What is channel dependence?
Channel dependence is an over-reliance on a single distribution channel to sell your products – whether that's a direct, secondary, or tertiary channel.
It consistently causes companies to make poor business decisions, and it’s one of the biggest pitfalls we see within travel marketing at Propellic today.
Examples of channel dependence within travel and tourism
You could be an activity operator working within 10 different destinations, and 90% of your bookings come from paid media or Google ads. That's channel dependence.
Alternatively, you might be a small airline, and 80% of your bookings come from either referred business or B2B partnerships. Same again, that's channel dependence.
In short, channel dependence is when too much of your business comes from too few revenue streams.
How do you know if you’re channel-dependent?
When considering whether you’re channel-dependent, there are five core components to look at:
- You over-concentrate on a single distribution channel (Booking.com or Viator, for instance).
- You don’t use paid media to retarget traffic coming through organic channels.
- You’re not distributing through both organic and paid channels.
- You aren’t maintaining both direct and third-party distribution channels.
- You don’t regularly work on unlocking new revenue channels (this is a big one).
1. Are you over-concentrating on a single distribution channel?
Over-concentration on a single distribution channel is the biggest red flag when identifying channel dependence. If more than 35% of your bookings, revenue, or customers come from one source, you’re on shaky ground!
Admittedly, it could be a lot worse – even at 35%, an operator would be in better shape than some of the companies we talk to at Propellic. We regularly hear from operators who talk of up to 80 or 90% of their business traction coming from one channel. That’s typically paid media such as Google Aads, and it’s dangerous because it’s an auction – and costs will increase.
For example, if a private equity- (or, more likely for this scenario, a venture capital-funded) organization enters your market that:
- doesn't focus too much on customer acquisition costs…
- isn’t worried so much about individual unit economics…
- is more concerned about long-term market share…
… then you’re in trouble from a channel standpoint on Google ads.
So, if 35% or more of your bookings, revenue, or customers come from one source, you're starting to become channel-dependent. Anything above that, and you're becoming very channel-dependent.
2. Are you losing your organic traffic and not retargeting it?
This point has less to do with channel dependency and more to do with channel diversity. The question is, are you losing organic traffic and not retargeting it?
If you have organic traffic sources, make sure you're retargeting them. That would get you a check rather than a cross on Propellic’s channel diversity scorecard!
3. Are you distributing through both organic and paid channels?
Distributing through both organic and inorganic – or paid – channels is an important way to avoid channel dependence.
You need to have an organic and a paid acquisition channel. It could be through partnerships, it could be referrals, it could be via word of mouth, or it could be digital acquisition on SEO, on paid media, or on social channels.
Whatever it may be, our message is to make sure you've got an organic and a paid distribution strategy. If you've got paid search and paid social as your two primary customer acquisition channels, you are failing this test.
4. Are you maintaining both direct and third-party distribution channels?
This point applies only to a couple of specific business formats, and concerns direct and third-party distribution. Let's say, for example, you're a tour operator. If you’re engaging solely in direct distribution or solely in third-party distribution (through an OTA like Viator), then you risk falling into channel dependence.
If you're engaging in both direct and third-party distribution, you're a much healthier company:
- On the direct distribution side, you have better control over your margins and your business.
- On the third-party distribution side, if your supplier-OTA relationship gets severed for any reason, your business closes overnight.
So, make sure you're distributing through both direct and third-party channels.
5. Do you consistently work on unlocking new revenue channels?
One of the biggest questions for travel companies in digital marketing, is how much time and effort to put into unlocking new revenue channels. Personally, I like to see 10% of the budget going to testing new channels.
Let’s say you've got a $200,000 monthly marketing budget. 10% – or $20,000 – of that budget should be spent on testing and unlocking new revenue channels. It could help you make the leap from $10 million to $50 million. Equally, it could help prevent you from falling from $10 million to $1 million.
To recap: our advice for avoiding channel dependence
So, to avoid the pitfalls of channel dependence:
- Make sure you're not over-concentrating on a single distribution channel.
- Make sure you're retargeting traffic that comes through organic channels, using paid media.
- Make sure you're distributing through both organic and paid channels.
- Make sure you've got both first- and third-party distribution channels.
- Finally, make sure you’re always working on unlocking new channels.
These steps will put you in a much stronger and healthier position – enabling you to survive and thrive in the competitive travel industry.
Thanks for reading!
- Brennen Bliss, CEO @ Propellic
