Review Your OTA Contracts and Start to Take Back Control
This week I had the privilege of speaking at a Hotel Federation event organised by the Northern Ireland Hotel Federation and my subject was ‘how to increase profitability’.
NB: This is an article from Right Revenue
As you can imagine, this was a huge and slightly daunting subject and with only 45 minutes on stage, it was difficult to choose which core subjects to concentrate on – as we know, good Revenue Management touches every part of your business and every potential revenue gain opportunity.
One of the subjects I did decide to concentrate was on how to manage costs and spend on the OTA channels (and regular readers of this blog will know that I always love to take on some of the frankly despicable practices the OTA’s regularly enforce on our business). But as part of this discussion what I really hoped to alert the audience to was the importance of reviewing their own OTA contracts.
Now this sounds so simple, right? Wrong. I doubt there was more than a handful (if even) in the audience, who would have been able to put their hands on their major OTA provider contracts, never mind the smaller ones.
As an industry, we are often caught up in legacy contracts that have been rolling for 10 or more years. Has your business changed in that time? As I can guarantee theirs has!
Commission – This is more than a blog about commission, but let’s start with talking about that… When was the last time you negotiated your commission? A contract by its very nature is deemed up for negotiation, did you negotiate? Do you know that you can? You do not have to accept what you feel is ‘industry standard’ commission as trust me, there are always deals to be made. Okay, I agree, you have more power if you have a group of hotels, but you also have power in coming together as an area or standard of hotels in your area. Can you imagine the power we might have if we all came together to negotiate? Sound crazy? Maybe not…
Opt-in’s – Have you reviewed which channels you have been automatically ‘opted in’ to? Do you want to be part of Booking Basic, Package Terms where you pay extra commission to be bundled with flights, or perhaps the Early Payment Scheme? You don’t have to be, but you also need someone savvy in your organisation to read and understand the email correspondence from the OTA and to action it. All of these new product offerings affect your business and therefore your profitability and you do need to understand where you are
Allocations – Okay, not many OTA’s are holding you to allocations any more and if you have them, I would recommend you actually measure if they are working for your business (I doubt it). But if you have an allocation of rooms held for OTA’s please have a look at when they are being used; what business they may be displacing and the number of times when you are full on brand.com but still showing availability due to allocations on OTA’s. Allocations normally equate to really negative revenue practices so make sure you understand how they impact your own business.
Terms – General I know, but what terms have you signed up for and when did you last negotiate these? What are the payment terms? cancellation polices? complaint procedures? Again, these all affect how you run your business, so get checking
Distribution – probably the most important clause in any contract and due to the economic climate at the moment – and by that I mean that the OTA’s are buying up wholesalers – this is one that I feel will have the biggest negative effect on your overall business. You need to be so strict on who wholesalers can distribute to and which third party channels your third party channel can distribute on to! In a time when wholesaler and contracted rates are now routinely shown in the public arena, you need to understand who is working with who and how on earth your rates are going to be sold.
I am old enough (way old enough!) to remember a time when OTA’s were not a threat. In fact, they were seen as our ‘salvation’ during a severe economic downturn. This is no longer the case. OTA’s contribute to a large percentage of our bookings; a huge percentage of our cancellations and have an even larger impact on our bottom line.
The start of the process to win back some semblance of control is to understand the impact each channel has and to go right back to the point of contract. Not that long ago, an OTA was seen as a partner and often junior members of our teams were allowed to sign contracts without a second thought. My advice now, is to take back control – or start the process anyway.
Contracts are daunting and this could be a time-consuming job but I guarantee it will be worth it. And don’t forget, the power of negotiation is well in truly within the power of your voice. Shout loudly!