Taktikons Blog about Revenue Management

Taktikons Blog about Revenue Management

Revenue Management

In this blogg I aim to give a background on Revenue Management and Distribution. It discusses both organizational issues as well as lectures regarding Revenue Management and Distribution. Many of the blogs can be used as preparation to the Courses and Workshops in Revenue Management and Distribution that Taktikon organizes.

To end all discussions: There is no such thing as a billboard effect and direct bookings are most profitable for hotels

DistributionPosted by Oliver Geldner Sep 12, 2016 14:24:35

OTAs, metasearch, wholesalers and traditional travel agencies can be an important part of the mix, but they are no match for booking direct

Following the launch of book direct campaigns by a few of the major hotel brands, some articles have surfaced with unsubstantiated information questioning the value of the business through direct channels. Hospitality Upgrade sought the guidance of an industry expert to find out what the industry data actually shows.

Kalibri Labs, a Rockville, Md. based big data firm maintains a growing database from more than 25,000 hotels and tracks all bookings, revenues and customer acquisition costs with a history back to 2011.

Based on analysis provided by Kalibri Labs, direct hotel website bookings continue to be significantly more profitable than OTA bookings. The findings showed that direct bookings remain more profitable for the hotel industry — to the tune of 9 percent — and when factoring in ancillary spend, profitability can be almost 18 percent better. Costs that are considered for this analysis include commissions, transaction fees, loyalty fees, and any other direct channel costs.

On top of this, the acquisition costs for customers using direct channels decrease over time while those for OTA customers remain steady or may increase as commissions rise. Hotels essentially pay the same commissions every time a guest comes through an OTA; there is no reduction in cost when volume increases or guests come back. In contrast, as loyalty rosters grow, the overall marketing costs are reduced and the entire system becomes more efficient. The added advantage of direct engagement leads to improved relationships with guests.

The other factor regarding the OTA channel is that the presumed “billboard effect” benefit, touted by third parties to justify the high commission cost of their channels, has been shown to be a myth. The Online Travel Shopper’s Journey study published by the AH&LA Consumer Innovation Forum (to be released in June 2016 as Part I of Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry) will explore this in detail, but the key finding from the 2015 study is that there is only a slight likelihood (7 percent) that a consumer will visit an OTA and then return to the hotel website to book.

Further to this, early research by Kalibri Labs following the book direct initiatives reveals that when OTAs have “dimmed” hotels by removing photos and other content to de-emphasize their visibility, the hotel demand shifted to other channels, mainly direct ones, suggesting that the amount of incremental business through OTAs may be in fact less than originally thought. This raises the question of the value of paying a premium in commissions for business that will come anyway through other channels. In examining trade-offs more closely on the hotel side, Kalibri Labs reported, the higher net ADR suggests that although some loyalty guests who had previously paid full rates are taking advantage of the discounts, many are not. This metric will be carefully tracked as the campaigns are more fully deployed but this preliminary finding implies that the book direct programs may be shifting new customers into the loyalty programs rather than simply seeing trade-down pricing from existing customers.

Kalibri Labs advises that third-party business from OTAs, metasearch, wholesalers and traditional travel agencies can be an important part of the mix, but their report summarizes: striking the optimal balance between direct and indirect business sources will ultimately result in a hotel enjoying higher profit contribution, delivering better consumer experiences through higher levels of guest engagement, and yielding healthier economics for a hotel as a result of a diverse business base.

Article published by Hotelonline, May 23, 2016

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What hotels can expect when parity rules change

DistributionPosted by Oliver Geldner Sep 12, 2016 14:20:10

Just last, week The British House of Lords has joined the rank of countries such as Germany, Italy, France and Sweden in the battle for improved rate transparency, as it decided to launch an investigation on anti-competitive practices in the online travel market with focus on rate parity and ranking search results on OTA-sites.

In light of the changes in rate parity regulations that occurred during 2015 and the expected continuation of this development in 2016, Taktikon recently held a series of Forums in Copenhagen, Gothenburg and Stockholm to shed some light on the developments and analyze the impact rate parity will have on pricing and distribution. Our guest speakers came from OTAinsight, Bookingsuite and Triptease to share their data and expertise on the issue.

When looking at the emergence of OTAs and the entailing rate parity clauses, it is vital to understand that 10 - 15 years ago hotels were all in favour of the OTA business model as a means to earn extra revenues during low occupancy periods. What happened during the years of growth of these platforms, was that OTAs became experts in marketing their sites, generating traffic and above all converting visitors to bookers. OTAs use data driven decisions to adjust their user interface and booking processes to make the purchase easy for customers, and as long as they have both inventory and parity rates from their hotel partners, the OTAs are happy.

According to OTAinsight, Rate parity is beneficial for both the hotel and the OTA in markets where the hotel does not advertise or market directly, especially in view of the dilemma that Wholesale-sites as Amoma are prone to undercut both OTAs and the hotel’s own website rates (in certain countries up to 40% of the search incidents when going through Metasearch). So, when speaking parity, breaches occur not only between OTAs and the hotel web, and hotels therefore also have to evaluate the number and quality of their wholesale-agreements.

As alternative to maintaining rate parity, hotels in the USA and in Europe have introduced “member only rates”, where customers are enticed to book on the hotel’s booking site at a 5-15% discount when using a simple registration process. Hilton Hotels “stop klicking around”- campaign is using member only rates as a means to convince customers to stay on their booking site.

This trend has resulted in an interesting push back from the OTA sites, where hotels have lost visibility in ranking of the search results by being pushed to lower ranking slots. In other documented cases, the hotel’s images, descriptions and reviews have been removed from the search results, leaving only the hotel name and its rate on display. Hotels therefore need to be mindful of the consequences in offering lower rates on their website, be it “member rates” or discounts on limited room types or periods, as ranking or display penalties might be a consequence.

Another interesting development has been observed by rate transparency provider Triptease, namely that OTAs have been observed undercutting parity, if only by smaller margins. The causes for this were often relayed to testing, currency exchange rates, taxation levels, as well as poor extranet management by the hotels. This fact highlights the relevance of refined rate update software and interfaces allowing for consistency in the rates distributed by the hotel.
But it also underscores that OTAs will test and tweak rate displays to keep the customer on their page to complete the booking transaction, as the OTAs objective is to follow the customer journey from the first search instance to the final purchase in order to analyze buying behavior from A to Z.

In a recent study, Triptease found that 60% of customers prefer to book on the hotel website if the rate differential to an OTA is less than 6 EUR, highlighting the relevance of having a rate transparency widget on the hotel website, showing the competing channel’s rates in relation to the hotel offer.

A third consequence of changing rate parity regulations is the process of pricing hotel rooms not based on a rate grid or discounts, but rather looking at market demand and business segments as a metric to calculate the optimal price point. Data-centric pricing tools such as Bookingsuite can supply this information, thus enabling the conversion from static pricing into open and flexible pricing strategies.

To summarise:

With vanishing parity rules, hotels are in theory free to distribute any rate they want in different channels. This focus on steering rate distribution into the right channel for the hotel requires increased rate transparency and is agreeably the biggest change on the horizon. In consequence, hotels can expect a shift in the business share received from OTA’s directly to Metasearch sites who act as aggregators for different booking channels.
More differentiated rates in existing distribution channels will shift consumers away from the “best rate” promise every site guarantees these days to smarter search tools covering all rate offers available.
Pricing competition will continue to be a key driver of booking conversions and thus a greater level of elasticity in pricing is going to be required from hotels.

The question is not IF this will happen and when, but rather how well hotels are equipped for this switch of the status quo which is already well underway to create a new business reality.

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