hotel blocks
6 years ago
 

When it comes to online travel agencies, (hotel) size does matter

NB: This is a guest article by Chris Patridge, executive vice president of BackBid.

Over the past several weeks, there have been many opinions put forth about the OTAs – whether they are friend or foe, the best ways to use them, etc.

I have followed the conversation with great interest, not only because of my background as a revenue manager, but also because I have recently launched my own alternative online booking channel at BackBid.

One of the first things that comes to mind when considering the controversy is that I’ve noticed many people discussing the issue as if it was a new situation.

In reality, it isn’t.

The issues that hotels currently have with the OTAs have existed since the rush to sign up with these new booking channels in a panic in the early 1990s. I was there, working with many of the major chains as they dropped rates and embraced this new channel in order to appease management who was panicking as occupancy continued to drop.

But rather than delve into a long history of how hotels got themselves into this position, I think that is enough to say that we (hoteliers) fed the monster and now we have to pick up after it.

Before starting our discussion about the OTAs, let’s first examine the current business environment to get a bit of context. With the recent consolidation in our industry, especially in North America, we have seen the number of chains decrease while their marketing pull increases. This is a good thing for the industry.

Overall we are seeing some growth in bookings made through brand.com largely as a result of the big multi-segment chains that have been created through consolidation and their increased market might.

So, back to the question at hand: are the OTAs good or bad for business?

My answer is simple: it depends.

1. Hotel chains

For hotel chains and flagged properties, again my answer is: it depends. On the one hand, chains need OTAs less and less, but on the other, it can be a comfort even for the big guys to know that the OTAs are an option if demand should decrease, as a way to increase online exposure.

Unfortunately though, there are no OTA Market Managers that will tolerate a hotel that ignores them in the good times and asks for their “help” during the bad times. So it is important for chain properties to keep a balance. A great way to keep that balance is through opaque packaging.

Hotel chains should be using this type of opaque pricing to its fullest, even if the OTAs are not actively promoting the option.

The opaque nature of package deals allow hotels the flexibility to play with their sales mix – combining both room sales and “value-adds” – which often can be just as profitable as the room portion of a package.

Arguably, the big OTAs would rather hotels just sold rooms alone, as none of the big players really put any kind of value-added offering to the forefront of their results pages.

To them, it’s still a game of putting the rate ahead of the value or the brand. This being said, opaque packaging is a good compromise that the chain hotels should be using to give the OTAs some inventory, even when demand is high.

2. Boutique and independent properties

The independents and boutique properties (which also includes smaller chain properties) are struggling to compete with the Goliaths in their market, both in price and marketing exposure.

Independent hotels need to give the inventory that the big guys sell on brand.com and their CRO to the OTAs to compensate for their smaller marketing budgets. Independents should be thinking of OTA commissions as a necessary marketing cost.

So we have determined that yes, for independents and small chains it is necessary to include the OTAs as a part of a healthy market mix, but there are ways to play it smart.

First, hotels should be treating their OTA market managers as partners, not as the enemy. By “playing by the [OTA] rules” and maintaining consistent participation in seasonal sales and promotions, hotels may find that they receive better page placement, and as a result, better sales .

Over time, if the OTA market manager sees that a property is actively helping to sell rooms through their channel when possible, giving them LRA and keeping in parity, when it is contract renegotiation time, it is possible to decrease the commission rate that is being paid.

Using this “friend not foe” approach on behalf of my hotel clients, I have been able to lower commissions on several occasions, so I know that this can be a successful tactic for independent properties to consider.

Making opaque work for independent properties

One issue that strikes me as being overlooked in this ongoing discussion is the opaque online channels, and how they can play a role in a healthy market mix for independent and boutique hotels.

Many hoteliers maintain a very tight definition of what is opaque, basically limiting it to sites like Priceline and Hotwire that only divulge pertinent hotel details after the consumer has committed to their purchase. While it is true that these two sites are indeed considered opaque channels, I would suggest that there are other ways that a channel can be opaque.

To me, an opaque channel is one that allows hotels to post rates that cannot be directly compared to rates publicly available through other channels.

Under this definition, opaque channels now include anything that packages hotel rooms with other travel (air, car, etc), with attractions or meals at destination (dinner theatre, city tour) or with value-added elements (free wifi, parking, breakfast, etc).

Independent and boutique hotels should actively seek opaque online opportunities to bolster their online sales and remain competitive with the marketing reach of the big chains, while avoiding parity issues across the channels.

The opaque packages offered through OTAs are a great way to supply OTA inventory in high-demand periods, while skirting the parity issue. Virtually all the major OTAs offer hotels the opportunity to submit package rates that will be bundled with rental cards or air and offered as packages on the site.

While the OTAs insist that these rates be lower than your regular net rates on the site, the price point can often be higher than what would have traction on the highly discounted models of Priceline and Hotwire.

