10 Powerful Reasons Independent Hotels are Better Placed to Win Market Share over Chains
By William Cotter, Founder and Managing Director of Net Affinity
The independent hotel market in Europe is a big business. It's big in terms of employment, tourism and contribution to the local economy. Most importantly for our industry, independent hotels are big in terms of room inventory.
We'll talk about those 10 reasons below, but first, how did we get to the current state of play?
European independent hotels make up almost two thirds of the room supply in Europe, making them a very attractive market for OTAs like Booking.com and Expedia.
The independent hotel business is so attractive and so profitable to OTAs that they have grown their businesses very successfully on the back of one thing: availability. They sell your room stock on their sites, for a fee. Through the strength of their brand, marketing and technology, OTAs have cornered a very nice business for themselves.
This availability is an independent hotel's most powerful tool. Forget rate parity. Parity without availability is a moot point.
Let's step back for a minute. How did OTAs corner this market?
PhocusWright and H2C commissioned a study in 2015 which reported that independent hotels believe that their direct website is their most important channel. In other words, direct bookings are a priority for them.
However, there is often a disconnect between what an independent hotel prioritises and the actions they take to make those goals a reality.
Part of this disconnect lies in the scarcity of resources that many independents deal with on a daily bases. Namely, there is an industry-wide deficit in revenue management and marketing skills, as well as limited advertising spend. This can, at times, lead to independents struggling to stay on top of a rapidly changing technology landscape.
This is where OTAs have excelled. They filled the critical skills void at a time when independent hotels were cutting back on staff numbers and technology, following the recession in 2008 onwards.
Hotels turned to the OTAs for much needed business and gave them their room stock to sell.
That's how we've gotten where we are today, and the OTAs have been extremely valuable in helping independents sell their rooms. Unfortunately, this has come hand in hand with high commission rates, and independent hotels have little leverage to negotiate better rates due to the sheer size of OTAs.
The past four years have seen strong growth in the world economy, with both leisure and corporate business driving growth and allowing hoteliers to push ADR.
Hotels now say they want to reduce reliance on OTAs, and this makes sense in the current economy. How can they do that when OTAs have such strong branding, marketing and reach, though?
What Are Chains Doing to Reclaim Direct Business?
If you're a chain hotel, you have two strong options when it comes to promoting direct bookings: negotiations and loyalty.
Large chain hotels like Hilton, Marriot, Wyndham etc. are scoring big by negotiating aggressively with their OTA partners. They have the muscle to negotiate their commission rates down to as low as 12% or better in some cases.
Chain hotels have also been very good at keeping some control over their inventory and the business that they do with the OTAs. They've done this to such an extent that OTAs represent between 8% and 15% of their total business on average – a phenomenally low figure to most independent hotels.
The other tool that chain hotels have in their armory is loyalty. They're good at running loyalty programs and driving points-based rewards systems for their guests. This works very well for them, but only to a certain point.
Eventually, loyalty has a cost, and one thing that chain hotels certainly have is a lot of cost.
There are many layers of stakeholders involved in a chain hotel business who all want their fair share of the pie. That's perfectly reasonable. However, the pie is only so big: margin for a chain hotel is limited.
This is where independent hotels have a significant advantage over chain hotels.
Independent Hotels Have Margin and Flexibility
Yes, chain hotels have scale. They're big companies with centralised management, huge marketing departments and clearly defined processes. They're also, as a general rule, incredibly slow.
Large hotels chains are like any large company. They are slow to react, turn, and shift with market forces. They're like large cruise liners: awesomely huge and beautiful, but these companies can be astonishingly slow to move, simply because of the sheer bulk involved.
At the hotel level, branded chain hotels have no flexibility over strategy, no input into marketing, little flexibility over pricing and no control over their website. Independents have all of that.
Large, international chains simply can't adapt locally, and this is a crucial point. GMs of chain hotels tick the required boxes, complete their Excel sheets and follow best practice guidelines dictated by head office.
If chains are like cruise liners, independent hotels are like yachts. Sleek, nimble, and quick to adapt to the changing environment.
The rapid pace at which today's market changes favours independent hotels over chain hotels.
That's why some chain hotels are getting into bed with the OTAs: because they have to. They're struggling to retain market share, and need revenue to satisfy the demands of their stakeholders.
Large chain hotels are failing at what they should be doing best: building brand. Instead, they negotiate to take demand away from their competitors in the short term, rather than invest for the long term. This lack of investment in technology, marketing and revenue expertise is giving the power to the OTAs.
Independent hotels can be equally guilty of this: in times of low occupancy, it can be tempting to effectively hang a Booking.com sign over the front door instead of investing in the means to drive bookings through direct channels. However, there is another way.
Independents are Indispensable
Independent hotels are indispensable to OTAs on a collective level.
From an OTA's perspective, independent hotels are the crown jewels. OTAs are capitalising on a fragmented industry with a push for higher margins, safe in the knowledge that independent hotels need to work with them.
The flip side, of course, is that OTAs rely on independents' inventory as well.
