Myriads of OTA companies make money from a few sources, the largest of which is hotel reservations with 70% of its revenue coming from hoteliers! The strategy is simple—buy up a large number of hotel rooms at a steep discount and market the site as having the lowest price guaranteed. The main objective of an OTA is to render a platform where hotels can list their rooms and ensure there is a 100% occupancy for their rooms and in return they will get a huge commission and keep all the guest details with themselves instead of sharing with hotels, which again OTAs can reuse it for remarketing/retargeting. Back in the good-old days, online distribution was not really a high priority. In the earlier days, hotels sold to wholesalers, who sold those to a melange of tour operators who sold to travel agents and finally to travellers! The problem with this looks-so-simple system is the huge commission taken away by the OTAs and no access to guest details for future promotions and marketing.
The OTA Effect
Online visibility for your hotel! By listing on these websites’ list, the amount of potential customers that hotels can find out about their services is doubled. What actually happens, the guests never interact with hotel websites and in return hotels could never improve their brand relevancy, which is a great loss! The guests staying in a hotel have to understand that it is easier to book a hotel room directly via website rather than going through OTAs. A hotel guest can easily save up to 15% if they book a hotel directly and they can re-invest in something much better.
Actually, OTAs invest heavily in digital marketing and advertising activities to lure assortment of web users to their sites. This creates the popular Billboard Effect that works in OTA’s favour. Most travellers search accommodation by going through the huge list of hotel and homestay collection in an OTA website, this habit is shaped by the huge marketing effort done by OTAs throughout the years! That is why OTA brand is so well-known and acknowledge by travellers because it gives them options to choose the accommodation that is most suited to them. But that’s not the actual case!
As the numbers of merchant grow and OTA became increasingly dominant, they began to alter their business model! (Yeah, you read that right!) According to Hotelogix, melange of large hotels were offered lower booking commissions while smaller and more independent hotels were paying higher. The reason is larger hotels have more rooms to sell and can negotiate with OTA to lower their commission so that they allocate more rooms to sell on OTA platform. Besides that, the commission which is paid to the OTA by hotels will not remain forever, the higher the commission your hotel pay, the better ranking your hotel position will be in OTA website.
Independent hotels are particularly OTA-dependent! On average, more than 42% of room-nights for independent hotels are reserved via the online channel. Unfortunately, only 24% of these roomnights come via the hotel website, while more than 76% percent are made through OTAs.
Moreover, the OTA contract often stipulate that hotels can’t market to customers that booked directly with the OTA! Last year, Booking.com stated that they will no longer provide hotels with customer emails. To have a piece of customer information is crucially important for hotels as the best customer relationships come when you are able to engage with them sooner rather than saying-- it’s already too late. The customer experience started long before a traveller check-in to the hotel to create a memorable holiday experience. Losing the control of the customer’s data means losing the connection and relationship that is unique to hotels.
Few Giants Against OTAs
Hilton Worldwide: Hilton Hotel made sure the message was passed to the public by putting their video advertisement in front of 25 million viewers during the 2016 Grammy Awards. The company said the “Stop Clicking Around” campaign is its biggest yet in the company near-100-year history. The company said 1.6 million free nights went unearned in 2015 because of bookings made through third party sites. They aim to offer benefits such as lower price, free wifi, digital key, and points for those who book directly with them.
Marriott Hotel Chain: Marriott launched an entirely new campaign in 2016 called “It Pays To Book Direct”. The hotel chain has spent more than $1 million in 2016 in marketing this campaign, including having Youtube personality Grace Helbig to appear in their advertising video. The hotel’s ultimate aim is to influence users to book directly through their own hotel website instead of OTA to get better rates or benefits.
Starwood Hotels and Resorts: Starwood (parent company of St. Regis, Westin and Sheraton) stated in their own direct booking hotel website that the hotel will match any rates that are lower than their own website, as well as free internet and other benefits that are not offered if guest book through OTA or third party website to maintain or increase their hotel profit margin.
Why Direct Booking?
