on hotel distribution, cost of acquisition is one of the most important aspects of distribution, revenue management, and segmentation. Because understanding your cost enables you to optimize the rate that you can charge and optimize your distribution strategy. Cost of acquisition are the costs associated to acquire a customer. If you were to use an OTA, you might pay out 20% commission to that OTA channel based on a prenegotiated agreement that you have with them. Managing acquisition costs, whether it's a sales and marketing team's expense associated with driving new customers to the property or a hotel's advertising expenses to direct customers online to its website having customers book for an OTA. Or the pay per click associated with using a management site. All of these are toll booth and have associated in highly varying cost to acquire customers. As you see in this graph, commissions within the hotel sector are rising at two times the rate of revenue growth. This came out of a hotel asset managers association study in 2013, detailing the fact that since 2009, commissions have been increasing at nearly 39% related to about 20% of total revenue increases during that time. Since more channels have continued to emerge, and costs haven't slowed down, it is more vital now, but ever to ensure your property segment's customers in the most appropriate fashion to target the most profitable customers.