OTAs need inventory. That's one of the reasons the Priceline Group is buying into technology providers such as revenue management provider PriceMatch and hotel marketing platform Buuteeq, both part of their BookingSuite.
When hotels use these services, OTAs get better visibility on your inventory. Through these tools, OTAs get visibility on your rates. This allows them to better monitor parity, making it increasingly difficult to offer different rates on your own site.
Without availability, rate parity is a moot point. If an OTA doesn't have rooms to sell, their business wouldn't exist. That's one on the reasons they're interested in mid-tier hotel technology companies. If you're connected through those systems, they have more visibility and potentially more control over your stock.
For example, what if an OTA bought up a number of channel managers? If they bought the top three channel managers in Europe, they would have a far deeper insight into the room stock in Europe, putting them in an even stronger negotiating position.
As restrictive and frustrating as many hoteliers find their relationships with OTAs, though, there's no doubt that OTAs have helped independent hotels greatly. They have given them a global reach and placed them on a level playing field with chain hotels.
The issues between OTAs and hotels come from negotiating the relationship – there's no question that the relationship has value. To bring in the obvious metaphor, no one's breaking up. We're just asking for a little space.
Independents Should Focus on What They Do Best
To get that space and pull more direct business out of the OTA's shadows, independent hotels should focus on what they do well: focus on the guest to deliver a more personalised experience. You can partner with local providers to give a more natural experience and capture the essence of your neighbourhood, town or region.
These features are what draw guests to your hotel and benefit the local economy. Guests stay for the authenticity and uniqueness of the local experience. That, in part, is why Airbnb has been such a hit. Guests increasingly favour a more authentic, personal service.
The hype around the millennial's desire for a more interesting hotel experience is why chain hotels are getting in on the game with their 'boutique' offering. This offering is, in truth, a simple standardised 'unique' offering.
An independent hotel, on the other hand, has the opportunity to genuinely distinguish its customer service and property as unique. They can respond to guest needs quickly, delivering a personal experience which gains the hotel greater loyalty from their guests.
Independent hotels have the freedom to play around with their brand. Not having a specific brand standard can actually be liberating. Marketing teams have the freedom to try different channels quickly, and the autonomy to change strategy as needed.
10 Advantages Independent Hotels Have:
- Independent hotels have greater scope for creativity and identity, instead of adhering to standardized brand guidelines that might lack relevance in your local market
- Independent hotels have more margin to play with, i.e. there's a smaller number of stakeholders taking a piece of the pie
- Independent hotels have to deal with less bureaucracy, giving them agency on distribution and commercial strategies, free from restrictive agreements
- Independent hotels have the ability to be much more proactive in terms of revenue management, and can certainly be more creative in terms of book direct strategies
- Independent hotels don't need to fill their hotel every night – they can survive with lower occupancy rates, giving them more freedom to refine strategies and allocate budget as needed
- An Independent hotel's budget is targeted toward making an impact on one hotel. There isn't a bigger brand franchise to feed or satisfy
- Independent hotels really only need to make what they need to survive and make a fair profit
- Independent hotels don't need a 1-800 number or centralised call centre. While chain hotels provide a centralised call centre at a direct cost to the hotel, either through franchise fees or as a percentage of bookings, independents do not bear this cost.
- Independent hotels can freely focus on their guests' experience to give a more personalized service
- An independent hotel's originality is more appealing now than ever as travellers look for unique, local experience – capitalize on that!
It's true that branded chain hotels have a broader distribution reach. However, independents don't need their distribution to be as extensive.
Branded chain hotels have successful loyalty programmes, but independents are free to take a more modern approach. Instead of an old-fashioned points based system, independents have the flexibility to create loyalty based on immediate value or discounts.
In the digital age of immediate customer satisfaction, long term investments like points are less satisfying, especially when you're talking about independents with only one property or a small group of regional properties. What guests want is discount or added value now – not for some future date.
Branded chain hotels have strictly defined rules, regulations, processes, and associated costs.
Independents have greater flexibility, providing greater freedom to explore and innovate.
We believe it's time for independent hoteliers to realise that they are a very valuable part of the hospitality industry, that their inventory is highly prized, and that there is a broader ecosystem there to help and support them in their endeavour.
There are hundreds of technology partners in Europe providing booking technology, revenue management, rate shopping, distribution and digital marketing expertise that hotels need to stay on top of their business. Use your hotel's margin to invest in these tools to help you continue to grow.
Independents are key players on the hotel landscape, and they have access to all the tools they need to overcome the challenges commonly faced in the fight for more direct bookings.
William CotterMore from William Cotter
Hotels. Our services include Website Design, Digital Marketing and Booking Engine Technology. Our culture of award winning design and innovation together with a keen eye for emerging trends allows us to deliver services that directly impact on growing revenue for our clients. As experienced hoteliers we have a genuine and wholehearted passion in providing a complete customer centric service to our customers. We pride ourselves on the development of a relationship that allows us to nurture your business and ensure our success is your success.