OTAs: weapons or traps?

11/07/16

In 2015, Expedia Group (owner of brands such as Hotels.com and Trivago) earned US $ 6.6 billion and invested 50% of it in media. Meantime, Priceline Group, owner of Booking.com, spent more than 30% of its $ 9.2 billion revenue in advertising. With so much investment in customer acquisition, it is natural that the OTAs commissioning margins keep increasing so that they can maintain their profit margins. Excessive dependency on intermediaries ends up favoring this kind of initiative, which could be a trap.

Online travel agencies are important distribution channels and that’s beyond questioning. What can be reviewed is the hotel’s stand when it comes to direct sales. About that, there are some points worth mentioning.

1. Retention > Acquisition

With so much investment in advertising, OTAs are excellent weapons for customer acquisition. Their power of penetration is huge, something that hotels are unlikely to achieve alone.

You must strategically use the data of guests that came from OTAs to keep them engaged. That’s the key to retention marketing and relationship. Now that the client knows our brand, how about dazzling them after the check-out so they come back via direct channel?

2. Would be rate parity good?

The cost of a room is the same regardless of the channel through which it is marketed. To maintain profit margins and ensure parity, what will happen to prices if hotels need to pay such a high commission to online agencies?

This way, to ensure the price of equity between channels, hotels need to up their prices and this could have serious consequences to customers and the market. It’s a trap.

Some time ago we talked about the unsustainability of the concept of rate parity as it is known today. The solution to the issue is individual pricing: giving each guest a specific rate, which will be shaped by factors such as loyalty, frequency, booking in advance and others. We’re talking about individualized Revenue Management supported by technology.

3. Who needs who?

The direct booking culture is still very recent for some players in the hotel industry, but it’s time to change. The direct channel needs to be strengthened and become the main source of bookings of the hotel.

What would the OTAs be if not for tourism products? The equation must be reversed: it is not the hotels that should depend on intermediaries. The relationship should be symbiotic, balanced.

4. The guest is the hotel’s. But what about the client?

Its inconceivable that a client who sleeps in a hotel bed thinks that bed belongs to Booking. Hoteliers have been taking the guest as their own as they enter the door when they should start the conversation before the arrival and keep it after check-out. The OTAs are important distribution channels and will continue to be, but they can not be the main channel.

The lodging experience is one of the denominators that will define the return (or not) of the client to the hotel. If we can be excellent at hosting, why not be excellent at bringing them back?

In short:

You know what separates medicine from poison? The answer also applies to the intermediation on the tourism industry. OTAs can be weapons or traps, depending on the dosage.

 

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