Wednesday, 11 November 2009

With OTAs or Without OTAs? Move Your Hotel Online!

The Change in the Relationship between Hotels & Third Parties

One of the hottest topics in the industry these days is the ending partnership between Choice Hotels and Expedia. As the online travel market leader, Expedia has more than 40 percent of the market share. This makes Expedia one of the most important partners and sales channels for hoteliers around the world.

The benefits of working with Online Travel Agents (OTA) have in the past been unquestionable. However, with the recent changes in the rules of engagement this view seems to be shifting. Before going into detail of those developments let us review some of the reasons why hotels are finding it harder to work with online travel agencies like Expedia and why the Travel giant may have started introducing more strict terms and conditions for its hotel partners.

Some year ago now, a large share of online travel agent revenues came from the commissions of airline ticket sales. Deregulation, increasing operating costs, and many other factors have over time forced airlines to cut down on commissions and many have introduced a more direct-to-consumer approach to distribution. This direct approach has come to include:
• Best online pricing policies
• Stronger loyalty programmes
• More advanced price yielding
• Improved passenger relationship management by adopting CRM and eCRM techniques
• De-coupling their product - offering additional services/benefits for passengers who wish to purchase these for an added fee.

With the economic downturn impacting consumers’ purchasing behaviours, the market has become a consumer-driven market. The customer is once again in the driver seat – always looking for better bargains, deals, and offers. So despite the direct-approach having cut down distribution and marketing costs, it has had a negative effect on the availability of tickets and the profit margins of the OTAs – who sell flights as part of their offering. Whereas before profits came from both airline ticket sales and hotel room sales, today most online travel agencies make more of their revenues from hotel room sales commissions – an area where Expedia has historically have maintained a very high level of profitability. Airline tickets today are viewed more as a service to the consumer, who is then likely to book their hotel stay (along with other products and services).

For the online travel agencies, dwindling profits from airline tickets and a higher focus and reliance on hotel room sales is, from what I can gather, the reason why online travel agencies like Expedia have had to introduce more stringent terms and conditions. They are setting precedence and showing that they would rather loose a deal than work with partners who cannot accept these terms. This sends a strong message from a traditionally powerful player in the travel agent world that they will not back down. At the same time Choice representing a large hotel chain, is also making a clear point that they will not be intimidated by the potential loss of incremental revenue and that they can and will pursue other channels of distribution that will work with their third party terms.

So, will we see more of this power display from Expedia – and will other chains follow Choice’s example? Both are sending very strong messages into the marketplace, but the end result remains to be seen. What we can say is with an industry which is suffering from decreases in occupancy and revenues due to the economic crisis, coupled with over-supply in some areas, it seems unlikely that many other hotel companies will follow suit.

The decreases in the number of travellers (especially the corporate markets) and the increase in competition and pricing transparency have made it more difficult for hoteliers to keep their rates high and many have had to slash their prices in order to stay afloat.

The approach that is needed in these tough times is a more analytical approach and more in-depth analysis. Hoteliers should be pushing to cut costs, looking for new partners and bettering the relationships with the existing partners and developing a more comprehensive B2C strategy.

OTAs have in the past been very good at predicting consumers’ needs and their buying behaviours. By offering services and products according to those [changing] needs; they also manage to gain their trust. This is an areas hotels have, at least online, failed to do.

The questions hoteliers should be asking now are:
• Can we work to develop such trust among consumers?
• How we our products and services more attractive?
• How can we benefit from a direct online approach?

There no one-size fits all answers to these questions hoteliers should take this opportunity to implement new direct-to-consumer sales and marketing methods and over time reduce their dependency on the online travel agents – thereby lowering costs and improving loyalty.

With less than 12% of hotel websites allowing online bookings in 2008, hoteliers have not yet begun to touch the surface of the possibilities. As the market changes at a rapid pace, hoteliers have to first catch up to the consumer and then begin predicting customer behaviour in order to meet their future needs. Differentiation in products and services and more customer friendly technologies and offerings will increase the demand to the hotel and accelerate the move to a more direct approach.

As an internet marketing agency, e-HotelServices firmly believer that by working with a competent online marketing partner hotels can take the bull by its horns, get a step ahead, and invest in their future by bringing guests to their properties at a lower cost, with more control and customer loyalty than what hotels have been able to in the past.
Working only with OTAs and tour operators is not always the smartest or the cheapest option. If hoteliers want to partner with online travel agencies, they should decide to work only with OTAs that meet their needs in terms of added value, incremental revenue, reaching new target markets or other benefits that they cannot themselves achieve directly. Hoteliers should also carefully consider the impact the partnership will have on their revenues both long term and short term – as well as the impact on the hotel’s competiveness, branding, and positioning in the market place.

According to many researches over 80% of all travel search starts online with a search engine. As such, having high visibility in the search results will increase the chances of driving potential guests to the hotel website. However, getting the guest to the website is not enough, converting these lookers to bookers is paramount to make this strategy a success. The elements that need to be considered are:

• Increasing the navigability and accessibility of the website
• Engaging with visitors by speaking their language, addressing their emotions and encouraging them to finalise the booking before leaving your website

To achieve this hoteliers must have a clear web strategy and a direct approach to have an impact on the visitors’ purchasing behaviours and convince them to make the booking on their website instead of other third parties sites. So for most hoteliers that means installing a good booking engine that allows not only room booking, but packaging, add-ons, and online self-management (may we recommend

In the move to end their relationship, Choice Hotels is forced to adopt and implement this strategy very quickly. Ending a relationship with a leading player and one of the most important revenue drivers such as Expedia could not have been easy for Choice Hotels. It has meant a scramble to implement a more direct approach to compensate their potential loss. But what Choice Hotels (or any other hotel that finds themselves in their situation) has underlined here is that it is more important to have clear goals and a strategic action plan and that the organisation has to be ready to start the implementation straight away. Unless this type of fundamental move is done right it is likely not to produce the expected results and damage the organisation.

Here, some important points for consideration:
• Create a clear positioning strategy
• Clarify your USPs and competitive advantages
• Analyse your competitors,
• Identify channels to reach your target markets,
• Differentiate your products and services,
• Anticipate future needs and introduce solutions to satisfy these needs,
• Innovate and be bold to try new approaches

Having clear objectives and by defining the abovementioned questions prior to implementation will make life easier for any hotel or hotel chain who want to adopt a direct-to-consumer approach.

If you are looking for a partner – or for a how we can help you improve your visibility and become more self-reliant, contact us.

Velit Dundar

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