Distribution mix: A long-term strategy for hotels, not too dependent on OTAs
Those are the words of Booking.com’s Gillian Tans, speaking at ITB last week. You might not hear us say this too often, but we wholeheartedly agree with her. It’s right that hotels have diverse streams of revenue so that they can reach as many customers as possible and stay flexible in a fast-moving sector.
Still, even after an industry-wide push for more direct bookings, we hear so often of hotels, particularly across Asia-Pacific, becoming increasingly dependent on one, expensive channel — OTAs.
Of course, we know that OTAs have their place and that for many hotels they are valued partners. But given this worrying trend, we wanted to revisit exactly why, when it comes to distribution, we’d advise against putting all your eggs in one basket.
The prevalence of OTA undercutting
An OTA and hotel partnership should be a win-win. Hotels get the opportunity to market their rooms to a wider audience and the OTA gets a reward for its role as shop window. But it doesn’t always turn out to be mutually beneficial. Hotels are undercut by online travel agents 27% of the time, meaning OTAs often drive business away from the hotels and to their own sites and cheaper prices.
And the amount OTAs are shaving off the overall price is not always an insignificant sum. Our recent analysis of 7.7 million searches for rooms via the websites of our hotel clients in countries across the APAC regionshowed that when they undercut, OTA prices are on average of 11.4% lower. In Thailand, the average undercut rate is 17.7%, in Indonesia it’s 17.8%, in Malaysia it’s 23.4% and in Vietnam it’s as steep as 30%.
That matters because your online conversion rate is on average 31% higher when your prices are in parity with OTAs, compared to when they are being undercut.
So when you break it down, you are often paying for the pleasure of your rooms being sold for less and losing out on conversions on your own website too. That doesn’t seem fair to us. Regulators seem to agree. Around the world many countries have launched competition investigations into booking sites.
The Agoda problem
Speaking with our clients in APAC, we know that despite the above hoteliers manage to maintain relatively good relationships with OTAs.
However, many hoteliers report seeing their room rates vary frequently on market leader Agoda. It’s suspected that the Booking Holding-owned OTA changes prices depending on location, so a customer in Kuala Lumpur might see something different to another in London. Others think price moves based on internet browsing activity, so search histories affect rates. This makes it exceptionally difficult for hotels to maintain parity with Agoda and runs the risk of losing out on that higher conversion rate.
Crucially this highlights an issue more generally with OTAs and their power over the market. Hoteliers we’ve spoken to have been unable to get greater transparency over pricing from Agoda. It’s unclear why, but you can imagine that being in such a dominant position, Agoda feels little impetus to explain.
One way to level out the playing field, is to drive more direct bookings. With a strong alternative channel, hotels should be in a firmer negotiating position even with market leading OTAs.
We’ve explored what happens to conversions when you’re being undercut, but what about the less obvious impact; the erosion of consumer trust in your hotel.
Your guests shop around — Expedia research from 2015 said the average person visits 38 sites before booking — and seeing your rooms cheaper elsewhere is likely to undermine their confidence in your property and what they see on its website. That is not the typical starting point for a long-term relationship built on loyalty.
What’s more, if it puts people off booking on your website, you have to consider what it’s doing to your investments in ecommerce. Websites are expensive and they need to be firing on all cylinders to deliver return on that investment.
A poorer customer relationship
One of the reasons we believe that direct bookings are better for hotels is that they provide you with more information about your guest. From the very beginning of your relationship, you can build a; rich profile of the customer and tailor every aspect of your service appropriately. That’s what breeds loyalty — a lucrative line of business for any hotel.
With OTA bookings, you’re left with offer scant information and therefore have little chance to surprise and delight guests with personalized service and relevant promotions. That’s hardly your hotel performing at it’s very best.
If you need a firmer business case, consider this: Kalibri Labs suggests that that direct bookers are “significantly more profitable” than those coming via OTAs. The difference is about 9% on average. Our own research shows that 40% of hoteliers say regular direct bookers are their biggest spenders and 47% say they always treat direct bookers better. We suspect this is linked to knowing them better and being able to offer them what they want, when they want it.