A Call to Arms: How to Shift Market Share from the OTAs to the Hotel Website
This year, the hospitality industry is in for a lot of pain. OTA dependency continues to plague the hospitality industry, despite gains in the past three years and positive trends in all three industry indicators. This isn"t new. What"s new is the pain to the bottom line inflicted by the fat commission checks hoteliers are now paying Expedia and other OTAs, due to the widespread adoption of Expedia"s and Booking.com"s agency model in the U.S.
Last year, Expedia introduced the Expedia Traveler Preference (ETP) Program to the U.S. market, a classic "agency" distribution model and a stark departure from the traditional OTA merchant model. With ETP, travel consumers book on Expedia and pay when they arrive at the hotel. The hotel then pays Expedia the contracted commission.
The ETP is the U.S. reincarnation of a similar program Expedia has been running in Europe for at least three years: The Expedia Easy Manage Program, which has more than 15,000 participating European hotels. Expedia was forced to introduce this program to the U.S. to better compete with Booking.com"s agency model after the aggressive introduction of Booking.com to the U.S. market, and as a result of tremendous pressure by the major hotel brands.
Independent hotels are particularly OTA-dependent. On average, more than 42% of roomnights for independent hotels are reserved via the online channel. Unfortunately, only 24% of these roomnights come via the hotel website, while more than 76% percent are made through OTAs (STR, HSMAI Foundation).
The industry has detested the OTA merchant model since its very beginning back in 1995 (remember HotelDiscounts.com, the precursor to Hotels.com?). Though the adoption of the agency model, including the ETP Program, is a very positive development for the industry and a step towards a more palatable agency model becoming the dominant format of the OTA/hotelier relationship, hoteliers have an uphill battle in front of them in terms of decreasing their dependency on the OTA channel.
2013 Will Be the Year of Realizing the Extent of the Pain Caused by the OTAs
This year, painful commission checks due to Expedia"s ETP agency model have started flying out the door, and hoteliers are seeing for the first time the true financial ramifications of their dependency on the OTA channel. In the past, operating under the merchant model, Expedia deducted its hefty merchant commission (average of 25% for independent hotels) and hoteliers received the net from any OTA booked revenue. These net OTA revenues lowered the overall ADRs at the property but did not appear as an expense item in the property P&L.
Under the new ETP agency model, hotels are now cutting highly-visible commission checks which are classified as distribution costs in the same manner as third-party booking engine fees, GDS fees and traditional travel agency commissions.
Think about this. For a typical boutique hotel in a major metro area with 150 rooms, an ADR of $150 and occupancy of 70%, the number of OTA bookings could exceed 6,200 per year, and the commission checks to the OTAs could easily exceed $500,000 per year. This cash outflow affects the bottom line in a very negative way.
Just compare the above scenario to the savings that come from the direct online channel, i.e., bookings via the hotel website. At an average cost of $11.85 per booking (the average cost per booking across HeBS Digital"s hotel client portfolio), these same 6,200 bookings would cost $73,470 – a direct contribution to the property"s bottom line of $426,530.
The industry is feeling the pain from OTA dependency now more than ever and hotel owners, managers and franchisees are urgently trying to devise ways to lessen their exposure to the OTA channel.
Now more than ever, the main focus and priority for any hotelier should be to sell as much inventory via the hotel website as possible. The hotel website is the most cost-effective distribution channel that also preserves rate parity and price erosion.
How Can Hoteliers Shift Share From the OTAs to the Property Website?
Here at HeBS Digital, we have been helping hoteliers drive revenues through the direct online channel since the firm"s inception in 2001, and educating hoteliers on how to use the OTAs only as part of a balanced distribution strategy. Here are several strategies and action steps to help achieve OTA independence, which we define in two distinct categories: Business-Level and Digital Technology + Marketing-Level initiatives.
- Business-Level Initiatives
Maintain Market Parity
Though not a widely used industry term, "market parity" refers to not only maintaining adequate market rate compared to the property"s comp set – not above or below the comp set"s ADRs for any given time period – it also means matching and even doing a better job than the competition as far as value-ad, innovative and appealing promotions, packages and special offers are concerned.
Hoteliers must be more innovative with their special offers and come up with value-added promotions that bundle the "naked" hotel rate with F&B credits, parking garage credits, event and entertainment tickets, etc. The point here is to create unique and enticing offers, packages and promotions for the hotel website and market those via the direct online channel in a multi-channel campaign fashion. Over time, this approach will convince travel consumers that the hotel website is the one and only source of intriguing and meaningful hotel offers and it will become the preferred choice for booking the hotel.
