Scratching your head over Direct vs OTAs booking war? Don’t…
First the overall:
I’ve landed in the Travel sector and particularly in the hotel chain’s scenario back in 2010, roughly 7 years ago.
Since the beginning of my journey in this amazing and hefty industry, I’ve increasingly come to realize genuine discomfort between ends of the same stick:
- On one hand, hotels and other types of lodging owners with their attempt to drive bigger volumes of direct business and thus increasing bottom line;
- On the other side, tour operators and agencies that still have an established business model and strive for continued growth and survival;
The recent changes and increased reach & influence of online channels in the travel booking path and consequently the rise of online giants as large scale online travel agencies (in the last decade we’ve moved from several online players to basically 2 huge ones, Expedia and Priceline/Booking), has only accentuated the distances by forcing them to compete in the same battleground.
Still, this is old news. Probably since the beginning of the hotel business back in biblical times, direct and third party bookings coexist (kind of) in a not very friendly and symbiotically mutual relationship.
Along the way several myths related with this troubled relation have been created and endured, more often due to popular believe, rather of proven correlation.
Honestly speaking, its easy to get why! Both from the hotel owners and from the third party perspective are lots of reasons to try and explain things their special and sometimes biased way, or as we Portuguese like to say: “pulling the ember to its sardine”…
Why direct bookings matter so much for hotels?
It’s no wonder that hotel owners prefer their customers booking directly. Besides the general proudly sensation you have, followed along with the “it’s my loyal customer” tingling, tons of reports from very reputable sources support the idea that direct business is better for hotels finances, especially relating them with CLTV (Customer Life Time Value).
Recent studies like this pass the idea that Direct Bookings are 8 to 19% more profitable than their 3rd party counterparts and despite most studies (like the above) are not the finest example of a well sustained and unbiased report, it sure sets the tone for the conversation.
To further consolidate the feeling, hotel marketing agencies, software developers, vendors, content providers and pretty much everyone else in the market –that isn’t an OTA or OTO, are also very interested in passing this idea along with their magic key to the very secret and almost unbelievable world of the “get customers without having to pay for them”.
The whole idea here is to get a bigger piece of the pie, both for hotels and their helpers alike, even if some “direct booking experts” are not as expert as they appear to be.
That being said, enough about hotels for now, and let’s move to third party providers aka. OTAs, Agencies, Operators or Travel Distributors:
Why third party providers worry when hotels get more direct bookings?
Do you really need an explanation here? Third parties don’t own hotels some make a living on your business. And if their revenue diminishes, they’ll have less money to reward stakeholders, they’ll need to cut back costs, personnel, marketing funds…you get the picture!!
(Added on 24th May, 2017) The above remark by no means implies that all travel agencies and/or tour operators make a living on hotels. Nevertheless, there are plenty who do.
Now for the hard stuff!
If you’re still reading this article (love your patience!), by the looks and so far, it may seem that every single booking coming from a third party provider (travel agency, OTA or traditional tour operator) is a waste of time and profit for the hotel.
Is this a good reasoning? The straight up answer is…No, because You are asking the WRONG question!
The question needs to be re-phrased and more closely related to this one:
Is this incremental revenue or not?
In the end of the day what really truly matters is if the revenue your hotel is getting from those different channels you struggle so much to contract and manage, is incremental to your business or if you can get it cheaper or at least more directly somewhere else.
For example: if you are setting up a negotiated package rate that will give you access to publish and advertise your hotel directly to an airline customer right after he completes his flight purchase, why not? How more incremental and timely can it be? You can fence your rates, while reaching out to a highly engaged, interested and relevant audience, and one that will probably have lower cancellation rates also.
Another example: a specialized online travel agent wants to feature your resort hotel on its hotel short list, and for that, asks for a negotiated net rate discounted around 25% off your flexible dynamic rates. Notice that this isn’t a generalist online travel agent, but a specialist, featuring probably only a handful of hotels within your destination. It’s hardly the same has having your hotel displayed in Booking.com, Expedia or even Trivago.
Now that we’ve established common grounds, let’s move to the juicy stuff about hotel direct booking strategies:
Question: What’s the best direct strategy for your hotel?
Answer: I have no idea. There’s no such thing has one size fit’s all in the hotel business, especially considering strategy! There are however, basic concepts that should be faced as basic “rule of thumb”.