A direct hotel booking also contains something much more valuable than money – and that’s data. With an OTA booking, hotels aren’t passed along any first-party data, leaving the only chance to capture customer contact data at the point of sale. With OTA bookings, hotels lose money upfront as well as the long-term data equity of the consumer. That precious contact information is your hotel’s chance to build guest relationships with loyalty marketing. Understanding how to use this information to your advantage can significantly impact your direct bookings. Even if you pay for your room with cash on a third party site, some hotel programs might not credit your account with rewards points unless you book directly. Unlike airline frequent flier programs that will give you points on every flight, hotel policies are more stringent.
Even if you find a better deal or pay the same price on a third party site, not earning points can end up costing you money down the road, which we don’t want for obvious reasons! To earn loyalty points, you will want to book directly with the hotel. Also, hotels offer member-only rates that are a few dollars cheaper than the normal rate nightly rate. IHG Rewards Club, for instance, offers an exclusive member discount that is a few dollars cheaper than the non-member rate and can also be cheaper than the third party rate. The members only rate at the Holiday Inn Express Orlando at SeaWorld is $106.82 per night. The same room costs $109 for non-IHG members if booked directly and also on Priceline and Hotels.com.
Encourage Direct Hotel Bookings & Avoid OTAs
Have Your Own Website: 76% of online bookings happen through OTA. However, 50% of the internet users will visit the official hotel website after discovering them through OTA. This is where opportunity comes in! The cost of building a website is so much cheaper now and also easier to manage (via CMS platforms)! Besides that, a hotel can let a company handle the task by building your official hotel website complete with booking engine for free. The last thing you wanted to tell your loyal customers – “we don’t have a website, please book online at Booking.com” Right?
Render Benefits for Direct Booking: This method is to create an awareness to travellers by giving them an impression that booking through official hotel website will have something different compare to booking through OTA. Besides that, a guest who stayed at your hotel who received this the perks will leave positive comments on social media which will again influence other web users to book through the official website.
Optimize and Plan Your Strategies: By changing how you distribute your room inventories on OTAs (e.g. Agoda, Booking.com, Expedia) against your direct bookings will make your more profit. Experienced hotel revenue managers devise strategy and distribution plan to reduce distribution cost in long run. You can also use OTA commission calculator to identify hidden costs and opportunities for your hotel.
Run Online Campaigns: Major hotel chains like Marriott and Hilton have both funded marketing campaigns aimed directly at consumers to start educating them by telling them direct booking is better. Small and medium hotels should start doing the same. While small hotels with a very little budget cannot run advertisements on television and billboards, the cost of running digital marketing on Google is relatively cheap. Spending few thousands USD on Google Advertisement will reduce the reliance on OTA marketing in the long run.
Incentives for Guests: By giving special treatment for seasoned guest for your hotel, you are strengthening your relationship with a satisfied customer. Re-marketing to the same person who has already been to your hotel require less effort and less financial spending! Since only major hotel chains have a loyalty program, small and medium hotels can provide special promo code specifically target at returning guest to encourage them to come back to your hotel.
Maintain Strict Rate Parity: A principle once considered elementary now merits a reminder: All hotels must maintain their best available rates and last-room availability on their own websites, including desktop, mobile and tablet websites! A thorough rate parity strategy, including a Best Rate Guarantee (BRG) and easy-to-use BRG Claim Form, will encourage consumers to book direct. Many travel consumer surveys categorically show that the vast majority of travelers prefer to book and deal with the hotel directly, provided that rates and ease-of-booking are comparable between the hotel website and the OTAs. In addition, travelers know that all special requests (such as ADA rooms, higher floor, ocean view, etc.) must be confirmed by the hotel.
Steal the Deal with CRM Data: The data in your system is like gold. With the email addresses in your CRM, you can create a marketing loop of targeted loyalty offers based on the room type and amenities guest groups enjoyed. Guests are more likely to book again if the offers they receive are tailored to their likes as opposed to mass marketing emails. You can also use those same emails to build exact match display campaigns to influence your purchasing decision for future trips. To reach more guests like the ones you already have had who typically book OTA, you can create look-a-like models and use that data in remarketing display campaigns, even running those ads directly on the OTA sites themselves.
So, now you know how as a hotelier you are losing money by booking rooms with OTAs. One of the best way is to adapt to technology. Initially, it may be a fuss but in the long run you’ll be definitely benefited! Now, schedule a demo with us and we will tell how can you attain better sales and direct hotel bookings via AI-backed voice and chat-based services.