Example: If a competitor offers a $150 weekend rate, along with a "$1 Breakfast Promotion" at this rate, merely matching the $150 rate isn"t good enough. Your rate does not provide the same value as the competition. Or if your rates are comparable to your competitor"s as per the latest business intelligence report, but your competitor has a "Stay 2 Nights, Get the Third Night Free" promotion, then your offer is still not good enough.
The availability of appealing packages and promotions on the hotel website and the marketing of these offers via every single "tool" in the property"s marketing toolbox are part of best practices in hotel distribution. There"s no doubt that great offers, intriguing packages and special promotions increase the number of rooms sold. A hotel will see an immediate increase in direct bookings if there are more appealing offers and better promotions compared to previous periods.
Any hotel promotion or special offer should be marketed via a comprehensive multi-channel marketing approach that includes the desktop, mobile and tablet websites, email marketing, SEO, SEM, social media, and online media.
Maintain Strict Rate Parity
A principle once considered elementary now merits a reminder: All hotels must maintain their best available rates and last-room availability on their own websites, including desktop, mobile and tablet websites!
Unfortunately, this is not the case, even in 2013. In the U.S. for the period February-April 2013:
- 67%-88% of 3-star hotels were cheaper on OTA sites
- 65-98% of 4-star hotels were cheaper on OTA sites
- 60%-79% of 5-star hotels were cheaper on OTA sites
A thorough rate parity strategy, including a Best Rate Guarantee (BRG) and easy-to-use BRG Claim Form, will encourage consumers to book direct. Many travel consumer surveys categorically show that the vast majority of travelers prefer to book and deal with the hotel directly, provided that rates and ease-of-booking are comparable between the hotel website and the OTAs. In addition, travelers know that all special requests (such as ADA rooms, higher floor, ocean view, etc.) must be confirmed by the hotel.
Hoteliers, remind your friends (not your competitors): All publically available rates, including 24-hour sales with OTAs and flash sales, must be available on the hotel website within its online booking engine. The mobile channel is not exempt, and must be treated as an official rate parity gatekeeper.
For example, if the hotel needs help from the OTAs and decides to have a 24-hour sale on Expedia, the property should simultaneously launch a multi-channel digital marketing campaign promoting the same 24-hour sale via the direct online channel, including:
- Promo slide on the Home Page promoting the 24-hour sale
- Landing page with SEO content about the 24-hour sale
- Travel consumer deal alert via online newswire services
- Paid search (SEM) campaign on Google, Bing, Yahoo
- TripAdvisor CPC and Business Listing Offer Campaign
- Email marketing to the hotel"s opt-in list
- Social media postings on the property"s Facebook, Twitter and Google+ profiles
- Online media campaign (Google Display Network, TripAdvisor Banner Advertising, Adara Media, etc.)
Use the OTA channel carefully, and only within need periods: weekends, group cancelations, low season, etc., and not as a replacement for or an alternative to the direct online channel. Any sale or promotion via an OTA should be used only as a last resource and should be equally promoted via the hotel website and supported with marketing initiatives (SEM, email, mobile, social).
It is worth a reminder here that participating in daily deal/flash sales sites like Living Social and Expedia Getaways, or offering last-minute discounts via HotelTonight.com or the OTAs, is against best practices.
Allocate Sufficient Marketing Funds
The age-old question of how much should be allocated to the property"s sales and marketing efforts has always been a point of contention between owners and managers. The optimum levels vary vastly between branded and independent hotels. We have heard questions ranging from "Why would we spend money at all?" coming primarily from branded properties to "Why spend marketing dollars now after we re-designed our property website?" asked by some independent and branded properties alike.
Last year, branded hotels received 38.7% of roomnights via the online channel. Nearly 68% of those came from brand.com sites, while 32% came from the OTAs (TravelClick NADR, 2013). Compared to independent hotels, the direct online channel contribution was significantly larger. Why is there such a significant difference between branded and independent properties?
- Branded hotels benefit from decades of investments in brand-building efforts by the major hotel brands.
- More than 50% of guests at Marriott, Hilton, and Starwood properties are members of the respective brand loyalty program.
- The major brands are spending millions of dollars in brand-related marketing campaigns: from online media to TV and print.
- All the major brands are running performance-based SEM and CPC campaigns (i.e. 8.5%-11% commissions paid by the branded properties to the major brands): Google, Bing/Yahoo, TripAdvisor CPC, Google Hotel Finder, Kayak.com CPC, etc.
- All of the above is not "free" advertising for the branded property: it comes from the hefty franchisees fees (9%-12%) as well as additional marketing and loyalty program fees + commissions for the performance-based campaigns.
Think about what percentage of room revenue goes to all of the above? 10%? 12%? 14%?
So why are independent hotels overly exposed on the OTA channel? Why do 76% of roomnights booked online in this sector come from the OTAs and only 24% from the properties" own websites? Here are just a few reasons why:
- Independents do not enjoy brand recognition at the level branded properties do.
