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OTA Issues:

Not All OTAs Are Created Equal,  But One of Them
Is Due for a Comeuppance by the Hotel Industry

WWED?

I’ve addressed the OTA issue a few times in the past, but it’s time to get down to brass tacks.  Not all OTAs are created equal, and in my opinion one of them is due for a comeuppance by the hotel industry.  At least, by those hotels that are not part of the big five.

I am referring to our friends at Expedia.  I’m not being facetious, the market managers I work with are great people.  But it’s time to get real.  I don’t know what your agreement says, but the ones I’ve seen lately are ridiculous.  Demands for 10% block space AND last room availability.  In other words, “we have rooms as long as you have rooms, and then we still have rooms after you don’t!”

There’s also Expedia’s facist regime that monitors your every promotion and hauls you onto the carpet whenever you have the audacity to give a rate to anyone else.  This week, they crossed the line as far as I’m concerned.

I’m working with a hotel that ran a private sale.  By private sale, I mean just that.  The hotel’s offer appears nowhere on any publicly available website.  Even the website of the sale itself does not reveal the hotel offer until after you have logged in with your membership.  And you can’t just sign up and become a member in seconds like you can with something like Travelzoo.  You have to request membership, then wait for days to be accepted.  My request took five days.  After you are accepted as a member (presuming they didn’t find out anything about that questionable overseas trip you took back in ‘84), you can sign into the website and view the sale offer.  Which, by the way, requires full prepayment and is non-refundable.  And has probably already expired since the sale itself only ran for five days during which you were waiting for membership approval.

What part of the above would indicate to Expedia that this is a public rate?  Who knows.  But within an hour of the sale being launched, Expedia notified the hotel it would be pulled from their site for the duration of the sale if they didn’t receive the same sale rate given to the private website.  Which Expedia would of course immediately blast publicly to every person on the planet, since Expedia has no membership requirements.

Most mysteriously, I know of other hotels who ran the exact same sale on that exact same private website and heard nothing from Expedia.  Apparently interpretation of the law is not an exact science over in Bellevue, WA.

While chatting (okay, venting) with another revenue management consultant about this, he told me of an experience he’s having with one of his current clients.  He calls it “WWED”.  What Would Expedia Do?  That is the first question this particular hotel asks before making any pricing decision.  Are you kidding me?  This is what it’s come to? 

Let’s do the math.

Unless your property belongs to a massive chain with considerable clout, you’re probably living with an Expedia agreement with a margin of around 25%.  Now, the mathematicians among us can quickly ascertain that means Expedia receives $1 for every $3 they send us.  But I’m not that swift, so I did the whole spread using one hotel’s data, calculating Expedia revenues per annum, total transient revenues per annum, ADRs, Expedia’s cut, etc.  No big surprise, Expedia’s ADR was 75% of the total transient ADR. 

Even I could have figured that out based on a 25% margin.  But that 1 to 3 ratio thing really jumped off the page.  Expedia earns just over $100,000 annually in margins from business sent to the hotel, for which the hotel pockets just over $300,000 in bookings annually.

That’s a payoff to the hotel of $3 for every $1 sacrificed.  In other words, a very low return on investment.  I have to believe we could use that $100,000 Expedia is making off the hotel each year to generate far more than $300,000 in revenue if it was invested in other marketing efforts. 

Right off the bat, what would the other OTAs provide in exchange for pulling out of Expedia?  Show me the positioning!  Since other OTAs don’t require both block space and last room availability, nor do they demand parity with non-public rates, I’m thinking we can work together to recoup some of those lost Expedia revenues.  Toss into that all the promotions and pricing strategies we could employ if we weren’t under Expedia’s oppressive thumb, and the ADR lift we could get by reducing the number of rooms sold at a 25% margin, which would mean we don’t even have to recoup the same number of room nights we get from Expedia in order to recoup the same profit….

If your property is suffering from WWED, may I suggest a new approach?  WWUD with all the money you are currently paying in margins to Expedia?  A marketing payoff of a minimum $5 for every $1 spent is generally considered a conservative expectation.
Now, this is not a call to cut Expedia off at the knees.   If you can negotiate a deal with Expedia that clearly defines parity and what constitutes a publicly available rate, and includes either block space or last room availability but not both, you might want to keep playing.  Expedia, and all OTAs, for that matter, are a good short term solution when times are bad.  But your  times are not going to get better if you’re sacrificing marketing dollars to Expedia that need to be deployed towards the segments that will determine your future success.  Put some thought into it, now is the time to plan for your 2011 – 2013 transient mix.

WWUD?



Jil Larson is a twenty-five year veteran of the hotel industry with revenue management leadership experience within the Starwood, Marriott, Intercontinental, and Fairmont organizations as well as that of several independent hotels. 
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Contact: 

Jil Larson
Prinicipal
Dynamic Revenue Management Ltd.
 Jil.larson@dynamicrevenuemanagement.com
www.dynamicrevenuemanagement.com
 

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Also See: 7 Steps to Position Your Hotel in the New OTA Environment / Tim Coleman / April 2010

Expedia Sells More Than 1 Million Room Nights in Less Than 3 Months; Credits Expert Searching and Pricing (ESP) Technology / April 2001
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