A Wolf in Sheep's Clothing or Real Help? - Expedia just launched a partner recovery program, in which to participate, hotels need to provide Expedia with a.) their lowest retail rates and b.) competitive pricing on things like holiday packages and c.) member only deals. If a property opts-in,
* Expedia will turn 25% of the commission it earned from the property in 2019 into marketing credits, which then the property can use to promote itself on Expedia: Expedia travel listings, banner advertising, etc.
* Expedia will also reduce its commission by 10% for 3 months and extend payment terms for Hotel Collect bookings by 90 days.
* Wholesale rate distribution - Hotel partners can now more effectively add wholesale rates into Expedia Partner Solutions, designed to favorably position inventory across Expedia's network of airlines, loyalty & membership organizations, financial institutions, and offline travel agencies
* Market insights - Introducing data dashboard providing trends on website traffic, stay dates, and demand source markets. This is now live and complimentary to all partners using Expedia.
* Properties can also highlight hygiene measures such as contactless check-in, cleaning measures, social distancing plans.
The question is: Is the new Expedia Partner Recovery Program a good thing for hoteliers or will further deepen the hoteliers' dependency on this OTA?
Whether hotels want to admit it or not, OTAs will play a major role in routing business to properties during the recovery. Hats off to Expedia for taking these steps which will help participating hotels, both financially and in terms of business volumes. To make it work, hotels need to give Expedia the ability to compete. So stop being suspicious and jump on this opportunity which is nearly too good to be true!
I honestly think that, in 2020, we should let this "them vs. us" mentality go. The harsh truth is that, for most hotels, direct bookings have a cost-per-acquisition comparable (if not higher) than OTAs. Brand.com design, hosting costs, booking engine fees, CDN, SEO, SEA, metasearch/social ads, free upgrades, discounted rates, loyalty programs, etc. If the goal is to stay profitable, all these costs must be taken into consideration.
Yet, they rarely are. Ask a random hotelier what commission he pays to Booking.com, and he will reply in a heartbeat. Ask him about his direct CPA, and he won't be so sure. "Direct" investments tend to be way more cryptic than a straight-forward commission model, so it's easier to doubt Expedia's good faith than our marketing agencies'. I do understand that. And I am not implying Expedia is the good samaritan of the story, either.
But I am saying that, during these difficult times, we should accept all the help we can get, and not be too picky about the origin. Personally, I've been using Expedia Travel Ads for years, with solid results and an average ROAS of over 30x. This is what really matters to me, not Expedia's underlying intentions. Will it further deepen the hoteliers' dependency on this OTA? Maybe. But I am starting to wonder if this is a bad thing, after all.
Is this program genuine help for hoteliers? I can't see why not. I was consulting this week with three different clients: a small inn, a motel, and a boutique hotel. The small inn has virtually no online presence, despite a decent website and a Facebook page they have a hard time maintaining. For them, this program is awesome and they intend to use it and abuse it to maximize revenues and lower costs - especially with the lower commission, three-month-long offer.
For the motel, they see this program as an interesting opportunity but won't be fooled. They know they can sell out during peak season in July and August without the help (and commission fees) of OTAs like Expedia and Booking. They contemplate embarking on the program in the Fall when reservations might need some extra push.
Then there's the boutique hotel. They see Expedia and Booking like necessary evils, but would much rather do without them. To them, this program has many catch-22 attached to it, as they don't want to give OTA their best rates and conditions. Plus, they fear this will increase their already-high dependency on this distribution channel.
This program can certainly help some hoteliers, while others won't be bothered. Thus, depending on your point of view, Expedia will be a wolf in sheep's clothing AND real help. Both aren't mutually exclusive!
In my view, this new Expedia program is designed as a very clever additional entanglement of hoteliers to Expedia. It is just an additional length of rope that ties hotels closer to Expedia and increases their dependency on this OTA.