- Independents do not have appealing and meaningful loyalty programs.
- Independents are "afraid" to invest in the online channel: from websites to digital marketing technologies to online media spend.
How much should independents spend on sales and marketing initiatives? Unlike the retail industry, where unwritten laws mandate 10%-12% from retail sales must go to sales and marketing, such rules do not exist in the hospitality industry. Different hotel management companies and resort operators have developed their own formulas, varying from 4% to as high as 8% of room revenue.
In my view, independents should allocate a minimum of 4%-6% of room revenue for the property"s marketing + advertising budget. Here is a very simple approach already used by some hotel management companies and resort operators to defend budgets in front of ownership:
- Calculate all of the fees you would pay per year if you were a branded hotel (let"s assume 10% from room revenue).
- Calculate all of the OTA commissions you would pay per year.
- Calculate the marketing + advertising budget based on 4% to 6% from room revenue per year.
- Compare items 1 and 2 from above to the proposed marketing + advertising budget.
- Adjust as needed.
What about branded hotels? Branded and franchised hotels that are over-reliant on their brands" online marketing efforts are missing serious incremental online revenues from local, state and regional initiatives. For example, HeBS Digital has a number of very proactive franchised hotel clients which are consistently enjoying higher revenues from their vanity websites than from Brand.com sites. Branded hotels should allocate sufficient funds in the property budget to take advantage of initiatives the major brands are not good at or not focused enough on: leisure travel, weekend travel, family travel, small and midsize corporate meetings, SMERFs and in-state and regional group travel, social events and weddings.
As to what percentage of the overall sales and marketing budget should be spent online, the answer is very simple: Spend where the vast majority of your potential customers are – online. Starwood announced last year they would be spending 75% of their marketing and advertising on digital marketing initiatives.
Launch a Property-Wide "Book Direct" Action Plan
Any dramatic shift in market share from the OTAs to the hotel website cannot succeed without a) developing and implementing a property-level direct online channel action plan, and b) educating your property staff and then embracing this "Book Direct" action plan.
Here are a few courses of action our clients have had success utilizing:
a) On the Hotel Website:
- Adopt a Best Rate Guarantee on the hotel website.
- Create a well-presented and appealing Reward Program and promote via the property website. Even the smallest property should have a frequent stay reward program or guest appreciation program in place. This program should reward guests for their loyalty with complimentary Wi-Fi, room upgrades or free breakfast.
- Feature the Best Rate Guarantee and "Guest Appreciation Program" message in all print advertising, brochures and email marketing initiatives.
b) At the property:
- Front Desk: there should be a highly visible decal at the hotel front desk promoting booking via the brand website, the Best Rate Guarantee and the Reward Program.
- "Thank you for staying with us" letter from the GM: Upon check-in, all guests with reservations from OTAs should be handed a letter from the GM of the hotel, recommending the guest book their next stay on the property website and offering a 10% "customer appreciation" discount if they do so (via a special rate code).
- "Hope to See You Soon" card: Upon check out, guests with reservations from the OTAs should be handed a card from the GM, thanking them for their stay at the hotel and recommending they book their next stay on the property website.
- Create an email list of all guests with OTA reservations. On a monthly basis the property should send out a custom email promoting the property"s latest special offers and packages, events and happenings, as well as offering a "Book Direct" discount for booking the next stay via the hotel website.
Employee education is extremely important for a "Book Direct" action plan to succeed. Every hotel employee should be encouraged to visit and become familiar with the various incentives offered by the property for booking directly via the hotel website. Each employee should know the ins and outs of the property"s Best Rate Guarantee, Reward Program, or Guest Appreciation Program.
- Digital Technology + Marketing Initiatives
Upgrade Your Website to 2013 Standards:
Many hoteliers are mistakenly led to believe that not investing in their property"s website re-design or optimization will save money. Wrong! Not investing in your website will cause you to lose money and severely damage the hotel"s bottom line.
First and foremost, your website must be "in good health" in order to comply with 2013 best practices and website technology requirements. The ongoing Google Panda algorithm updates have made many old hotel websites completely obsolete and have generally raised the bar for new hotel websites, demanding a new type of website technology and architecture, faster download speeds, and website copy that is not only deep and relevant, but also unique and engaging.
In 12 short months, the ongoing shift from desktop to mobile and tablet devices has created a sense of urgency to improve the hotel"s presence on these devices. In Q1 2013, compared to Q1 2012, website revenue from mobile devices increased by 58%, while tablet revenue almost doubled (+95%) across HeBS Digital"s hotel client portfolio. During the same period, desktop website revenue dipped by 5.1%.
