Industry Update
Opinion Article20 September 2019

Booking.com & Other Major OTAs Are Not Your Enemies

By Aymeric Erulin, Multi-Property Revenue Manager

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The fight between majors OTAs such as booking.com or Expedia has been ongoing for close than ten years but has intensified in the past couple of years due to the development that they bringing on the market such as the corporate business or private rental for instance. If you work or own a hotel, you know that the amount of commission paid per year is often huge and that you have no real alternatives, especially for an independent hotel that has neither a wide distribution reach nor bargaining power.

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How OTAs are perceived by hoteliers

On one hand, OTAs often create a sense of unfairness, a big player taking advantage of hoteliers that are working hard to keep their profit up and run a successful business. Frustration can also be felt due to the ethically questionable displays used such as "only 1 room left on our website" or "save 20% today" leading the guest to believe that OTAs are always cheaper than direct channels and increasing their reach and distorting the consumer perception in favor of OTAs. May actions have been taken by hoteliers to limit those practices by referring to competition authorities, some paid off, and some did not. But in the end, the OTAs' game did not really change and the frustration is still there.

How they should be perceived

On the other hand, OTAs are also intermediary businesses, providing the hotels with business they would not necessarily get. For many hotels, OTAs are one of the only and cheapest ways to get extra business. Building a powerful website, investing in SEA, keeping a strong distribution system, etc. etc. is indeed really costly. As you would pay for a sales manager, a webmaster, a community manager to be present online and acquire business, hotels are paying commission. But those commissions are only paid for confirmed business, which would make a return of investment of 4 to 1 if you pay 20% commission.

The frustration is understandable, but it should not be forgotten that the more commission you paid, the more business you had. The direct channel costs (SEA, website, booking engine, back-office payroll, direct guest special benefits etc.) must not be forgotten or underestimated.

The real cost of OTA should then be: commission - direct channels costs = cost of acquisition of a new guest.

Yes, "new guest" not repeating guest.

Focus on what's important

The core business of hospitality is not the distribution or the online presence, welcoming a guest is. Loyalty is the battle that needs to be fought, and fast as OTAs are already moving on this ground with programs such as Genius for Booking.com.

Major hotel chains are working hard on this topic and moving their investment from distribution to Loyalty. Marriott announced Bonvoy that will be rolled out in September. Accor is also going ahead in this direction with ALL (Accor Live Limitless) coming to the market in November. The amount invested in those programs (F1 or Football sponsorship with deals costing up to 9 digits figures). The goal is to increase visibility by promising the guest a better experience and unique perks by joining the program and booking online.

Indeed, for independent hotels, such deals and buzz are impossible. However, the strategy of those programs not only consists of a worldwide exposure but also at each step of a client journey. Education, personalization, special attentions, every bit count in this strategy. The target is to encourage the guest to be a loyal client and an ambassador for your hotel.

This strategy can also be helped by a good social media strategy which is way less expensive than distribution development. Nice pictures on Instagram, a good community on Facebook or LinkedIn, first thoughts about posting on TikTok can very much help engage your clients as well as prospects.

Let's face it, the industry will never be able to catch-up with major OTAs for purely financial reasons as they are using most of their margins to finance online presence and tools development (in 2018, Expedia group and Booking holdings spent 10.6B$ in marketing. For reference, this is representing close to half of the overall revenue of Marriott in the same year). Even though we could hope for a better future with new players trying to take advantage of the blockchain to create new distribution channels, the mission is for the moment to focus on what is best for boosting loyalty and to remember that business with acquisition cost is better than no business at all.

Aymeric Erulin

Aymeric is a graduate from the Ecole hôtelière de Lausanne currently working in Revenue Management in Zürich, Switzerland. Technology and innovation enthusiast, he focuses on the unavoidable means required to bring organizations and working methods to their most efficient and up-to-date form.

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