Will hoteliers buy into Expedia's program? The fear of missing out will undoubtedly force many hoteliers to join the program. Exploiting the fear of missing out has been the modus operandi of the OTAs since the aftermath of 9/11 and exactly the same thing is happening right now with this program.
Marketing credits to the tune of 25% of the commission earned from your property in 2019? Where are these credits meant to be spent? On Expedia, of course, on Expedia Travel Ads and banner advertising, resulting in Expedia bookings for the property. Reduce the commission by 10% for 3 months? So instead of 25%, Expedia will now charge an independent hotel only 22.5%? How does this help the hotel?
If you provide Expedia with your lowest retail rates, packages, and member-only rates, more travelers will flock to book on this OTA vs the hotel's own direct channel. This means Expedia will generate more commission overall, not less commission, and will increase the property's dependence on the OTA channel.
With programs like these, the deep-pocketed OTAs will become, undoubtedly, one of the very few winners from the COVID-19 crisis.
With similar tactics, the OTAs emerged stronger after all of the previous crisis and calamities: 9/11, SARS, MERS, the recession, ZIKA, H1N1. Now there is an additional twist: Because of the shelter-at-home mandates around the world, the vast majority of the population - even reluctant and late adopters - were forced to use online services to communicate and work or study remotely, search for news or information, purchase goods, and services, order food, communicate with friends and family, watch streaming services and entertain themselves. This “online planning and purchasing education” has created millions of converts and believers in online travel planning and booking, which will benefit the OTAs immensely.
In a nutshell: That's not a good deal and with these acquisition costs the hotel can do its own recovery programme.
My math teacher at school used to tell me that speaking about a percentage of another percentage is something unused and generally wrong. So when we ear about an Ota turning 25% of the percentage they get as a commission from the bookings, it probably means that someone is trying to throw dust in the hotelier's eyes. Let's do some math to prove it!
A hotel places a standard double room with a public b.a.r. (best available rate) for a certain date at 120€. On top of this Expedia asks for a discount for the initiative (let's say 10% discount) and an additional "members-only deal" (let's say +5% discount). The standard commission that this hotel pays to Expedia is 15%. So when the hotel will finalize one of these bookings it will pay: 15% standard commission + 10% initiative discount + 5% members-only grant = 30% overall booking acquisition cost. On 120€ booking, that is 36€ of CPS (Cost of Sale). On the standard commission of that (15% = 18€) Expedia will allocate 25% (percentage of percentage = dust in the eyes) to marketing credit. That is 18€ * 25% = 4,5€ of marketing credit. That's like to say that you spend 36€ and you get a 4,5€ of marketing coupon back.
Numbers speak by themself and tell us that:
- 30% of combined commission (CPS) is pretty high
- 4,5€ of money back in marketing credit is pretty low
I generally won't suggest this initiative and I encourage hoteliers in thinking about the CPS of every sale they perform.
When I do this, sometimes it happens that revenue managers or OTAs turn out to me saying that this is wrong because: "promotion and commission expenses paid to acquire a certain SEGMENT of potential customers shouldn't be considered costs, because without that expense the hotel wouldn't get that kind of customer, so it wouldn't get that revenue".
That's the way of thinking in silos. That's like to say that we should use discounts to generate demand or that a business consumer doesn't have a private leisure life.
This kind of thing was right (and partially still is ok) in the offline market. It was correct when we had different conditions for very different and strongly diversified markets. Closed silos.
Then came the global market of the internet and online sales. If you go online with a "best available rate" of 120€ and then you reduce it of 15% for the Expedia's members in a COVID-19 initiative, that's not a segment! That is your new best available rate, advertised by Expedia everywhere online and so 120€-15%= 102€ is your new adjusted base price!
With these costs, you can do your own COVID-19 recovery plan. Consider giving to YOUR members a 10% discount and spending 12% on YOUR direct digital marketing to get the bookings. That would be 22% CPS for your direct initiative to get direct bookings. You still get that feeling that you're using a discounted price to generate demand.
