Industry Update
Opinion Article10 November 2015

Channel Independent Operating Hotels, An Illusion Or A Future Fact?

By Lennert de Jong, Commercial Director at citizenM

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de Jong

Discrimination of customers is as old as the road to Rome. Through loyalty cards, bonus schemes, miles programs and market segmentation we have grown up that we are not always equally treated a customer.
We completely understand that some people stand in line to board, and some people pass the line to be personally greeted by the flight attendants. We have no problem with price discrimination in a supermarket based on participation in the local points scheme, or airport lounges only being accessible for level gold and up. Lately in the hotel industry however it seems to have shifted from who you are to how you have booked.

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  • A cookie if you book direct. 
  • A better room for a brand.com booking
  • Free wifi if you book through the website. 
  • Resort fees waived for website bookings. 
  • Executive lounge access for loyalty members, if booked direct.
  • etc..

These are just a few of the examples out there of benefits offered to guests that chose the direct website to book.

Is this a logical next step after rewarding frequent business, are hotel staff capable of explaining this to our guests? Where is the border? Is there something to be learned from other industries, or even closer home, from our friends at the airlines?

Hotels seem to increase their efforts and creativity to try to shift business back to their own channel by discriminating the guest on the choice of channel. There are a lot of reasons to do this, but also compelling reasons to not do this, so to understand the motives you need to look through the lens of the different stakeholders and players in this field.

Independent hotels, with no flag

where in the past the phone rang, the sales man was productive and the biggest invoice that came in was from the liquor supplier, the current status is that a complete shift to online has taken place. Especially in bigger cities players like booking.com and Expedia have taken over. The hotel offers a bad website, with a separated and difficult booking process, and no recognition for the customer during booking. At the same time at the end of the month the GM receives an invoice from OTAs in the 10.000s, and that is completely ignoring the fact that the merchant model does not show commission because it withholds revenue from the hotel by charging a higher amount to the guest.

The GM is very good in hotel operations but uneducated in digital marketing and has no other way to shift channel than to go to his website admin and ask him to put on an offer to people that book direct. Indirectly this will hurt him in the long run, because he is just redirecting traffic from the OTA to his website, which will be penalised by an automatic decrease in ranking. This is the big rate parity discussion.

Branded hotels

Big brands increasingly get under pressure as they seem to be less and less able to do their job and prove it to the owners and asset managers. Their task is to deliver on brand, take care of distribution (technology), experience and in case of a management agreement, management. The experience and value for money component has had a lot of depreciation already. If you look in any city it is hard to find a branded hotel in the top of Tripadvisor. Lately, customers seemed to have caught up with this as well and have seen that you can get better value for money, even if you are part of a loyalty scheme (what is more important, points or experience?). booking.com and Expedia have opened up the eyes of the guest and made them realise you can actually can count on their inventory, value for money, review system and customer service and you don't have to chose a brand for that. Inserting a double digit commission into the owners P&L because of the agent commission model and losing ground in the percentage of 'system bookings' versus third party bookings, is difficult to explain to an owner.

Therefore the top chains are hanging on for dear life to their loyalty program, as a further shift of this dial will lead to owners realising they don't need distribution or experience from a big brand at all.

Corporate travel buyers

are unfortunately a victim of this discrimination taking place. The fact their travellers are discriminated started with the definition of what is a direct booking or non direct booking. No matter what you think on the discrimination of guests booking through 'the expensive OTA channel', in my eyes it is complete nonsense to even consider not passing on the goodies that you are providing to the direct channel, to the corporate guest that is booking through GDS its negotiated (hopefully off BAR) (high)rate. Companies should demand that their travellers are automatically getting the best possible deal, with benefits. Companies should also pressurise the booking eco system (if booked through a third party website) at the same time to not charge commission to hotels for handling their bookings. They are in the end the booking originator and not the marketing efforts of the OTA.

Owners of hotels

should demand from a brand or arrange themselves a state of the art distribution, good management and the guests to be taken care of. If they have gone to a big hotel brand for this, they need to consider who plays what role in the eco system between investment in the real estate and service delivery to the guest. In my view, global eco systems that are already there like priceline and google, or already do this in another vertical like amazon/ali baba, will become the sole distribution system to get heads in the beds. They will be used by companies and individuals to do all its business with hotels. Only brands and management companies that provide a real experience to guests will survive, so it will be a matter of adapting or extinction for a few companies.

I always like things to be actionable, so is this purely a waiting game or will it happen by doing things now?

  • I believe an individual guest should not accept today that he is discriminated against because of how he booked (that includes the passthrough of GDS fees by airlines unless it is discounted in the fare).
  • A company should demand to be getting the best possible proposition by the hotel.
  • But the real action is with the hotel (owner). They need to get into a position where the cost of acquisition makes sense again and is reflecting the efforts that have been put into guest acquisition. But the owner needs to be clear about what is cost of customer acquisition. It is not just the bill of the OTA. It is also the invisible part (the merchant model impact), the centralised sales and marketing fees of a brand, loyalty customer fee, brand.com reservation fee, advertising costs, sales people, website fixed costs and even construction related changes that have been made to a building to accommodate a loyalty club member, such as an executive club lounge. For the longest time the topic was not visible because most OTA commission was hidden in the merchant model. Because of the uprise of booking.com all of sudden brands had to put that into the owners P&L.

For this to make sense again for the owner, we need the benchmarking of hotel performance not only to be on revpar, but we should focus more on clarifying the costs between top line revenue and net operating income, or rather focus on return on investment per square foot or metre. In a presentation I attended some time ago, an analyst from a big bank showed that Expedia and booking.com had a higher EBIT per room than 2 top brands. If that is the case, why would the owners of these hotels still accept that guests booking through those channels to be discriminated?

It is time that owners step up, and demand that this wild west of marketing incompetency ends and hotels do again what they should be good at, providing a memorable experience to their guests while maximising the return on the investment. And negotiate directly with the real, global kings of distribution to be able to act channel indifferent towards every guest

Lennert de Jong

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