By Daniel Edward Craig, August 27, 2010
These days, bashing online travel agencies has become a popular sport.
The likes of Expedia, Travelocity and Priceline are being blamed for commoditizing
hotels, for decimating rates, and for training travelers to demand deep
discounts. We can probably find a way to blame them for that oil spill
in the Gulf of Mexico too.
Not that OTAs need defending, but the reality is, we as hoteliers share
the blame. It’s our signature on OTA agreements. We give them access to
inventory at heavily discounted rates. And we’ve taught travelers to look
for the best deals on OTA sites.
Case in point: While reserving a hotel in Chicago last month, I found
six different rates for the same room. The lowest came from Expedia at
$180. Inconceivably, the highest rate came from the hotel’s in-house reservations
department at $229. Such “rate disparity” is rampant.
What started as casual use has become an unhealthy addiction. Meanwhile,
while hotels are staggering toward recovery, the OTAs are boasting enormous
growth. It’s time to take back some of the control we relinquished during
desperate times. To that end, here’s a ten-step program for easing your
hotel’s OTA dependency.
1. Admit you have a problem. The OTAs are not the cause
of the discounting problem, but they are enablers and your competitor hotels
are codependents. By advertising heavily that they offer deeply discounted
rates, OTAs have contributed to the firesale mentality among travelers.
Hotels have exacerbated the problem by being always on sale, by offering
discount rates on discount rates, and by treating all inventory as distressed
2. Do the math. Yes, OTAs can move a lot of inventory, but at
what cost? The terms of OTA agreements vary, but typical commissions range
between 15% and 25%, with big-box chains paying the least and small independents
the most. At $200 per night for a three-night stay, an independent pays
$150 in commissions. Compare that to the low-to-zero costs of direct bookings.
How could you use the difference to attract more lucrative direct bookings?
3. Don’t overestimate the billboard effect. No question, OTA
business is an important part of the market mix. As Mike Nelson, president
of Partners Services at Orbitz, explained on Tnooz.com, “In any economic
climate, online travel companies are a strategic resource for hotels that
want to stimulate demand, access a global distribution platform and benefit
from vast marketing and promotional investments.” But to rank high on OTAs
you must offer deep discounts. As powerful as the “billboard effect” is
the “OTA effect” of training travelers to book via third parties.
4. Make direct the best option. Travelers should get the best
deals by booking direct, period. Honor your rate parity agreements, but
implement a best rate guarantee and clearly state the advantages of booking
direct, like Marriott’s Look No Further™ promise. As an added incentive,
offer value-adds not available via non-direct booking methods.
5. Be strategic. Instead of discounting across the board, forecast
demand in each market segment and develop separate strategies. Reward travelers
for advance bookings and build rate on that base rather than offering the
best deals on last-minute bookings. In an interview with EyeforTravel,
Kurien Jacob of Highgate Hotels argued that opaque sites “should be used
only if the hotel needs to protect its overall retail rate to maintain
brand image, prevent group room dilution or maintain corporate negotiated
6. Use social media to connect with travelers. Private sales
via members-only sites like Jetsetter and Vacationist allow you to bypass
OTA rate parity requirements, but the terms can be even less favorable
than those offered by OTAs. Use them sparingly to create base and sell
off distressed inventory. Focus your efforts on social media and reputation
management to build your email database and Facebook and Twitter followers
and save your best deals for them.
7. OTAs are partners and competitors. OTAs don’t care which hotels
travelers book as long as they book through them. Traditional travel agents
charge 10% commission and provide personalized service in bricks-and-mortar
offices. How can OTAs justify such high commissions, and where does the
money go? Seen the TV ads, the cost-per-click ads, the print ads and banners?
They’re driving up your advertising costs and luring travelers from direct
channels. Goldman Sachs estimates that OTAs generate 8% to 10% of Google’s
gross revenue worldwide.
8. Leverage your power. Competition among OTAs is fierce, and
they need access to your inventory at competitive rates to compete. In
an interview with the Chicago Tribune, Priceline CEO Jeffrey Boyd said,
“You've got to have the best rate, and the hotel has to be available when
the customer is searching on it." Leverage this power by negotiating the
terms right for you. According to revenue management consultant Jil Larson,
that means “either block space or last room availability but not both.”
If the OTA won’t come to terms, find one that will.
9. Loyalty means loyalty. Loyalty program members who book via
OTAs must understand that they’ve forfeited their perks to the OTA in the
form of a hefty commission. Stipulate that members must book direct to
qualify for privileges. This is especially true of opaque sites; booking
blind isn’t brand loyalty.
10. Make the booking experience seamless. OTAs are brilliant
marketers and are constantly improving the consumer experience. How does
your booking experience measure up? Is your website mobile compatible?
Make voice reservations accessible, efficient and personal – an area where
OTAs can’t compete. And invest in a two-way PMS interface to decrease time
spent managing rates and inventory and free up time for strategizing.
As for that hotel in Chicago, I asked them to match the Expedia rate. They
agreed, so like a good hotelier I booked direct. Don’t make your guests
jump through the same hoops.
Sites Get Boost from Four-Star Hotels at Three-Star Prices, Ben Steverman,
hotels and online travel companies still share a common goal, Mike
hotel strategy revolves around new search tools, Julie Johnsson, Chicago
Will Google Shake Up Online Travel?, Jennifer Valentino-DeVries, The
Wall Street Journal
Parity or Rate Disparity?, Patrick Landman, Xotels
WWED: What Would
Expedia Do?, Jil Larson, Dynamic Revenue Management
new customers through selective and scientific rules-based discounting,
an interview with Kurien Jacob, EyeforTravel
Daniel Edward Craig is a former hotel general manager turned consultant
and the author of the Murder at the Universe and other hotel-themed books
and articles. His blog is considered essential reading for hoteliers, travelers
and students alike. Visit www.danieledwardcraig.com
or email email@example.com.