Plus if you really want to play smarter, beat the Ota at their own game!
Let's participate at the Expedia initiative, give them the requested discounts and get the exposure (good ranking) they'll give to the hotels part of the offer. Got that, play with demand forecast and inventory allocation in the deal, to reduce the volume of sales from this (and so the costs). The exposure got from the initiative will influence your own direct sales. That's trading of acquisition and this is the game we play.
The answer is quite simple, the program will further deepen the hoteliers' dependency on OTAs. The reason why this is a simple answer is b/c the program was developed by a for profit company during a time of economic distress. This is not a bipartisan program, Expedia may have "good intentions" to make this mutually beneficial but by not including the voice of hoteliers it cannot be a good thing for both parties. Anyone participating in this program should make sure they go into with eyes wide open realizing they need to tread lightly, maintain goals, and frequently check-in to make sure they are not creating new habits.
This really reminds me more of the 'Pawn Broker' model than true help. This will indeed help those that already don't know how to help themselves, but at what long term cost? in the end, Expedia still handles all the money, in addition to having new channels of access. Expanded dependency is not truly help.
In a matter of just one month, the pie in which hotels, OTAs, and home-sharing businesses are competing shrunk from a supersize to a tiny little one. Hotels may need to work closely with OTAs to get through the toughest time in history, and Expedia happens to be the largest OTA in the world.
Hotels' book-direct strategy works well with groups, business travelers, and affluent, frequent travelers, but might not be that attractive to bargain hunters or leisure travelers in a budget. Because of COVID-19, groups vanished overnight. Almost nobody travels for non-essential business. Hotels are running at an unprecedented low occupancy now. Although there are signs of recovery, it only limits to drive-to destinations and economy hotels, as well as home-sharing facilities, mostly among leisure travelers. Working with OTAs can be helpful before hotels can get back on their feet.
Meanwhile, hotels are in a battle with Airbnb and other home-sharing websites. Airbnb has already reported a big surge in demand, with even more bookings recently than the same period in 2019. Hotels may have to work with OTAs to fight against Airbnb.
In my opinion, hotels shall find ways to get through such an unparalleled crisis at this point. When groups and business travelers come back, hotels will probably be able to hold the winning card against OTAs again, like whatthey had in 2019
Of more recent times there's been the beginning of a right sizing in the distribution world. Google's move to democratize the travel search experience has changed the dynamic on how people find their travel ideas and destinations. Rate Parity being formally challenged in a number of developed markets. Even regulation entering the home stay market is having an impact.
The Expedia's of the world need to compete with Google. But Google doesn't need to directly compete with them because they are not reliant on commission revenue as a revenue stream. Oh. And they own the world's most popular search engine where more than 80% of travel search begins. Making information more readily and usefully available is a catalyst for a whole range of other valuable products in their business model.
Changes to advertising products on the Google platform for the industry also provide some interesting and useful options for an OTA alternative. Not to mention the option to convert search to a direct booking. Yes, there are still transaction fees but at least they are on YOUR website.
The situation has forced a serious rethink at Expedia as now they will need to find relevancy for their products and approach as they will not always be the first cab off the rank on search. Something needs to be done. Booking seemed to work out some time ago that they needed their own customer base and relationship. Now Expedia will shift in that direction too.
I still ask the same question I've been asking for a while now;
If bricks and mortar travel agents traditionally received a 10% commission for generated business in a far more physical world with heftier cost structures, then why has the shift to a digital world copying someone else's content and re-presenting it not resulted in a reduction of the cost of booking or commission?
Instead, the commission has increased by up to 150% in many cases.
That doesn't sound like technology improving the cost of doing business to me.
Expedia is an important industry channel, but it is one of several and should be utilized with balance. Not exclusivity.
It's certainly a marketing program geared towards platform loyalty. That doesn't make it bad, though. Hoteliers will understand the tradeoffs and use the program as just one tool among many on the road to recovery.