This is a good opportunity for independent and boutique hotels to offer online rates that will not draw sales away from more profitable channels such as their brand.com.

A robust mix of room types offered through the OTAs will also help you avoid parity and LRA issues by selectively yielding by room types in your various channels.

Another option for the independent and boutique hotelier is participation with members only sites like off and away.

The answer lies with the hotelier

All that being said, the OTAs are not going to go away anytime soon. Whether a flagged or independent property, it is important to be aware for hotels to be aware of how their property’s distribution breakdown can be optimized. Identify how to use OTAs best to satisfy your needs.

Big branded chains should use opaque packaging options to keep OTA sales from eroding more profitable channels. Give publicly priced inventory when possible but yield to other channels when the opportunity presents itself.

Small or independent properties need the OTAs to make up for the advantages that a brand would offer – i.e. increased exposure and a larger marketing budget.

They should use opaque packages but also load a broad selection of inventory types on the OTAs to selectively play with inventory when demand permits.

What do you think? Do you agree or disagree?

I would love to hear your thoughts, comments and arguments on the subject…

NB: This is a guest article by Chris Patridge, executive vice president of BackBid.

NB2: TLabs Showcase – Backbid.

Share on FacebookTweet about this on TwitterShare on LinkedInEmail to someone
 
 
Special Nodes

About the Writer :: Special Nodes

Special Nodes is the byline under which Tnooz publishes articles by guest authors from around the industry.

 

Comments

Your email address will not be published. Required fields are marked *

  1. OTAs and the Offer Hotels Can't Refuse

    […] gleaned from hoteliers is spent promoting the promoters. This intuitive and meaningful article by Chris Patridge over at Tnooz offers a nice perspective. Meanwhile, from one another view, the whole online travel […]

     
  2. Tania Leichliter

    Great article! I think one thing to note is that commerce is more than OTA channels these days, and that social commerce channels like: Living Social Escapes, Groupon Getaways, Snique Away, Jetsetter, and Rue La La should also be incorporated into the “distribution mix’ for lodging suppliers.

     
    • hotelmarketing@facebook.com

      I am still looking for resons to work with these flash sales in a sustainable way for an established property – please share why you believe they should be part of the distribution strategy.

       
      • Tania Leichliter

        There is a distinct difference between and OTA channel and a Social Commerce channel in regards to hotel distribution. Social Commerce channels are considered “PUSH” channels. They provide marketing exposure to an audience that is not exactly in the market to shop for travel. These “push” channels INSPIRE people to go to places that they may not have been in the market to travel to. These channels are good customer acquisition and marketing channels, and sit higher up on the traveler purchase funnel in the “awareness/discovery” phase vs. where an OTA may sit. The other beneficial part of these channels is that they actually push the consumer down the funnel and provides them with a sense of urgency to book (1 week sales) with ROI measurement through transactional revenue metrics. I think that all hotels should consider these channels and build this distribution into their overall marketing and distribution strategy. Some social commerce channels are more friendly than others (some are package offerings and others are hotel only). You also have to match your brand with the right audience. Each channel has a slightly different audience demographic.

         
      • Gautam

        @hotelmarketing – There aren’t a whole lot of those reasons to be had really, with the discounts and margins they demand. That, unfortunately, does not necessarily mean they won’t break into the market. All this talk about “inspiring” travel etc. (sorry Tania) is not a whole lot more than seduction. And seduction works.

        My take is that the industry should build their online marketing and distribution strategies to explicitly exclude these channels. And as a travel supplier, don’t be afraid when your competitors gloat over their “success” with these channels. When their hotels or planes fill up with $25 rooms or seats and have no supply left, charge a premium on full price and take it to the bank. 😉

         
  3. Oz Har Adir

    I think that while the argument for opaque and partnerships with airlines sites makes much sense, your analysis leaves out of the equation price comparison sites (of which I’m a big believer 🙂

    We don’t have to look much further than the cooperation that TSE now have with almost every airline site in the world to understand that it makes sense for operators in the airline industry. It would make more sense for operators in the hotel industry, once they ramp up their sites and distribution systems. This is the solution to the power OTA’s have, and that’s where hotels should focus.

     
  4. Rusty McNeal

    Value added is a great way for opaque packages, but I caution using the word FREE. If the added value is advertised as FREE than you have just disclosed the opaque price of the room.

    Airline vacation sites are also great partners with opaque packaging as they likely have the same low season as your hotel and have at least the same desire for opaque pricing. Year-round airlines may be more forgiving for the lack of hotel inventory in the high season too. In addition, with airline packages you can direct your discount sales to certain markets rather than a mass sale without breaking your price parity agreements with the OTA’s or even you own flagship chain.

     
 
 

Newsletter Subscription

Please subscribe now to Tnooz’s FREE daily newsletter.

This lively package of news and information from Tnooz’s web site provides a convenient digest of what’s happening in technology that drives the global travel, tourism and hospitality market.

  • Cancel