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A Ten-Step Program for Easing Your Hotel’s OTA Dependency

 
By Daniel Edward Craig, August  27, 2010

These days, bashing online travel agencies has become a popular sport. The likes of Expedia, Travelocity and Priceline are being blamed for commoditizing hotels, for decimating rates, and for training travelers to demand deep discounts. We can probably find a way to blame them for that oil spill in the Gulf of Mexico too.

Not that OTAs need defending, but the reality is, we as hoteliers share the blame. It’s our signature on OTA agreements. We give them access to inventory at heavily discounted rates. And we’ve taught travelers to look for the best deals on OTA sites. 

Case in point: While reserving a hotel in Chicago last month, I found six different rates for the same room. The lowest came from Expedia at $180. Inconceivably, the highest rate came from the hotel’s in-house reservations department at $229. Such “rate disparity” is rampant. 

What started as casual use has become an unhealthy addiction. Meanwhile, while hotels are staggering toward recovery, the OTAs are boasting enormous growth. It’s time to take back some of the control we relinquished during desperate times. To that end, here’s a ten-step program for easing your hotel’s OTA dependency. 

1. Admit you have a problem. The OTAs are not the cause of the discounting problem, but they are enablers and your competitor hotels are codependents. By advertising heavily that they offer deeply discounted rates, OTAs have contributed to the firesale mentality among travelers. Hotels have exacerbated the problem by being always on sale, by offering discount rates on discount rates, and by treating all inventory as distressed inventory. 

2. Do the math. Yes, OTAs can move a lot of inventory, but at what cost? The terms of OTA agreements vary, but typical commissions range between 15% and 25%, with big-box chains paying the least and small independents the most. At $200 per night for a three-night stay, an independent pays $150 in commissions. Compare that to the low-to-zero costs of direct bookings. How could you use the difference to attract more lucrative direct bookings?

3. Don’t overestimate the billboard effect. No question, OTA business is an important part of the market mix. As Mike Nelson, president of Partners Services at Orbitz, explained on Tnooz.com, “In any economic climate, online travel companies are a strategic resource for hotels that want to stimulate demand, access a global distribution platform and benefit from vast marketing and promotional investments.” But to rank high on OTAs you must offer deep discounts. As powerful as the “billboard effect” is the “OTA effect” of training travelers to book via third parties. 

4. Make direct the best option. Travelers should get the best deals by booking direct, period. Honor your rate parity agreements, but implement a best rate guarantee and clearly state the advantages of booking direct, like Marriott’s Look No Further™ promise. As an added incentive, offer value-adds not available via non-direct booking methods.

5. Be strategic. Instead of discounting across the board, forecast demand in each market segment and develop separate strategies. Reward travelers for advance bookings and build rate on that base rather than offering the best deals on last-minute bookings. In an interview with EyeforTravel, Kurien Jacob of Highgate Hotels argued that opaque sites “should be used only if the hotel needs to protect its overall retail rate to maintain brand image, prevent group room dilution or maintain corporate negotiated rate protection.”

6. Use social media to connect with travelers. Private sales via members-only sites like Jetsetter and Vacationist allow you to bypass OTA rate parity requirements, but the terms can be even less favorable than those offered by OTAs. Use them sparingly to create base and sell off distressed inventory. Focus your efforts on social media and reputation management to build your email database and Facebook and Twitter followers and save your best deals for them. 

7. OTAs are partners and competitors. OTAs don’t care which hotels travelers book as long as they book through them. Traditional travel agents charge 10% commission and provide personalized service in bricks-and-mortar offices. How can OTAs justify such high commissions, and where does the money go? Seen the TV ads, the cost-per-click ads, the print ads and banners? They’re driving up your advertising costs and luring travelers from direct channels. Goldman Sachs estimates that OTAs generate 8% to 10% of Google’s gross revenue worldwide. 

8. Leverage your power. Competition among OTAs is fierce, and they need access to your inventory at competitive rates to compete. In an interview with the Chicago Tribune, Priceline CEO Jeffrey Boyd said, “You've got to have the best rate, and the hotel has to be available when the customer is searching on it." Leverage this power by negotiating the terms right for you. According to revenue management consultant Jil Larson, that means “either block space or last room availability but not both.” If the OTA won’t come to terms, find one that will. 

9. Loyalty means loyalty. Loyalty program members who book via OTAs must understand that they’ve forfeited their perks to the OTA in the form of a hefty commission. Stipulate that members must book direct to qualify for privileges. This is especially true of opaque sites; booking blind isn’t brand loyalty. 

10. Make the booking experience seamless. OTAs are brilliant marketers and are constantly improving the consumer experience. How does your booking experience measure up? Is your website mobile compatible? Make voice reservations accessible, efficient and personal – an area where OTAs can’t compete. And invest in a two-way PMS interface to decrease time spent managing rates and inventory and free up time for strategizing. 

As for that hotel in Chicago, I asked them to match the Expedia rate. They agreed, so like a good hotelier I booked direct. Don’t make your guests jump through the same hoops.

Further reading:
Travel Sites Get Boost from Four-Star Hotels at Three-Star Prices, Ben Steverman, Business Week
Why hotels and online travel companies still share a common goal, Mike Nelson, Tnooz 
Orbitz's hotel strategy revolves around new search tools, Julie Johnsson, Chicago Tribune 
How Will Google Shake Up Online Travel?, Jennifer Valentino-DeVries, The Wall Street Journal
Rate Parity or Rate Disparity?, Patrick Landman, Xotels
WWED: What Would Expedia Do?, Jil Larson, Dynamic Revenue Management 
Acquiring new customers through selective and scientific rules-based discounting, an interview with Kurien Jacob, EyeforTravel

Daniel Edward Craig is a former hotel general manager turned consultant and the author of the Murder at the Universe and other hotel-themed books and articles. His blog is considered essential reading for hoteliers, travelers and students alike. Visit www.danieledwardcraig.com or email dec@danieledwardcraig.com. Twitter: dcraig.
 

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Contact: 

Daniel Edward Craig
dec@danieledwardcraig.com
 

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Also See: Is the Role of the Hotel Concierge Going Obsolete? / Daniel Edward Craig / July 2010
Toss That Script Aside: Tips for Generating Positive Hotel Reviews / Daniel Edward Craig / July 2010
Tips for Managing Online Hotel Reviews: An Interview With TripAdvisor / Daniel Craig / March 2010
Does Social Media Make Your Head Hurt? Here Are a Few Helpful Resources for Hotels / Daniel Craig / January 2010
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