How To Mitigate Dependence on OTAs
By Larry Mogelonsky , Principal, Hotel Mogel Consulting Ltd. & Chairman, LMA Communications Inc.
On the consulting side of my business, I work with many delightful and hardworking hoteliers. True, we get into numerous discussions on issues such as rate and amenities. Ultimately, these individuals are committed to the crux of hospitality: They truly care about their guests. Nary a day goes by where our meetings are interrupted by a guest request. Seemingly trivial in the grand scheme of things, but important at that moment, discourse and intervention are required. A check-in of a VIP guest? No problem; someone from senior management will be there.
They arrive on our doorstep through a third party. Unlike a traditional travel agent referral, we know next to nothing about them; there are no data guideposts to assist the hotelier in pre-arrangement. Room style? Well, maybe two bed versus the king bed, but we cannot know for certain whether they are satisfied with this decision. Special needs? Beyond handicap requests, we're left in the dark. We often don't even know their flight arrival, thereby creating a further challenge in planning housekeeping necessities.
All the hotelier knows on pre-arrival is this: Mr. and Mrs. X are arriving sometime on Day Y, requesting a room style of Z. And, as is often the case with an OTA, they have booked the cheapest room on the books. Making matters more frustrating, the net yield to the hotel after commissions for the arriving OTA guest makes them the lowest paying customer. It's a guest service challenge with limited rewards.
So, what does the hotelier do? I have read numerous articles and heard many arguments that go along these lines: "We will give the OTA guest such a terrific and superior experience that next time they will book directly with us."
Think about this for a moment. Is there a difference between the OTA guest and a directly booked guest in your property? Aren't all guests to be treated equally? As well, if that guest is indeed given all of these "extras" even though they booked through the OTA, what incentive are you giving them to book with you directly? The sorry fact is that this customer is not your customer. You are merely a provider of a guestroom for that OTA.
This reality might come as a bit frightening. The OTA booking experience is superior to that of hotels as it allows the traveler to shop for airlines, accommodations and car rentals simultaneously through one single guest profile. It simplifies the travel buying process and does it very well. The cost of building this type of massive interface was borne partially by you the hotelier and is continuously paid out through a high commission rate.
The plain and dire truth is that the OTAs have out-marketed the hotels. Give them credit for provocative advertising dished up at high media levels. Give them credit for a better Web experience. And, recognize their evangelical approach to our industry. Scan every hotel conference agenda. It is difficult to find one that does not have a speaker from one of the OTAs preaching their gospel. Looking at it from a long-term perspective, it is perhaps the most revolutionary change to our industry since the invention of the credit card.
Some considerations to build loyaltyHow can the hotelier combat the OTAs? I might add that if you are an owner or manager of a limited-service property, some of my recommendations are not entirely feasible. For those of you who want to sell more than just a quick night's rest, here are some thoughts:
1. Make your own website experience fantastic.
Sell your property and its virtues. If, per chance, a potential guest visits your site while also checking availabilities on his or her favorite OTA (not uncommon with new browser tabs, new browser windows or dual computer monitors), make sure you clearly identify a "best rate guarantee." As well, I have seen several hoteliers offer unique non-monetary inducements to direct-shopping customers, such as breakfast or as-available room upgrades.
2. Never lose a customer through your reservation center.
Sometimes a guest will phone instead of utilizing your website. Make sure you expertly handle phone reservations 24/7. When your reservation center closes for the night/weekend, rather than diverting calls to the front desk or an answering machine, hire a professional firm to take over so that customers will always have the opportunity to hear a reassuring, human voice on the other end. The voice channel typically represents 6% to 10% of business. Make it work for you.
3. Remember the traditional travel agent.
This once critical segment now accounts for a much smaller slice of your business. However, they know their customers, who typically are booking better rooms and suites. They work hard for their 10% commission. Give them respect and help them with their unique customer requests, and this will be repaid with tremendous loyalty. And remember to pay those commissions promptly.
4. Retain your loyal, direct-booked customers.
Flag guest dossiers with a marker as to how they booked. At check-in, thank them for booking directly and reinforce this with a small gift of some sort. Communicate with them through an e-newsletter. One of my clients thanks each property.com and phone-in booking with a $50 food-and-beverage or spa credit immediately upon check-in. While this might be a token amount in light of a $300-plus average daily rate and two-and-a-half nights average stay, their guest comments have improved measurably since implementation, and overall revenue per occupied room hasn't fallen.
5. Analyze your business segments based upon NET contribution, not just ADR.
Your revenue manager has the toolset. By focusing on rates net of commissions, you might alter your approach to the use of OTAs. The goal is profitable occupancy, not just occupancy at all costs.
6. Consider eliminating OTA availability during anticipated sell-out dates.
When are you full year after year? You have historical trended data. Run the numbers. It might be more profitable to operate the house at 80% with a 20% higher net rate than at 90% with a large OTA contingent.
7. Create demand through advertising.
Start with a targeted Google AdWords campaign to generate base-level volume. Limit your costs to a percentage that matches traditional travel agents, which could be as much as 20 points less than the OTAs. Next, look at Facebook advertising. I am not outright recommending this approach for all properties, but it is an option. Lastly, merge your promotional activity with targeted traditional advertising, such as radio, print or television. Advertising has generated demand for the past 100-plus years.
8. Consider an incentive to OTA guests, but only if they book directly next time.
While we have tested this, the results have been inconclusive. You might think that an incredible $100 bounce back coupon (that's the technical term) will generate solid demand. However, the frequency of visits to most hotels is measured in months or years. It is difficult for people to remember they have a coupon, let alone cash it.
The challenge of the OTA is not going to be solved simply by building a better mousetrap—that is, a website. If you want to reduce the OTA component of your business, you had better develop an infrastructure that replaces this segment. Easier said than done, I know. But remember, you ultimately manage the amount of inventory you give to any segment. You are in control. Have your revenue manager jointly sign the checks you send to the OTAs. Set the goal of lowering the dollar amount of that check while also increasing occupancy. See what happens when you tie the revenue manager's performance package to those two often conflicting goals.