A battle between direct bookings and OTAs (Online Travel Agents) will continue even after the virus situation calms down. I suspect that OTAs will put more pressure on room rates to get quick business to sustain themselves. It sounds like a bad deal (which it is) but there are a quick formula for hotels to consider when they should use OTAs.
One thing that we need to be on the same page first is that driving direct bookings is not free, far from it. Hotels have to pay for marketing resources as well as different types of ads, content creation, and display channels. This ‘cost of sales’ is a key determination of this post. However, direct bookings allow hotels to capture guest details for longer term marketing or loyalty investment.
- If cost of sales is less than OTAs commission (< 20% on average) – no brainer, spend your marketing money to drive direct bookings.
- If cost of sales equals to OTAs commission (about 20%) – still invest in driving direct bookings. You will get guest’s contact details and consent for your future marketing.
- If cost of sales is greater than OTAs commission (> 20% on average) – shift your investment to OTAs is not a bad idea. What kinds of situations under this conditions?
- Your hotel is in a highly saturated market. Customers just search to get the best deal. Investing in display ads might cost you up to 50%-60% range.
- Your hotel is located in a low traffic market. It is likely that you have to spend a lot of money to just get customer’s attention that you exist.
- Your hotel has to compete in the prime advertising space. if your hotel is located among big names with deep marketing pocket, OTAs could be your best friend.
There is no easy formula to work with OTAs. They do do a good job in many areas. They also invest heavily in technologies that many hotels cannot match. But, they suffer from the business environment change as well. We just need to be smart to learn and try new things.
I had an interesting discussion with one of my hotel colleagues yesterday about the role of revenue management and marketing in the hotel industry. There is a crossover between the 2 functions that causes confusion. And, people tend to forget that the revenue management function focuses solely on prices.
If we use the basic 4Ps in marketing as a context behind this discussion, revenue management plays on 1 P which is pricing. Any hotels that place major focus on this function (say 70%+), they cannot avoid competing in a discount game. The Online Travel Agents (OTAs) role makes it even difficult for hotels. This is because OTAs is like a big shopping centre that has all shops selling the same thing (in consumer’s mind). When there are too many choices and it’s not clear on product propositions, prices drop.
What the marketing role can do in this environment? A lot but it takes times. There are the other 3 Ps that marketing can focus on. Most importantly, the marketing function for hotels should provide the answer to this question – Why would customers/guests choose to stay at your hotel (not the hotel next door)? The right answer we look for is ‘value’. This is because value is a sum of what the hotel could offer to guess (prices, experience, service, etc.)
My point is it requires a 50:50 balance and partnership between these 2 functions for a long term success for hotels. Focusing too much on revenue management for a long period of time put hotels at risk of relying too much on OTAs and the discount game. Focusing to much on marketing put hotels at risk of missing a near-term revenue.
The biggest challenge in my career is how to balance between short-term and long-term to drive a sustainable performance.
The issue is to be sustainably profitable you need a group of true passionate customers who believe in your brand. To achieve this level, it requires a continuous, smart, strategic brand and ‘know your why’ investment. Many companies are always under a pressure to deliver a right-now performance. To deliver the right-now performance, we have to concentrate most if not all resources to short-term sales and marketing activities.
And, because you have to come up with new promotions all the time to sustain the short-term results, you wouldn’t have the time and the energy to invest in the longer-term future. Worse, the cost of doing business is getting more and more expensive because you have to target new customers all the time. It’s basically a death spiral. We would keep on doing it until it eventually ends.
If people at the top don’t understand this dilemma, it’s going to be hard to change.
I went to visit one of our hotels yesterday. It is a hotel that struggles in the past 5 years to compete in a crowded market. I was appointed to look after its market now. Challenging and exciting at the same time.
What surprised me the most is that this hotel has a lot of stories to tell. The problem is we don’t tell those stories to the world. We only told those stories to the team and partners, which is fine. But, in the intensely competitive world, we need to get the stories out there. We need the stories that will make the hotel unique. We need to tell the stories that give reasons for guests to choose us.
That’s my number 1 priority to help this hotel. Our team will update its website to have a section that allows us to share the hotel’s stories. We will then use social the spread those stories. After that we will encourage passionate guests to share stories.
It’s all about telling your stories.
There is a prediction that in the next 10 years, hotels will apply the same approach as low cost airlines. The approach is to unbundle all service elements and offer them individually with fees. Will it work?
The argument is Airbnb has successfully introduced the concept by separating a cleaning fee from the rate. I found it odds at the beginning. But through times, I feel indifferent. Everyone seems to be ok about it. It works for Airbnb.
