By Sara O'Brien
Everyone in hospitality has an opinion about 2016's direct booking campaigns. Some hailed them as a long-overdue blow against aggressive intermediaries; others voiced concern that discounting tactics would put long-term downward pressure on rates. So who was right? Thanks to a report from Kalibri Labs, we have a convincing answer: the campaigns' backers called it correctly, at least in the short term.
According to Kalibri, on a transactional basis the 2016 activity achieved a shift away from OTAs and towards Brand.com – and that shift helped deliver a net revenue benefit of $9,000-$33,000 per hotel. That may not sound huge, but the bigger and more complex story is in the potential lifetime value of those new direct customers. We'll return to that after a quick look at the study itself…
How seriously should we take the study?
Very. Kalibri worked with an extensive real-world dataset: 52 million real transactions across 12,000 properties, from May to December 2016. In analyzing them, it took into account commissions, transaction fees, channel costs (including search marketing) and loyalty costs, so what you're looking at are real Net ADR/Revenue comparisons.
The study also uses several years of archive data to project each hotel's likely performance without the direct booking campaign. So as well as identifying an overall year-on-year uplift, Kalibri is able to show – to a reasonable degree of certainty – the extent to which direct campaigns contributed to those gains.
Finally, the study also takes a long-term view. Most of the 2016 campaigns used loyalty program discounts to draw in customers, so to get a full picture of campaign effectiveness we need to understand the lifetime value of customers once they've been recruited to the program. Kalibri puts it neatly:
For each hotel’s internal assessment, the question is neither (1) “How much did I make on the initiative?” nor (2) “How much did it cost my hotel?”. The question to ask is: “Did I add enough recurring loyalty members to the base of my business to make the initial investment worthwhile?” (p27)
How bad is this for OTAs?
The results won't prompt celebrations in the halls of Priceline and Expedia, but nor are they particularly disastrous. Kalibri compares actual 2016 performance, actual 2015 performance and forecasted 2016 performance for both Brand.com and OTAs. While the comparison strongly suggests that Brand.com has taken a bite of the OTA channel's lunch, it doesn't show OTAs going hungry. Their actual 2016 performance is down on the forecast, but up year-on-year – in other words, the channel continued to grow, just at a slower rate than expected (and at a slower rate than Brand.com).
If this is how OTAs perform with hotel groups' full firepower turned on them – not just aggressive direct booking campaigns, but hardball contract negotiations too – they appear to be pretty resilient. Indeed, there was little sign of Priceline or Expedia suffering on 2016 earnings calls. The picture that emerges is of a shifting channel mix, not a winner-takes-all channel war.
Will it silence the direct campaigns' critics?
This is where things get interesting. While the study's conclusion acknowledges positive short-term results, it cautions that "discounting is an expensive tactic that is not highly sustainable," and argues that longer-term strategies may require "a deeper dive into the loyalty aspect of the initiative." Since discounting is one of the key concerns that many early critics raised, it's fair to say the skeptics are down but not out.
Going into 2018, the debate is likely to shift towards making direct booking and loyalty program pipelines more sustainable. How can hoteliers win, maintain and maximize loyalty without resorting to heavy discounting? There's an opportunity here to reframe loyalty programs as personal, concierge-like services that pitch the right products at the right time (and, crucially, the technology is now around to deliver that).
If that sounds like a vision that goes beyond traditional programs, and beyond the property itself… it is. Again, Kalibri puts it well:
If the hotel can deliver better service based on known personal preferences and enhance the digital and offline experience to entice return, guests are likely to increase their frequency of return and on-property spend. … For full service hotels, offering optional premium products/services or ancillary revenue opportunities based on higher engagement levels and known preferences creates another opportunity to personalize the consumer experience.
So… what next?
Yes, loyalty programs need to have a deeper relationship with the digital and in-property experience. But that conversation shouldn't be limited to loyalty, because the whole direct ecosystem pivots on it. In purely technical terms, there's no reason that a hotel can't deliver a tailored, preference-based experience to all site visitors, right from their first visit and through to the booking engine. And why wouldn't you? You're establishing a personal relationship right off the bat, and onboarding new direct customers through relevant offers instead of blanket discounts.
In our experience, this works. During the 2016 direct booking campaigns we were running projects that delivered double-digit conversion lifts and six-figure incremental revenue, all directly attributable to Voyat's layer of contextual offers and booking cues. Our latest intent-based offers, which personalize the message based on the visitor’s demographic profile and travel preferences, have increased conversion rates in the triple digits – one resort hotel in Vermont saw 290% uplift within the targeted audience.
That's the next piece in the puzzle – optimizing your site to capitalize on visitors, wherever they come from. Whether traffic is being driven by paid search, display advertising, TV spots, social or something else entirely, the question remains the same: what will new prospects see when they arrive on your site? And how will it shape their relationship with your hotel in the long term?