It comes at no surprise that OTAs have always been the best in getting the most out of the crises, at the expense of hoteliers’ margin dilution.
NB: This is an article from Direct Your Bookings
Wait, we are not blaming OTAs here: we, as hoteliers, are responsible for the choices we make when it comes to distribution. When there is unawareness on revenue and distribution management, the focus is frequently on occupancy rather than NetRevPAR and Profit, the two most important indexes for the hotel’s financial health.
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Post-2008 crisis is full of business cases of hotels that committed up to 70% of their inventory to tour operators and OTAs in the desperate effort to drive occupancy, totally neglecting any consideration on revenue and profits.
It took years for these hotels to ramp back up on profits and market share, compared to the ones that maintained a balanced channel mix and focused long-term.
After Thomas Cook tour operator went bankrupt, some hotels experienced severe financial issues as they were overdependent on this player only, and did not have any plan B (and strategy) when the operator closed.
Unhealthy distribution and channel mix, overdependence on only a few players and neglecting the importance of a distribution strategy, can kill faster than a crisis.
Before falling in love with volumes, look beyond the gross rate. Commissions, promotions, discounts can be margin killers.
If you start from a sell rate of e.g. 100 euro and you start deducting Member discount, Opaque discount, Commissions… you can easily get to 40% or 50% of distribution costs (or better, cost + missed revenue for the more precise revenue people out there :)).
It is not black and white but it is paramount to be aware of the costs related to intermediation, like it or not, revenue management is not about top-line only anymore (was it ever by the way?)
Member discounts: give me more
We have always been intrigued by the controversy of the loyalty programs for OTAs. According to Wikipedia: “A loyalty program is a marketing strategy designed to encourage customers to continue to shop at or use the services of a business associated with the program”.
So basically when we are agreeing to an OTA loyalty program, we are “encouraging customers to continue shop” at that specific OTA.
Weird isn’t it?
Hotel chains don’t obviously join the OTAs loyalty programs, having already their own one (would you imagine a Marriott hotel joining the Genius program?).
But is that worth it for independent Hotels? OTAs are very tricky and there is an allure in joining their programs: visibility, average extra spend, longer length of stays and more chances of being selected among the competition.
When volumes are low, who wouldn’t be tempted?
All that sounds amazing, but we don’t have to forget that we are still “encouraging customers to book there”.
So let’s make sure that we give an extra discount for direct bookings, enticing guests to join our “membership club” for instance or simply by capturing their email for marketing purposes.
Technology helps and the most advanced booking engines or marketing tools, allow to match the Member only discounts. There are plenty of opportunities, the right choice is always to make sure that it is never more convenient (both in terms or pricing and value) to book via an OTA rather than direct.
Member discounts, frills and upgrades don’t have to be made available across all room types and all year round: before committing make sure you set your strategy according to your own goals and not for the OTA interest only.
Lastly, pay attention to the fact that OTA members discounts (almost) always sum up automatically. So each time you agree to a promotion or offer, the member discount is added on top.
If you don’t want that to happen because it is unprofitable, revise your promotion discount or talk to your market manager!
Sense of exclusiveness and personalisation…?
Flash sales & subscription models
Flash sales cause addiction
There was a time when flash sales were the ultimate addiction! As a borderline compulsive buyer, I was addicted too.
The winning logic of flash sales is based on scarcity and great savings for members only, giving a great sense of exclusiveness. And sooo appealing for Hoteliers that can get quick bookings with very low effort!
Curious though, that “exclusive” or “private” sale requires only one-click to register and become visible and bookable.
Flash sales have increased in popularity over the years, major OTAs such as Booking recently launched Flash Deals promotion vehicle, aimed at giving travelers great discounts for a limited time booking window..
Flash sales can drive great volumes but the costs associated are quite high, much higher than any other OTA.
Factoring the rate reduction + the commission, you can start from 50% + the costs of the benefits and frills included in the offer, it can easily reach a 70% distribution cost in total.
In our experience, we have seen hotels making a great use of flash sales…far too great though: arriving at ridiculous margins after exhausting negotiations with the partner to drop the rates, and then struggling to accommodate all the bookings (with consequent revenue and profit displacement).
Some Flash Sales turned into Permanent Collections, with some Hotels always featuring their offers. Looks like the model is evolving in a way, and becoming in our view more like a hybrid wholesale/OTA model.
Again, a wise forecasting of costs and opportunities to make the right choice, as per every channel
