Hostels are a significant form of accommodation in most markets offering modest-priced accommodation and "shelter, shower and security". Traditionally, booked through central agencies or direct through phone bookings, they are now active on a variety of distribution channels, aligning with the travelling habits of the, traditionally, younger generation they tend to attract.

The online travel agents (OTAs), i.e. Expedia, Booking.com, meta-search engines, i.e. Expedia owned Trivago, Priceline owned Kayak, TripAdvisor and alternative accommodation distribution platforms such as airBnB and HotelTonight are now present in most markets, particularly within the independent hotel sector and more recently in the hostel sector. Though these OTAs are now an established part of the distribution landscape, there continues to be concern over commission rates and disintermediation and / or disengagement from the customer. More recently, reports have focused on the increasing dominance of Priceline's Booking.com on OTA hotel bookings made in Europe. Even where room bookings are not over dependent on the OTAs, there is a growing dependency by customers on the OTAs to provide information that informs purchase, the so-called "billboard effect". Even if the final booking is made directly with the hostel, many of the customers route to purchase includes multiple visits and searches, making visibility on the search engines and OTAs critical.

Our research looks specifically at the hostel market in Switzerland which traditionally attracts non-domestic budget travelers. Given the size and importance of the hostel market, it is important to investigate the changing distribution practices of the hostels in the context of constantly changing booking behaviours. However, the difficulties of evaluating online distribution systems are substantial and focus mainly on market reach/ share, pricing, commissions and revenue management which have well defined, direct and short-term costs while often ignoring indirect, qualitative and contextual considerations.

The sample and methods we use here focus on the Swiss Hostel market with 25 hostels that participated in this survey with an average number of rooms= 23, average number of beds = 81 and an average occupancy of 50%. Here, we report on the hostel managers' perspectives on information channels used by hostel customers.

Chart 1: Where do these customers search for information: “Billboard Effect”?— Photo by EHLChart 1: Where do these customers search for information: “Billboard Effect”?— Photo by EHL
Chart 1: Where do these customers search for information: “Billboard Effect”?— Photo by EHL

As we can see from the chart above, hostel managers' place higher importance on Brand.com and brand social media presence and review sites, but lower importance on OTA sites and search engines. Yet, previous research identifies that travelers use a range of information channels when they search for accommodation, with search engines more important at the beginning of the search. Review and OTAs and brand sites are more important at the middle of the search. Finally, OTAs and brand sites are reported as being more important at the time of booking. Hence, only focusing on directly- controlled information channels may not be sufficient to attract travelers. Hostel managers may need to improve their tactics with indirect channels, such as OTAs, to be included in the consideration set of hostel guests.

As we can see from the chart above, there are multiple channels being used. Several "social" channels are included and the hostel brand website remains important for final booking. Arguably, the "meta search engine" most widely used is the review site Tripadvisor. There is little evidence that the hostel customer uses other meta-search engines, e.g. Trivago and Kayak, as information sources. This highlights the need to examine the performance of the different channels employed, particularly the cost of customer acquisition. This is a factor which must be calculated in the context of each hostel and particularly where substantial variations occur across the channels.

Figure 1: Final booking Channel Choice— Photo by EHLFigure 1: Final booking Channel Choice— Photo by EHL
Figure 1: Final booking Channel Choice— Photo by EHL

Many bookings come directly from the website and direct mail, the cost of which should not be neglected and includes the set-up and running costs for the hostel's own website and email interactions. It is clear that hostels also rely substantially on OTAs for bookings. This may prove problematic as OTAs may accelerate the loss of a direct relationship with clients.

Thanks to the rise of mobile and social media channels, SoMo channels can help hostel managers connect with their guests, engage in conversation and exploit their content in marketing communications. Furthermore, hostel managers could provide more interaction opportunities among guests and between guests and destinations to enrich guest experiences. WeHostel and RM8 both leverage technologies and the social nature of hostel guests to inspire guests to interact even before their arrivals. Hostels could certainly benefit from these niche players.

Promoting their own individual hostel creates some tension between the need to work within a network of hostels (as travelers tend to move from one hostel to another) and the need to raise awareness and the profile of their own hostel. The balance lies in not releasing too much control over the customer to the OTAs, retaining hostel customers within the wider hostel network and gaining visibility through the multiplicity of information channels, while calculating their value contribution to the final booking.

Hilary Catherine Murphy
Professor of Information Technology & Digital Marketing
+41 21 785 1496
EHL