- Always offer your best rates to your most loyal customers;
- Always offer a small extra to guests booking directly;
- Save your last rooms for your own direct booking channels (unless they get unsold repeatedly);
- When upgrading free of charge, do it first to guests that have booked directly;
- In big seasonal special offers, such has Summer Sales, January Sales or Reveillon Packages, always run a pre-buy sale to your loyal customers, offering them the chance to buy it sooner & cheaper from you;
- Your direct channels should always be the firsts to open for sales and the last to close availability;
- Keep high-demand rooms for your website and voice reservations (this is especially true if your suites & family rooms are within your best selling rooms);
Regardless of above, the answer is still really simple: The best direct booking strategy is the one that will get your hotel as much revenue as it possibly can, at a controlled cost, leaving a margin for other channels and providers to help you get the highly regarded and precious incremental revenue.
Don’t get me wrong, E-commerce Website Basics (below) must be assured, but their full potential will never be achieved without a good, adjusted to reality strategy:
Quick checklist on hotel website basics:
- A very fast, user-friendly and mobile ready website;
- An easy to use booking engine with secure payments;
- Direct integration with meta-search for increased reach;
- High-quality but real photos of your hotel assets;
- A relevant loyalty guests program;
- Make it easy for your guests to reach you (highlight contact information, have a click-to-call and up-to-date contact details);
- Fresh relevant content (it’s a good idea to host and update a niche blog that potential guests can relate to);
- Social media channel integrations (Facebook, Twitter, Instagram & Youtube)
- Display social validation signs (your Booking.com, Expedia and TripAdvisor guest review scores, TrustYou and Feefo ratings, just to name a few);
- Showcase trust signs from independent sources (Verisign, TrustE, Symantec, etc…);
- Your central reservations department need to answer phone calls and emails promptly, professionally and is a knowledgeable way,
- And needs to do it at least in as many languages as you have available on your website;
- Preferably 24 hrs a day, 7 days a week;
Deal breaker: putting in place a well thought-of strategy and then suddenly realizing that your hotel direct channels (brand website and voice reservations) are not working correctly.
After this, you’ll still need to take care of your web presence and digital marketing, especially for brand related searches, were OTAs usually dominate (with good reasons), sometimes even by high jacking brand keywords such as your exact hotel name.
When all that is done, it really comes down to strategy. And strategy depends on the type of business you’re running and the type of business you aim to run in the future. Let’s see one simple example:
- Hotels in Asset Light / Franchise Model – in this type of business, the brand is not the real owner of the property. Normally, the property owner pays a fee to use the brand and also needs to accept the brand standards. For the brand, the actual money comes from the fees and the services it provides to the property owner. Many times there’s just no real pressure on the brand side to evaluate the business at the profit (EBITDA) level.
In this case, the brand main interest is to have a good share of direct bookings, even if that means to sacrifice some of the profit of the hotel. That’s because the brand needs to be able to quickly prove value to any hotel owner that wants to be part of their brand chain.
The best way to do that is by assuring a big share of direct bookings and also a big database of loyalty customers, meaning that as soon as your booking engine is switched on within a new property, you’ll be able to immediately showcase the power of the brand and its loyalty users.
Don´t forget, your direct booking strategy will never be the same if you actually own hotels instead of just taking a franchise fee, but we will tackle that another day *)
About the “correct” direct booking strategy
Your job as an hotel direct sales manager, head of distribution or e-commerce director is not just to increase direct booking revenue by facilitating your customer’s decision to book directly with you, even if that’s in the job descriptions.
No! Your main goal must be to help your hotel or hotel chain to achieve the best possible financial indicator closer to EBITDA margin (earnings before interest, tax, depreciation and amortization). If you can’t access EBITDA in your company, you can probably get GOP (gross operating profits) and take management decisions with that KPI as a target.
So, the key here is to understand where you can leverage and push for more direct business, without scaring or undermining all the third party provider partners that can help you achieve incremental revenue.
It’s not just group, corporate or tour operator business. Even OTA business can be incremental if correctly approached!
4 great examples of how OTAs are incremental to your hotel business
1. IMPACT ON NATIVE SPEAKERS! Most of the times OTAs have a higher native language reach than brand websites.
Imagine that your hotel is part of a well-established boutique hotel brand, and features a complete and user-friendly website beautifully translated to English, Spanish, French, German and Portuguese (BR) languages. Pretty nice right?
