Direct vs Indirect Bookings – Yes or No and Why

direct vs intermediary bookings

In the travel industry, every time someone speaks about booking directly, you´re in for a good argument!

I have been in dozens of travel fairs, conferences and meetings and nothing fires up the room the most…

If you´re a hotel owner or manager, chances are you´re very pro direct bookings. On the other hand if you work for an intermediary, travel agency or tour operator, direct bookings are your worst enemy. After all, if 100% of the travel related bookings were direct, you´d be out of job, right?

In this argument, “we” from the travel industry business very often forget about the 3rd part in this equation: the customer!

 

Customer´s opinion on Direct vs Indirect Bookings

From a customer´s point of view, there´s no difference between booking directly or via 3rd parties. The difference lays somewhere else and can basically be summarized in 3 points:

  • Is it cheaper?
  • Is it safer?
  • Is it easier?

Let’s explain that a bit further:

Is it cheaper?

  • Is this the best deal I can find?
  • Are these the best conditions I can find? Refundable rates are way better than non-refundable rates on account of flexibility, and a rate including a free upgrade is always better than a normal rate even if price is the same between them.
  • Are there taxes, hidden fees or other non-accounted expenses I need to worry about?

 

Is it safer?

  • Will I get tons of spam after submitting my personal information?
  • What about credit card details? Is my credit card safe with them?
  • Are they established and well known or shady, obscure, without references?

 

Is it easier?

  • Is the information accessible in my native language?
  • Do they present rates in my local coin?
  • Can I easily access information to decide what/why to book?
  • Is it easy to book in just a few steps?
  • If something happens, will I have a hard time solving my problem(s)?

 

Being able to acceptably satisfying the answers above is what really matters to the end customer. Knowing if they´re booking directly your hotel, tour, cruise or holiday package isn’t the customer primal concern!

 

Why should you care from where your customer comes from?

The 3rd party side is self-explanatory: if people book everything directly you´re out of business! From the business owners the perspective is actually not very different.

The true is that more often than it should, indirect bookings threaten your business.

If you don´t take the appropriate time and effort to manage your finances and pay close attention to your bottom line, very often your CAC or Customer Acquisition Cost (commissions payed to an intermediary are exactly that) will rise very fast.

Take for example the hotel industry:

In Europe, where independent hotels have the majority of the market, it´s not uncommon to see intermediaries asking for as much has 30-35% on your gross sales.

This means that for every customer they send to your hotel or accommodation unit, they´ll charge you 30 to 35%! Basically they´re using a customer acquisition model to charge you for customers they thrown at your door.

 

Hotel industry has one of the highest customer acquisition costs across all regulated industries Worldwide

And in America – although hotel chains have a much higher market quota, 20-25% commissions are very usual. In fact, until recently, Expedia, a very well know Online Travel Agency, was known as “Mr. Quarter” in a clear allusion to they´re breathtaking 25% commission cost on gross rates.

Take that into account and the fact that lots of hotels have operating costs of 40-50% before EBITDA (Earnings Before Interests, Taxes, Depreciation and Amortization), and those 20 to 35% on commissions can hit you exactly where it hurts the most, on your bottom line / net earnings!

 

This sets the tone to answer the above question: Why should you care from where your customer comes from?

Answer: You should care because of its effect on your business. The more you pay to acquire a customer, the less your net earnings. The less your net earnings, the harder for you to pay better salaries, to improve your product / service quality and last but not least, your shareholders.

 

What about tomorrow?

Stop and think for a second. Can you say the customer is yours when:

  • He/she pays to another entity and not you?
  • He/she is enrolled is someone else’s loyalty program?
  • You don´t even have they´re complete personal information making it very hard to reach them directly?

Even grimmer than the sky rocket customer acquisition costs, is the possibility of entirely losing the contact with “your” customer.

A customer acquisition cost isn’t supposed to be a fixed charge every time a customer walks in your door. It´s exactly the opposite! When you acquire a customer and ponder on customer acquisition costs you should always consider it´s lifetime value.

