Managing Your OTA Habit

By Billy Kolber

Online Travel Agencies are boon and bane for most luxury hotels, and the increasing trend of consumers booking online means they will continue to be so for the foreseeable future.  A recent Think Equity survey showed that 51% of European hotel bookings were online in 2010, and expected to ride to 58% in 2011.  And just two online agencies, Booking.com and Expedia.com (including subsidiaries hotels.com and venere) accounted for 64% of all European OTA bookings. On the surface, the benefits of an OTA relationship are irresistible:  their commission-based bookings incur no upfront booking costs.  But as the percentage of bookings coming through the OTAs increases, so does that commission cost.  An increasing dependence on OTAs also leads to decreased control of the customer pipeline, putting hotels at greater risk of OTAs flexing their muscles with increasingly strict and onerous contract terms.

Despite the experience of hotels in Columbus, Georgia (which disappeared off OTAs back in 2009 as a result of a tax dispute) most hotels couldn’t survive without the far-reaching customer aggregation of the OTAs, and most wouldn’t want to.  The OTAs play an important role in a healthy revenue mix.  It’s only when dependence on any one specific channel becomes over-weighted that the relationship can turn toxic.  So it’s worth reviewing how the OTAs fit in your own marketing mix, and what you can do to maximize their benefit while minimizing commission expenses and maintaining a robust pipeline of direct bookings.

Beating a Path to Your Door
The OTAs have made a huge investment in transaction technology and marketing in order to build customer relationships with millions of travelers world-wide.  Their business model depends on being the booking channel of choice for consumers who might never find or book your hotel but for its presence on an OTA site.  Clearly, that incremental customer booking is worth having, and the OTA delivers great value by bringing it to you.  It’s the same business model that was used by traditional travel agencies and wholesalers who delivered their customers during the golden age of travel, but accelerated by the internet.

Incremental bookings are only part of the benefit of working with the OTAs. They also deliver a “Billboard Effect,” exposing travelers to your property who then book direct on your own brand website.  A recent study by The Center for Hospitality Research at Cornell confirms that a listing on Expedia influences three to nine direct bookings for every booking completed on Expedia, an increase of 7.5-26% in total revenue gain.

The Other Side of the OTA
If the OTA story ended with incremental revenue and the billboard effect, hoteliers would have no complaints.  But OTAs are in business for themselves, and their goals aren’t always completely aligned with their partner hotels.  And while OTA bookings have no upfront costs, they’re far from free.  Hospitality eBusiness Strategies estimates that OTA bookings are, on average, 10 times more expensive  than the direct online channel.

Even more significantly, when OTAs deliver revenue they don’t always deliver customers.    When you source a direct booking, you “own” the customer, having established a direct relationship with them and collected extensive personal data.  It’s the first step in making a customer a repeat customer, and it’s harder to do at check-in than at time of booking.

Tipping The OTA Scales in Your Favor
Accepting the fact that your OTA relationships are useful and necessary while acknowledging their true costs is the first step in managing your OTA habit and tipping the scales in your favor.  Three simple steps will help do that:

1. Increase incremental revenue
This requires careful management of your inventory. OTAs can’t sell it if they don’t have it, and shouldn’t sell it out if you don’t need them to.  Make sure that you’re monitoring your inventory and working with the OTAs to take advantage of promotional and merchandising opportunities when they make sense.    While you’re at it, make sure your property description, photos and video represent your hotel competitively on the OTA sites.    The billboard effect works best when your billboard is compelling.

2. Optimize your direct booking channels
According to Google, the average hotel booker conducts 20 research sessions on multiple sites before transacting.  So having your property listed on multiple channels can help catch your customer when he or she is ready to pull the trigger and book.  Even more importantly, make sure that your own direct channels — online and offline – are engaging, appealing and positioned to close the sale.  See our white paper Converting Inquiries to Bookings for strategies to keep your reservations staff well-trained.

3. Don’t rely on OTA marketing as your primary online marketing channel
Compare the true costs of OTA bookings, particularly if the percentage of your indirect bookings exceeds the historical benchmark of 25%.  MadiganPratt offers a convenient online calculator that will allow you to quickly determine the true cost of your OTA bookings, and how much you can save by reclaiming a higher percentage of direct bookings. Increasing your share of direct bookings requires an upfront investment, but wisely made, that investment will pay dividends long into the future with an increase in direct bookings and customer “ownership.”

Maximizing Your Mix
Reducing your dependence on OTA bookings means increasing your reliance on your direct channel.  This requires dedicated, focused action on two initiatives:

1. Strengthen Customer Relations
Use social media and standard CRM tools like email and direct mail to stay in touch with your customer base.  Frequent, targeted communications will bind your customers closer, and increase their likelihood of booking direct.  Be sure your front desk is trained to collect email and enough personal information to add OTA-sourced customers to your own database or CRM system.

2. Generate Direct Leads
In challenging economic times, it’s tempting and sometimes necessary to reduce awareness and brand marketing,  But doing so puts more and more of your new customer funnel under the control of third-party businesses.  Hotel eBusiness Strategies’ 4th annual Benchmark Survey on Hotel Internet Marketing Budget Planning and Best Practices offers budget allocation benchmarks for hotel internet marketing budgets: 23% to website design/redesign and optimization, 20% to email, social media and mobile marketing, 16% to pay-per-click search engine marketing, 11% to search engine optimization and 11% to strategic links from online directories and portals,

If online marketing has been slashed from your budget, look for creative ways to build awareness: Partner with compatible businesses and organizations. Verify links back to your site from CVBs and other tourism resource sites, and request links from other relevant sites.  Seek out opportunities to use unsold inventory in contests and auctions that expose your property to new customer prospects.

Luxury Link Can Help
The Luxury Link Travel Group’s Hotel Marketing Program is uniquely designed to build awareness and generate leads direct to your property.  With an extraordinary audience of Luxury Travelers and a barter-option that reduces your out-of-pocket costs, the Hotel Partner Program is an ideal way to strengthen your direct marketing efforts while reducing your dependence on the OTAs.  Start a conversation with us.