That said, and overall agreeing that by offering those languages, you’d be reaching lots of qualified potential guests, you need also to consider that you’d be missing out on a big part of the available market!
Just naming a few: Mandarin (roughly 1Bn native speakers), Hindi (roughly 300 Million native speakers), Arabic (also roughly 300 Million native speakers) and so on…
According to a 2012 Harvard study, more than 70% of “consumers spend most or all of their time on websites in their own language.”
Not just that, but:
- “72.4% of consumers said they would be more likely to buy a product with information in their own language.”
- “56.2% of consumers said that the ability to obtain information in their own language is more important than price.”
What does this mean for your hotel?
By not providing your website users with their native language, you are automatically excluding a huge potential client base which is especially dramatic for hotels and resorts placed in highly visited / international destinations.
Also, if you present your customers with their native language, they’ll even consider paying a little more for the room. Guess price isn’t the only turn-on when it comes to travel!
OTAs, of course, are well known for having multi-language websites, with Booking.com being perhaps the leading and most perfect example of that approach, boasting a staggering 43 languages!
2. LOCAL CURRENCY! ASAP!!!
Every e-commerce manager that runs or has runed an international website knows that local currency is a key conversion factor Your customers will always prefer to buy from you using their local currency. They will feel way more comfortable, at home, less frightened on what might be charged to their credit cards.
By offering your customer with the option to pay and be credited in their local currency, you’re breaking an e-commerce big barrier.
With online travel bookings being a global adoption, it’s crucial to offer your guests with an easy to understand, free of charge-back, currency conversion or foreign transaction fees, payment method.
The same goes for settlement currencies. It’s very important to accept payments from your guest not just in your local currency, but in theirs also!
Guess who has stacks of currency options to choose from? Yes, OTAs! You’re getting good at this!!! Booking.com has even more currencies than it has languages: 51 of them to be exact!
3. REMEMBER OTAS ALSO HAVE LOYAL CUSTOMERS?
Yeap! You’re not the only one pushing for loyal repeat guests. OTAs have been doing that for ages now. You’re probably familiar with Genius rates from Booking.com or with Expedia’s Members Only Rates (got to love the Chrome extension).
Don’t get me wrong. I’m not saying that Genius rates and Member Only rates are not a bit shady, which they sometimes are. What I’m saying is that they can prove incremental, especially if you don’t forget to offer the same discounts to your loyal guests, just to prevent some of this rates to cannibalize on your guests.
The best strategy here is to fish in their pound as much as possible, without having them (OTAs) fishing on yours. Seems easy right!?!
4. DROP DEAD IS WORST THAN TERMINALLY ILL!
A bit of a shocker? Actually it isn’t. Regardless of the shocking words, drop dead is always worse than terminal illness. And walking slow is normally better than being stopped.
Of course paying 20, 25 or even 30% commission is really bad, because no matter how you twist it, by the end of the day you’re always cutting directly on your net profit.
However, paying commissions still beats not having guests at all. The trick is not how much commissions you are pay for incremental revenue, but how much commission you are paying for guests that would probably just end up booking directly with you (sometimes just because you’re one of the few choices…).
A personal experience on the above subject:
Some Pousadas are in high demand, highly competitive destinations such as the Algarve and Lisbon or Porto cities. This means that on those destinations, we need to have a very different commercial and marketing approach from when we’re selling a Pousada located on a low demand destination (like Pousadas of Queluz, Estremoz or Valença).
Having the same strategy and commercial strategy in Lisbon and in Estremoz (down in Alentejo, close to the Spain border), would only damage revenue and and eventually, bottom line results.
Understanding the do’s and don’ts, setting up the right strategy for your business (never make the big mistake of assuming there’s only one strategy for all business types) and implementing your direct booking strategy assertively and always considering your destination and business type, will effectively help your accommodation unit being considered within the ultra-competitive online travel environment.
Undoubtedly, there are still lots of different ways to improve your direct booking revenue, from brand bidding to remarketing, from correctly setting up your loyalty guests program up to ensure the correct distribution and pricing strategies and we’ll go there step by step!
Anyway, just don’t forget your hotel is not an island, and that probably all types of businesses are welcome when properly negotiated.
If in the meantime you have any doubts or comments, please feel free to drop a quick email and I’ll be happy to help as soon as possible!