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4
August
2016

Following by example: How major hotel chains increase their profits via direct bookings

By Lisa Shields

13 : 14h
0

The history of the hotel industry has always been an extremely dynamic, if not volatile market. Calculating ADR (average daily rate), finding the ideal balance between occupancy and room rate has always been, and will continue to be, a challenge for hoteliers. While running around and overseeing the myriad tasks required for the clean and efficient operations of a hotel chain, executives can easily become overwhelmed and seek outside help for steering the ship.

This is where OTAs (online travel agents) came in; filling the shoes of revenue managers and marketing staff. With weight lifted off of their shoulders, executives have more time to focus on in-house operations, renovations, expanding their chain, etc. However, at what cost?

While the OTA industry has been booming, replacing an emphasis on direct booking with reliance upon OTAs has been detrimental to hotel profitability. Straight to the point, hotels lose out on almost 10% of potential profits by relying on OTAs for bookings, rather than driving direct booking to fill those rooms instead.

Today we are going to tackle the issue of why reliance upon an OTA can drain your profitability, not only during the initial booking stage, but in the long run as well.

OTAs: how they got here, why customers use them, and why customers keep coming back to them

OTAs as viable resources for hotel bookings did not just fall out of the sky, they filled an industry niche. Once the internet became as commonplace as a television in the living room, the public became excited to exploit the web for everything it could possibly accomplish.

Fast forward to more recent years, and almost any traveler has either heard of or used the sites kayak.com, booking.com, hotels.com, or one of the hundreds of other OTAs. In recent years, the industry growth of OTA usage has continued to explode at a steady rate. Why?

There are several reasons why OTAs are so popular for arranging hotel accommodation in place of direct booking, and at the cost of hotel profits.

Convenience

Let’s face it: people are lazy. There is always an exception to the rule, as everyone knows at least one person that wakes at dawn to go jogging! But, in general people like it when any and everything can be simplified. Of course, why spend excess time when you don’t need to?

OTA mobile apps allow for users to tap, swipe, scroll, and book a room without leaving the sofa during a commercial break. Who wouldn’t enjoy the ease-of-use that an OTA provides?

Options, options, options…

Following by example How major hotel chains increase their profits via direct bookings

OTAs provide an endless sea of options for refining hotel searches within a single platform. Travelers can refine searches based on location, price, room size, number of beds, dates of availability, smoking/non-smoking, so on and so forth. The customizable search options also make users feel that they are in control, that they are truly finding the ideal hotel to suit their travel needs, and at the most attractive price point.

Promotions and incentives

Tying into the previous point of finding the best bang-for-your buck, OTAs offer promotional offers and special discounts to users. A special offer from an OTA makes the user feel as if they had not used a particular OTA they would have missed out on a discount at the hotel restaurant or accumulating points that can be applied to discount future bookings.

Attractive user interface

Take a look at a few of the major OTA apps and websites. What is the first thing that you notice all have in common? Give up? They are pretty.

Not only have OTAs spent man-hours and money on graphic design and color schemes, but the layout of the interface is intuitive, has expertly placed call to actions, and live chat prompts for travelers that may not know exactly what they are looking for at that time. Throw this set of features into the mix along with the aforementioned points, and OTAs are for all intents and purposes, practically addictive for travelers.

The ugly face of OTAs

OTAs have taken advantage of the hotel industry’s reliance upon them and the user’s affinity for their ease and simplicity. The commission rates that OTAs charge hotels have gotten out of hand, and are fixed at a flat rate whether or not they are truly driving more business to a hotel than if the hotel took the initiative to encourage direct booking.

Loyalty reduction

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Travel agencies not only take immediate profits away from hotels, but they have lasting effects on customer loyalty. When an OTA user logs into a website or opens an app to book a room, they are flooded with dozens of hotel options each and every time. They are not going to spend the time thinking “Hmmm, I did have a great experience with XYZ,” but instead they are looking at price point, location, all of the factors we mentioned previously.

Follow the lead: return to direct booking to increase profits

The major global players such as Hyatt, Wyndham, Marriott and Hilton have become hip to the scheme that OTAs have adopted in siphoning away profits, and realise that in many cases hotels can easily handle the same duties themselves, with little increase in effort but sizeable increase in profit.

Take into account Hilton’s recent success with shifting back to direct booking. They introduced their own customer incentive program, HHonors, for guests that use their website directly in place of that of an OTA. The HHonors “Stop Clicking Around” campaign lead Hilton to a record 55% occupancy in the first quarter following its launch. Why?

Hilton had adopted the same incentivization methods that OTAs use, but they simply did it themselves. But, it doesn’t just stop at customer savings incentives. The major hotel chains are now incorporating all of the aforementioned features of OTAs into their own apps and websites. While it may take some time and effort, spending a little time and effort up front for strategy and design pays off when your profits are increased 9% in the long term.

By placing an emphasis on direct booking, you not only save yourself the commissions charged by OTAs but fortify customer loyalty. OTAs are not going to disappear, as some travelers will undoubtedly be fixed in their ways, but the savviest customers will understand the value you have introduced to them directly and forget about using an OTA for their future stay.

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