OTAs have transformed the way travelers book their accommodations.
NB: This is an article from Directful
However, for hotels, these bookings come with their own set of challenges, as OTAs have a profound impact on the revenue of hotels. High commission rates, additional fees, and price parity significantly affect the bottom line of hotels.
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And, as you probably know, OTAs have created a situation where hotels often have limited access to their customer data, making it difficult to establish a comprehensive database of guests and to effectively segment their customer base.
Luckily, hospitality professionals that understand the challenges and opportunities associated with OTAs can leverage technologies and software to build direct relationships with guests and start converting OTA users to direct bookers.
4 main challenges related to OTA bookings are:
- Reduced profit margins
- Lack of control
- Diminished brand value
- Lack of OTA guest data
OTA vs. Direct Bookings: The True Cost of Choosing Third-Party Sites
When OTAs first began partnering with hotels, their main selling point was the ability to reduce the cost of acquiring new guests. At that time, paying the 20-30% commission fee on a customer who had never heard of the hotel before was reasonable. However, today, many hotels have become overly dependent on OTAs, leaving them with few options to compete and optimize margins.
Despite the existence of price parity agreements, hotels and OTAs should continually monitor pricing practices to ensure compliance with these agreements. OTAs still find ways to violate these agreements, that’s why it’s so important to hoteliers to focus on increasing the number of direct bookings.
Price parity agreements are just one of the ways that hotels can be hurt by their relationship with OTAs; other challenges include:
- Reduced profit margins: When hotels are required to offer the same rates on all channels, they may be forced to lower their prices on their own websites in order to remain competitive with OTA prices. This can result in reduced profit margins for the hotel, as they have to pay commission fees to the OTAs.
- Lack of control: Price parity agreements limit a hotel’s ability to control the prices that are being offered on various platforms. This can be particularly challenging when an OTA offers discounts or promotions without the hotel’s consent.
- Diminished brand value: OTAs frequently offer discounts and promotions that can devalue a hotel’s branding. When guests see a hotel’s rate on an OTA that is significantly lower than the hotel’s own website, it can create a perception that the hotel is not worth the full price.
Hotels must strike a balance between OTA and direct bookings, and here are some steps that will help you to start converting OTA guests into direct.
