A new report says hotels which attempt to boost direct bookings over OTA business risk having lower occupancy rates with “no measurable” savings on costs.
The ‘Hotel Distribution Costs’ report, was commissioned by the European Technology and Travel Services Association (ETTSA), and carried out by economics consultancy Infrata. ETTSA is a membership organisation which represents OTAs and GDS providers. It suggests the main reason for hoteliers to push direct sales “is to reduce transparency for consumers” and that direct distribution is no cheaper for hotels than indirect.
While it’s important to understand that the sponsors of this report ‘ETTSA’ are directed by representatives of OTAs and online distributors, it would be wrong to make light of the need for hoteliers to fully understand – and tightly control – the relative costs of Direct vs OTA bookings. It’s worth emphasising also that the hotel example used in the report is representative of the major chains rather than independents. There are important differences such as Franchise fees, CRS fees, loyalty etc. that are worth considering.
I disagree with the premise that direct bookings are the same – or even worse – than OTA bookings and I believe most hoteliers feel the same. Here are some important principles regarding the direct channel, search engine marketing (SEM) and direct bookers that have not been adequately considered, in my opinion, in this report:
- OTAs increase SEM fees for hotels: OTAs still aggressively compete on hotel brand-name search terms on paid search channels like Google and Bing and the costs to hotels of PPC traffic is significantly higher as a result of this practice. I’ve yet to hear an explanation for how this is OTAs adding any value to hotels. In fact the opposite is the case, particularly when you consider that a hotel’s competitors will also be marketed to the customer who clicks on the OTA ad. The report fails to recognise that SEM, and specifically the cost of PPC traffic, is inflated by this OTA practice and, in the scenario whereby a hotel does not use OTAs, brand name PPC would be much lower than it is today.
- Reverse billboard effect: While I believe there is an argument for the billboard effect – but a declining one with the growth of metasearch – in my opinion, the report fails to recognise the ‘reverse billboard effect’ whereby customers will quite often leave a hotel website in order to book on the OTA. Companies like Avvio and Triptease exist to help hotels tackle this very problem. Considering that hoteliers now pay PPC fees for up to 40% of their traffic, the ‘reverse billboard effect’ means that the true cost of OTA is actually higher than just the commission on an OTA booking. This does not appear to have been considered in the report.
- Loyalty is more than just discounts: Hoteliers should pursue guest experience that surprises and delights guests, and this is most important when it comes to loyal guests. While the report focuses on the loyalty discount programs of the bigger chains and reflects loyalty as an extra cost line item for direct bookings, it would be incorrect to assume that customers are only loyal because of a reduced rate.
- The cost of a direct booking is directly related to booking conversion: Not only does a great booking engine grow the volume of direct bookings but, the stronger ROI that goes with improved look-to-book rates means a reduction in the SEM acquisition costs for direct bookings. Our goal at Avvio is to be the best booking conversion platform on the planet for hotels. The more we continue to move the conversion rate needle in the right direction, the better the value of a direct booking over an OTA booking.
- Finally, OTA bookers are likely to be OTA-loyal rather than Hotel-loyal: When OTAs focus on adding value to hotels, rather than redirecting traffic from hotel brand name search terms for example, it is clear that there is still a real value-add delivered to hotels. A strong dependence on the OTA channel by hotels however is to cede control and be at the whim of next year’s contractual terms.
Our partners at Triptease have put together a great response to this report. Co-founder and Chief Customer Officer Alexandra Zubko, said “OTAs do a great job of bringing incremental business to a hotel, and it is true that every hotelier should have a clear view of the costs associated with each channel – including direct.
“However, it is untrue and unfair to assert that direct booking campaigns are motivated by a desire to decrease transparency for the guest. Our hotel partners consistently strive to provide the best possible experience for their guests, and time and again it has been proven that this is achieved when the guest books direct.”
It remains essential in my view that OTAs should be used strategically while at the same time hoteliers focus on growing direct bookings and minimising associated costs. I believe most hoteliers feel the same.
