How easy is it for a lodging business to establish direct contact with its customers nowadays? At first glance, quite easy!
NB: This is an article from Smartness, one of our Expert Partners
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Between a website, social networks, email marketing, search engine advertising campaigns and instant messaging platforms, the opportunities to get noticed, promote offers and build lasting relationships with guests seem endless.
And yet, despite this abundance of resources, online travel agencies (OTAs) continue to dictate the rules of the game, while disintermediation remains a challenging goal to achieve for so many hoteliers.
However, mastering the challenge is possible: in this article, we will take stock of disintermediation and look at the key basic strategies for succeeding.
What is disintermediation in hotels: pros and cons
The word “disintermediation” in the hotel and lodging industry refers to the strategy of reducing (or eliminating) the dependence on intermediaries to sell rooms.
The goal is to increase direct bookings, that is, reservations that are made through the website or other channels controlled directly by the hotel, and stop paying commissions on every reservation generated.
And here lies the issue. While commissions are charged by any intermediary (tour operators, travel agents, GDS, corporate contracts, etc.), those charged by OTAs such as Booking.com and Expedia take the lion’s share, reaching between 15 percent and 30 percent of the revenue for each booking.
What are the 3 benefits of disintermediation for hotels
So, disintermediation means breaking free, at least in part, from the tight conditions imposed by OTAs. But what are the actual benefits of disintermediation? Here are the 3 most important ones.
1. Improved margins
The immediate (and most desired) benefit of increasing direct bookings is to drastically reduce the commissions paid to OTAs, increasing the profit margin per booking.
To quantify this, we can take the example of a hotel that, in a month, receives 100 bookings of 3 nights, with an average price of €100 per night, for a total revenue of €30,000.
If 50% of these bookings are through OTAs with a 20% commission, the hotel will pay €3,000 per month in commissions.
By increasing direct bookings to 70%, commissions would be reduced to €1,200 per month, saving €1,800 per month.
But that’s not all: by establishing a direct relationship with the customer, that hotel could create hotel packages tailored to the guest and adopt upselling and cross-selling strategies, resulting in a further increase in the value of the stay.