 

Let’s run some numbers here:

Imagine that your direct marketing campaigns have a CAC of 20% every time they first pull a customer for. And just to simplify things, lets suppose that the average customer spending is 100€ every time he stays with you. And the average life time of your customer is 2 years (on purpose way below average), on which he repeats his stays three times a year.

This means that for the first time he stays with you, you´ll have 20€ of CAC (100€ * 20%). It´s unarguably high, but wait because it gets better.

Since on average your costumer life time is 2 years, and he repeats his stay three times a year, his simple lifetime customer value for your business his 580€ (table 1). Even if you attribute and additional average 6% of cost per booking due to operational costs (website costs, call center costs, etc…), you´re looking to a customer that is worth 544€ net out of 600€ gross values (table 2). The same customer via a 3rd party would cost you 20€ per booking, accounting for 120€ in commission, and a net worth of 480€ by the end of its lifetime value (table 3).

Table 1 – Simple Customer Lifetime Value

Direct Bookings– Simple Customer Lifetime Value 

Table 2 – Customer Lifetime Value with Operation Costs included

Direct Bookings – Customer Lifetime Value with Operation Costs included

Table 3 – Customer Lifetime Value via 3rd parties with 20% commission

Indirect Bookings – Customer Lifetime Value via 3rd parties with 20% commission

 

This very simple exercise means that on this example, per customer (and using a very scarce average customer lifetime in years), you´d get an extra +13,3% (+64€) if he booked directly with you and not via an OTA.

If you were to multiply this by 1.000 customers, it would be worth an extra +64.000€…well, you get the idea!

No wonder hotel chains such has Hilton Worldwide setup digital campaigns enticing the customer to book online directly with them and stop wandering around clicking in other websites (it´s fair to assume they´re aiming Expedia and Priceline group):

 

But the scariest part about this is that there is no way to calculate lifetime value with a 3rd party!

Remember that the customer is not directly engaged with you on the booking process. He / She is engaged with the travel agent or the tour operator and they can easily present them with different hotel choices at their will or interest.

 

Why should this also matter for the customer?

On a cold analysis, this normally wouldn’t matter for the end customer. They normally seek the best rates (searching rates online is easier then ever with Trivago, Kayak, TripAdvisor and others), and as long as they have confidence and easy access to book, it´s the business (in this example the Hotel) problem…right? NO!!!

If a business or industry is not profitable, guess what normally happens to rates? Sometimes they tend to go up and make up for the losses. Other times, business keep low rates but make up by laying off employees and/or delivering bad service and product…which eventually always reflects negatively on the end customer.

Even from a customer´s perspective, its better to have a healthy thriving industry.

 

Does this mean that there is no space for intermediate or indirect bookings?

No, there is. Most of the times 3rd parties thrive from the lack of experts on the business side. This is especially true and visible with the online business and is always evolving marketing approaches, but we´ll tackle that on another article. In the meantime you can read this article about increasing online sales.

 

Cheers,

Rui

 

Updated 18.02.2016

Email Marketing Best Practices in 2016

woman sending email and buying online

2016 is here! New year, New life, New best practices!!!

Email marketing is getting harder by the second, imagine that by the year!

With this New Year of 2016, I´ve took the time to write the biggest RED FLAG´s of email marketing practices.

I like to keep it simple & clean, so I´ll just focus on 5 major issues:

  • Subject Lines
  • Content & Copywriting
  • Segmentation
  • Frequency
  • Mobile everything

So, let´s start with the first:

Subject Lines you should not use!

We all want to be edgy, new, and futuristic. Deep down, to differentiate from the herd…right?

Sure, but your Picasso vein has a time and place and maybe (just maybe…) your newsletter subject line isn´t the right place to put it to a test.

Remember your subscriber’s aren´t your childhood friends. They´re most likely individuals that share some common interest with you but only to a certain point so, refrain from sending shady, obscure, ironic subject lines.

