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.
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.
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.
Next year will be a very interesting year for me and for my company. We all know that things will get harder considering that we are a sales-driven and an outbound-based company. It means we care about what we need more than what customers need. That’s why it’s going to be very, very hard.
I have a long list of what need to be done. My mission is still the same. I want to make a difference even though I am just a middle level leader. One key item that I need to do is to change the way we sell our hotel product. Our problem is we have an average, mediocre hotel product with mediocre infrastructure. There is no reason whatsoever for people to care about our product.
What I have in mind is we have to present our hotel product differently. The basic idea is that in the past we use hotels as a selling point and destinations as a supporting reason. The new trend is customers want more experiences. Therefore, we will use the experiences as a selling point, and the hotels will be use as auxiliary. This idea sounds simple but it requires an upside down thinking and execution. We don’t have the infrastructure to do this. And, I don’t know how far I can take this idea to. One thing that I do know is this is the only way to compete in the crowded market.
This is just one item in my list. Next year will be very interesting.
It depends on your industry. It is certainly difficult if you have a track record of giving discounts all the time. It is super difficult if your target customers only expect to get discounts from you and your competitors like in the hotel industry.
But as a smart marketer, we should be able to do something. Talking about the hotel industry, the key strategy all major hotel chains e.g. Marriott, Accor, and Wyndham use is a loyalty program. The basis is simple they encourage guests to make direct bookings with them instead of using Online Travel Agents (OTAs). Those guests earn points which can be used for future bookings. It’s a kind of keeping customers in their ecosystem. But, it could be seen as another discount tactic.
To get out of the whole discount game entirely, you will need to change your mindset. The key success factor would be that you stop offering an average product. You have to stop offering your product to everyone. You have to understand that it’s not possible to please everyone and in doing so (pleasing everyone) you are on a road map of being average. Once you change your mindset, you will start to think who need your solution (your product) and you will start thinking deeper and deeper on how you could “serve” those customers.
Another way to say it is, to get out of the discount game, you need to be remarkable. You cannot be remarkable if you try to attract everyone. Find the people who need your help, tell them how you could help, and do the work to help them. Your universe will be much smaller. But, you will get quality. There is no way for you (or anybody) to get both quality and quantity at the same time. If you can, please let me know.
I have got a chance to help the hotel team with their marketing efforts. I spent times doing research to understand their terminologies so I didn’t look silly during the process. The more I learn about this industry, the more I feel there are a lot of opportunities to disrupt how the marketing is done.
The major challenge for all hoteliers is OTAs (Online Travel Agents) like Expedia, Booking.com, Agoda. They are like a large shopping center that sells similar product. People of course like to go there because it’s a one stop shop. You can compare prices and there are so many options. Furthermore, those OTAs have invested excessively in technology. They offer a very good personalised experience. Hotels have a love-hate relationship with OTAs. Hotels have to rely on them, pay high commission, and don’t get full control of their own booking data. Worst of all, OTAs drive the room rates down due mainly to a competitive force.
It’s a common knowledge and practice that all hotels want direct bookings. The influence from OTAs is great to the level that hotels can’t even set different prices on their websites. They have to stick to this illusive ‘rate parity’. They are afraid to get punished from those OTAs. Another funny thing about the influence of OTAs is all hotels must have a revenue management team – big or small. This team’s job is to do research about competitors’ rates and customer demand. They then adjust prices up and down depending on the research information. Some hotels put the revenue management function ahead of other functions to drive bookings. And, I don’t really understand this logic. Price is important but you also need to give good reasons to customers to consider your price and to see that your price give good value. By good value, I don’t mean cheap rates.
The marketing function in this industry is quite secondary. I have amused when I learnt about this fact. It is a battle that I intend to take from now. It wouldn’t be easy when OTAs have trained customers to look for the cheap or discounted rates. And, it wouldn’t be easy when the hotels respond to this OTA challenge by focusing on revenue management side.
That’s why it’s intriguing and I am excited to change that.