Remember, the majority of "mobile" bookings, room nights and revenue are generated by tablet devices such as the iPad, Samsung Galaxy and Google Nexus; not by "pure" mobile devices like the iPhone, Android and Windows Mobile-based smartphones. Across HeBS Digital"s hotel client portfolio, tablets generate 200% more room nights and 430% more revenue than "pure" mobile devices.
Google expects significant increases in hotel related searches from mobile and tablet devices in 2013:
Begin by treating the desktop, mobile and tablet as three separate channels. Internet users exhibit different behavioral patterns when browsing the Internet and the desktop website, mobile and tablet devices address different needs at different times of the day and week. It is obvious why specialized content is needed for each device:
- Desktop users need as much information as possible, including a minimum of 25-50 content pages per property and another 50-100 specialized marketing and landing pages featuring special packages, promotions, and events. Desktop users also place high value on visual galleries with photos and videos.
- The on-the-go mobile user requires short, slimmed-down content with an emphasis on maps and directions, an easy to use mobile booking engine, and a click-to-call property reservation number.
- Tablet users require deep, visually enhanced content about the property and its destination. A well-structured, highly visual hotel tablet-optimized website can generate conversion rates several times higher than those of mobile devices.
Second, hoteliers need to upgrade their property website technology to the next generation of Content Management System (CMS) to enable:
- Management of desktop, mobile and tablet website content (copy, photos, special offers, events and happenings) via a centralized dashboard.
- Responsive Design on the Server Side (RESS), which employs device-specific modifications to CSS and Java Script to present a customized desktop, mobile and tablet "front end" of the website, while utilizing the content from the central CMS on the back end.
Third, all three channels must be integrated within the hotel"s multi-channel marketing strategy. Use analytics such as Adobe Omniture SiteCatalyst and Google Analytics to determine contributions from and the dynamics of each of the three channels.
Launch Multi-Channel Digital Marketing Campaigns
In digital marketing, the whole is always bigger than the sum of its parts. Any hotel promotion or package or special offer must be promoted via a multi-channel marketing campaign using all digital marketing tools in the direct online channel "toolbox."
We live in a multi-channel marketing environment. We are dealing with increasingly hyper-interactive travel consumers who switch channels on an hourly basis (desktop during the day; mobile device during lunch break and after work hours; a tablet when lounging in front of the TV in the evening).
Multi-channel marketing campaigns are the most effective way to address the property"s business needs, increase reach, and boost bookings and revenue for a need period due to seasonality or group cancelations, weekend vs. weekday occupancy issues, as well as needs related to any key customer segment: meeting planners, wedding planners, leisure travel, corporate travelers, etc.
Multi-channel marketing is the foundation for a smart direct online channel strategy. In this environment, the hotel website, SEM campaigns, email marketing, social media presence, mobile, etc. have a symbiotic relationship. For example, if you launch a website promotion, you should also send an email to the hotel"s opt-in list, announce it on Twitter and Facebook, launch a paid search campaign and publish a blog posting via the hotel blog.
A "Black Friday" Multi-Channel Campaign for a Resort Company.
Every year HeBS Digital works with a resort client to launch a Black Friday campaign to generate interest and stimulate bookings in what is traditionally the slowest booking period of the year. We build an interactive microsite and a contest to be the centerpiece of the Black Friday campaign, and launch a multi-channel campaign to reach consumers at every touch point.
- Overall ROI: 1,606%
- Increase in Revenue YOY: 66%
- New Email Subscribers: 936
- New Mobile Numbers: 189
- New Facebook Fans: 738
- New Twitter Followers: 64
- New Google +1"s: 52
- New Pinterest Followers: 36
The agency model adopted by Expedia and other OTAs plus the aggressive introduction to the U.S. market of Booking.com and its agency model, made the hospitality industry"s overdependence on the OTA channel painfully visible. It is time for the industry to fight back and shift share from the OTAs to the direct online channel i.e. to the hotel website. Not investing in your direct online channel will severely damage the hotel"s bottom line.
There are several strategies and action steps to help the hotel achieve OTA independence, which we define in two distinct categories:
- Business- Level Initiatives, including the need to maintain strict market parity and rate parity, adopting a rigorous "Book Direct" Action Plan at the property, as well as allocating sufficient marketing funds, and…
- Digital Technology + Marketing-Level initiatives, including investments in digital content, website design and CMS technology, as well as launching multi-channel digital marketing campaigns to tackle occupancy and business needs.
Partner with a digital marketing firm that tackles its clients" challenges and celebrates successes as if they were their own. A firm that goes above and beyond to deliver ROI on every dollar, focuses on initiatives that drive ROI, and helps hoteliers transform their Internet presence into their hotel's most effective distribution channel.
Max Starkov is President & CEO of HeBS Digital, the hospitality industry"s leading full-service digital marketing and direct online channel strategy firm based in New York City (www.HeBSdigital.com).
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