Keep it professional. Explain exactly what you´re selling / advertising / communicating and do that with courtesy. There are several words you should not use, here are some of them…

Avoid using:

  • Buy Cheaper, Huge Discount, $ Off,
  • Bargains, Offer, Cheap, Sale, Stock-off and similar discount-related terms
  • $, €, %, !!! or any other punctuation
  • Invest, Investment, Funds, Cash,
  • Affordable, Save, Trust fund,
  • Credit, Money, Loan and similar
  • Ads, Spam, Junk, Traffic, MLM, Multi Level,
  • SEO, Search Engine, Increase, Freemium and similar marketing-related terms
  • Hidden, Password, Stop, Success and similar generical terms
  • All adult-oriented terms
  • Several pharmaceutical terms
  • Several medical terms
  • Urgency terms
  • Everything free-related

Content & Copywriting

Are you too lazy to write your own amazing and original content?

Great! Stop trying to have a website or blog then…

If you´re copying what someone else has written, why should someone go to you and not rather go to the original content instead?

This goes for content in webpages, articles, opinions and communication channels such as your email marketing campaigns.

Don´t be one more of the same. Be yourself and for sure, you´ll find YOUR audience. If you copy another website, another newsletter, you´re asking to get out of business fast because there´s nothing special about you to offer your subscribers / customers.

Segment, Segment…Segment!

For the content sake, don´t send everything to everyone!

We´re not all yellow and we sure as hell don´t all love yellow, so please don´t shove yellow emails down your customer´s inbox, assuming every single subscriber in your email database loves the same thing.

One easy way to stop doing this and really adding value is by simply adding subscribing options whenever someone decides to subscribe your newsletter.

Eg. Subscribe our newsletter by clicking one or more of the following:

  • News & Stories
  • Online Marketing
  • Paid Search
  • Social Media
  • All the above

This will help you understand which customer is interested in what and then deliver the relevant and more engaging content to its rightful recipient.

Frequency: too much is too bad…

Simply because someone loves chocolate cake, that doesn´t mean he or she would eat chocolate cake every single day of the week, don´t you agree?

Now that you establish that you have readers interested in your content – why else would they subscribe – setup the standards of communication.

Speaking for experience, even if you love a specific topic, that doesn´t mean you want to receive daily or even weekly emails about it.

Give you readers a chance to choose. Just set up a simple but very effective option on subscription:

  • Daily digest (newsletter sent once a day)
  • Weekly digest (newsletter sent once a week)
  • Monthly digest (newsletter sent once a month)
  • Hit me with everything you got (for fans @ our disclosure)

Mobile…Everything

Is there any doubt that 2015 was the year of mobile?

Back in October 2015 Google announced that mobile searches had finally surpassed desktop searches. If literally everyone is using a mobile device to access data, why should you keep optimizing just for desktop?

Ten years ago there was no such thing has a smartphone or a tablet, but they´re no part of our life an most important, our communication habits. The hours of day we access data with it, the type of usage and data we consume through it are of the utmost importance for all type of business. This is remarkably truer and doing nothing is not an option…

Earlier in 2015 Google released a new algorithm change that many quickly named as Mobilegeddon (mix between Mobile and Armageddon). It was basically a mobile friendly update that showed the world the importance Google attributes to a good, mobile friendly website.

What is true for websites applies at the same level to your email marketing campaigns. Chances are a little over 50% of your overall email traffic will be coming from mobile devices, so for me it´s a no-brainer. Hope you feel the same!

Not sure your website is mobile friendly? Check here!

Want to check if your newsletter is mobile ready? Check Litmus software.

 

To conclude

This is it! I´m pretty sure you can find tons of information related to email marketing procedures, but I´m just not in the mood for big, hard to read articles.

We will later talk about deeper levels of segmentation, like Remarketing associated with email marketing, and the use of less or more images or text within the email body.

Also take in consideration that Spam laws are similar from one country / continent to another, but simple tweaks in the law can make a very big difference so be sure to read all applying laws in your case.

Just to be sure, you can also check these useful links:

Definition of Spam

European Union Anti-Spam Laws

United States Anti-Spam Laws

Good Jobs– What qualities should you look for?