My doubt is Airbnb introduced a cleaning fee as a seperate fee since its inception. There was no expectation from customers at that point. Hotels are different. There is a solid expectation there that customers don’t have to pay a (seperate) cleaning fee and Wifi.
So, I am not sure if it’s going to work. What would be the right strategy here? Move first or wait until someone does it? I would wait at this stage.
Time flies very fast. We are in February now. It’s my routine that when a new month comes, I list what I need to achieve (my key objectives) in the month.
Our marketing team now looks after the hotel portfolio too. The daunting task is there are more than 55 resorts and hotels to worry about. During the transitioning periods, we got all sorts of information from all hotels. And, one thing that I notice is that we tend to do a lot to offset shortfalls in performances. My immediate question that I asked myself yesterday was “did they get a lot from all of those activities?”. Or “did they get very little from each of them that was why they had to do a lot?”. Let think for a second. What is the problem here? They didn’t get a lot from each activity. That’s why they had to do a lot.
In the world where resources are scarce. That ‘do a lot to get a little’ hardly works. Your team would run around like a mice in a spinning wheel. What missing is “a good strategy”. If you spend a little bit more time to understand (and list) all the challenges, you will have a clear direction of what need to be done. You would do less to get more.
That’s my mammoth task in February. How can I tell the team that we need to step back and rethink about our challenges. Then, we will agree on a sharp, focused action plan. Wish me luck.
I was in a meeting yesterday discussing about one of our hotels. The team told me that this hotel which is situated in a CBD area has a corporate business as a main target market. However, the hotel performance has not be good. And, I was explained that one of the reasons is because the corporate business in this area has dropped significantly in the past few years. It could be the case, or not.
This hotel was built and branded under an art theme. Originally, its rates were set higher than other hotels in the area because of its artistic differentiation. It didn’t work well so the rates had declined and the team took whatever markets they could find. The hotel lost its positioning.
Corporate marketing could be important. However, would they pay extra to stay at this hotel to have an artistic experience? I don’t think so. The problem is when the product positioning and the target market do not match, you struggle. The team need to figure out first on how to fix this mismatch. If not, they will struggle forever.
I was a bit surprised to read this news – Tripadvisor Reorganization Brings Exec Departures and New Life for Viator. A few weeks ago, there was also news about Expedia’s CEO stepped down because there was a disagreement about his strategic direction and the expectation from the board. Basically, those Online Travel Agents (OTAs) are struggling to compete in the market.
In the Tripadvisor’s case, what they tried to do is to fight back in a tour and activity segment led by Aviator, a company they acquired in 2014. Aviator’s performance dropped due partly to the entrance to this segment by Airbnb and Booking.com.
My 2c is I used Aviator a few times and it pretty much positions itself as a shopping centre for tours and activities. Airbnb, on the contrary, is a platform for anyone to host holiday experiences. The Airbnb’s approach is admirable that I even think to adopt for my company.
Who would think even the largest OTAs in the world struggle to compete?
What is the role of PR in the modern, social media driven world? Many said PR is dead because no one would read a long press release. Also, consumers today do not read magazines or newspaper as much.
I agree and disagree that PR is dead. I don’t like the concept that PR has to prepare a press release, send to a bunch of journalists and wait anxiously which ones will pick a story. You have no control whatsoever in this process. I think this process (or concept) is dead. It makes companies feel good to do this with a minimum return (if they can even measure the return).
I support what I called a PR 2.0. Why do you need to rely on journalists when you can communicate with customers and the public directly? Doing it this way, you take control 100% of every aspect of your stories. You can even put a call to action in your stories.
One important thing to understand though, people don’t read much anymore. They skim through articles, stories, posts, etc. PR should tell compelling, short & sharp stories. How their company or product could solve people’s issues.
Have you ever ask yourself this very question? Why would people buy from you, not from your competitors, or from the shops next door? I find this question very useful. This is because it’s sometimes difficult to find a good answer.
In my industry, the question I often ask is ‘why would guests choose to stay at our hotel, not the hotel next door?’. We have a hotel in a place called “Gold Coast” in Australia. There are more than 1,000 hotels in this tourist city. In the city’s tourist spot, there are more than 100 similar hotels to ours. Hence, the question I ask – why?
The response I got is frustrating. We don’t have a good answer. Could it be our service? Or, could it be our room standard quality? Our beds? Kitchen? All of the above, or none of the above? As far as I can see, the hotels next door offer the exact same things that we do. That’s why all of us go to the price war. We offer discounts. We focus more on the revenue management function.
Some changes in the way we think need to happen. We have to find the right answer. Some woks are in progress. We started by giving a unique positioning to each hotel. We will separate them all with different positioning.
Wish me luck.