A recent Deutsche Bank Research Report published July 13, 2016, highlighted hotel owners’ creeping concerns. Something just isn’t quite right when it comes to the proliferation of loyalty rates.
NB: This is a guest viewpoint from Peter O’Connor, professor of information systems at Essec Business School in Paris, and European online analyst for Phocuswright.
A close examination of hotel property financial statements reveals the truth: for many branded hotel properties, online travel agency (OTA) channels are now driving more value, and increasingly more room revenue, than brand.com!
How could this be? Let’s take a look at an interesting case study. (Editor’s note: Tnooz has agreed to not name the brand for confidentiality, but we confirm that the data is for one of world’s most recognized brands.)
I examined the Franchise Disclosure Document for a leading global lodging brand and discovered a dazzling array of fees that owners can expect to pay for their distribution. These include:
• Franchise Fee: 6%
• Reservation Fees: $4.24
• Transaction Fee: $0.0895
• Marketing Fee: 1%
• Loyalty Fee: 4.5%
• Large Global OTA Commission: 13%
• Commission Processing Fee: $0.16 + 2% of commissions paid
• Paid Search Fee: 9%
• Credit Card Fees: 2%
Other key data points:
• ADR: $153.43
• Average Loyalty Discount: 4%
Figure 1, above, demonstrates that an OTA with a primarily merchant based model can expect to drive $119.81 to the bottom line of an owner.
This represents a 1.2% increase or $1.37 more than a brand.com Loyalty Member on a standalone booking!
Note also that the loyalty discount offered by this brand is relatively conservative, with several of its competitors offering far more aggressive ‘savings’.
The economic delta might seem narrow. After all, what’s a $1.37 to build a relationship with a customer and truly own that customer?
But what this model doesn’t show is the dilution caused by offering a loyalty discount to customers who would probably have booked directly anyway.