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
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
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
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
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.
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.