Good Quality Job
Looking for a quality job? Unscramble the puzzle!

This is a question that undoubtedly every one asks itself at least once in it´s life time. And even do it´s frequently asked everywhere in the world, since work / job conditions vary allot from one country or from one culture to another, how can we setup standards that will allow us to say cross nations: That´s a Great Job!

The OECD (Organization for Economic Co-operation and Development) gives us the answers. Good quality jobs help people:

  • Develop their skills,
  • Fulfil their ambitions,
  • Make them feel useful in society,

Benefits of having a quality job

People who hold quality jobs are generally healthier, meaning they´re more productive contributing to an enhanced performance. That´s easy to understand since life is made of balance and if you have it at work, you´ll be closer to achieve it in your personal life as well.

How to compare job quality

OECD has developed comparable measures of job quality in order to correctly compare diferente jobs, in diferente industries across the world. They do this by looking at the individual experience of people at work.

These measures focus on 3 main areas and their outcome for workers:

  • Earning quality: How does being employed contributes to material living standards?
  • Labour market security: Is there a high risk of unemployment? And how about the economic consequences of being laid off?
  • Working environment: How much pressure does the work involve? How much control people have over the tasks they perform?)

Other important metrics involve work time arrangements, work place relationships, opportunities for learning and work vs life balance.

Country wise, has expected, job quality varies dramatically between countries. For exemple in the EU (European Union), Germany, Finland and Denmark are normally associated with high job quality. On the other hand, Greece, Estonia and Hungary are on the low end of job quality, at least when comparing them within the EU.

And what about within groups of workers? Youth and unskilled (unqualified) workers tend to have worst job quality when comparing with older, more qualified workers.

Man normally get paid higher (still…) then women, but actually women are the one´s enjoying better work environment.

One other very important aspect of job quality it´s a career prospect, being able to see a future move to a better job position.

Also, being stuck in a low quality job right in the beginning of the work career affects long-term prospects of future earnings, working conditions and subsequently a future quality job expectation.

Challenges ahead

Low unemployment rates shouldn´t mean low quality jobs just for the sake of creating jobs. The challenge here is how can a Nation create not just more jobs, but better jobs.

This can be specially challenging in countries whose economics have been severely damaged by crisis in recent years, and still struggling to effectively increasing their economy.

On a personal note

Developing our skills, being hungry to learn and asking ourselves “what is this useful for?” is the best way to keep evolving has humans.  If you evolve you´ll naturally eager for new exciting opportunities and eventually they´ll catch up with you.

So my personal insight is:

NEVER STOP LEARNING

To see the OECD movie about job quality:

[youtube https://www.youtube.com/watch?v=kRtBgGE5kQw&w=560&h=315]

To see the full OECD Quality Jobs Database: http://stats.oecd.org/Index.aspx?DataSetCode=JOBQ

The 80´s: Major Tom style!

I´ve grew up with David Bowie and this song, especially after witnessing live the explosion of the Challenger space shuttle in 1986, January 28th.

That flight had several peculiarities but the one I remember the most was the presence of a young teacher, Christa McAuliffe, the very first civilian to ever fly on to space. Chosen for more than 11.000 civil applications, she was a solid inspiration for all those that dreamed the ultimate dream: travelling to space.

You need to remember that the 80´s were the “travel to space” Era:

The epic Star Wars franchise by George Lucas premiered in 1977, with the episode A New Hope, followed by The Empire Strikes Back in 1980 and Return of the Jedi in 1983.

Star Trek movies, another epic franchise, first debuted in 1979 with Star Trek: The Motion Picture, followed by Star Trek II: The Wrath of Khan in 1982 and Star Trek III: The Search for Spock in 1984.

And who can forget about Space: 1999, the cult british Sci Fi TV series with the unforgettable Martin Landau and Catherine Schell and the lovely and exquisite Maya.

For all of this, David Bowie Major Tom´s is a must! It reminds me of a lone gone Era where everything was mysterious, the year 2000 a bigger mistery and dreams were still bigger than life – has they should always.

ENJOY: