The hotel industry has just experienced the most tumultuous two years in its history, underscored by epic downturns in both occupancy and average daily rate, and then followed by a swift recovery in many markets during the past few quarters. As the dawn of 2011 approaches, demand has returned to many markets—in some cases to pre-recession levels. Owners and operators are eager to see rates rebound and drive profitability back into the industry.
As the race to recovery continues, many are talking about the role and value of online travel agencies and other online sites in a hotel’s distribution strategy. As you think about this issue for your hotel or hotels, consider these best practices for working with these partners.
- Know the models inside and out. Understand the points of differentiation, their costs, how (and when) revenue will be recognized and the payment terms. Understand that for your market or compset, some sites or models have strengths that you should look to capitalize on when you need to drive occupancy, rate or both.
- Analyze the potential value. Depending on the site, you may need to analyze the return on investment of a campaign or a partnership. Some hotels also compare their online business to other customer or market segments, recognizing many of these channels offer increased opportunity for yieldable rates.
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Get to know your market manager. An OTA market manager analyzes trends across markets and working with him or her to identify opportunities or just understanding key market trends is an essential part of any distribution strategy.
external - Ask for more opportunities, placement and advertising. Don’t hesitate to ask your market manager or sales manager for more. Develop your need-date strategy and determine ways that online sites can help you fill them. Often there are win-win initiatives that can be implemented.
- Be willing to test strategies. Once you’ve identified need dates and talked it over with your online counterpart, be willing to try things out of the box. Online sites can often provide immediate feedback on specific rate, advertising, promotion or channel strategies. So test, learn and test again.
- Recognize that online sites are a cornerstone of your overall distribution strategy. Every online site wants to inspire customers to book more travel. Some certainly do it better than others. Converting more business through these sites is usually not just in the site’s best interest but the hotel’s as well. Understanding how to use these sites effectively can help grow revenue per available room and market share.
What does it all mean for your distribution strategy?
The opportunities range widely across the online distribution spectrum to drive revenues to hotels and each model can bring value as long as you approach them strategically.
- Incremental customers. The vast majority of customers on OTA sites are not brand loyal; studies have shown they are more price-conscious than the average traveler. Therefore, they gravitate towards sites that meet their booking needs. These incremental travelers help build RevPAR, GOPAR and market share.
- Billboard effect. Not every customer is wholly brand agnostic. For customers that do have brand preferences, OTA sites offer an opportunity to convert that customer through the OTA or another channel via the billboard effect. Some research studies have attempted to quantify the value of this effect, but for some customers the old adage of “out of sight, out of mind” can impact hotels that are or are not partnering with OTA sites.
- Packaging, value-add and advertising opportunities. While a number of package engines exist to power websites, customers on many OTA sites want to be able to comparison shop for all-in prices, which cannot be done through many other channels. Also, offering immediate market reaction to value-add or advertising opportunities can often be built and tested easily with various OTA and newsletter sites.
- Pay for performance. The pure merchant, agency and opaque models are effective marketing vehicles as hotels only pay for what is delivered in terms of bookings. Factoring this marketing expense is easy as “performance” can be effectively measured.
- DTA, LOS and price point differentiation. Each online business brings to the table a different type of customer with booking windows, days to arrival, length of stay patterns and price points. Sites like Expedia and Travelocity can help hotels across the entire booking curve—package, retail, opaque—and provide advertising opportunities to fill in hotel needs dates.
- Competitive landscape. Many of these sites offer significant market intelligence that can give you a market advantage in recognizing trends. Also, market managers can be valuable resources as experts looking at developments across the entire market.
The online landscape
The online landscape has become increasingly complex as new travel media and booking sites vie for the attention of both travelers and hotels. In general, OTAs have created efficient marketplaces that allow hotels to reach millions of travel consumers. The models vary greatly and it is important to consider the differences among them as you plan your distribution strategy and determine how you will partner to offer your inventory.
Merchant and agency. These are commonly referred to as Online Travel Agencies or Third-Party Internet companies. These sites offer travelers a place to compare options and book travel, and deliver hotels exposure to a wide range of potential customers. Global brands like Expedia, Travelocity, Orbitz, Hotels.com and Booking.com offer international reach that hotel marketing budgets cannot effectively address on their own, as well as insight to market trends and dynamics.
These sites offer merchandising opportunities to promote your property over certain stay dates and booking windows. Some excel at packaging hotel rooms with air, car or other travel products, while others solely offer hotels. Most have various opportunities to advertise, which can increase conversion and room nights.
Merchant and agency models differ from one another in terms of payment processing and what ADR is recognized by the property. Merchant models book at an ADR net of a contracted margin percent or dollar amount, while agency models books at a gross ADR, with a commission invoiced and paid at a later date. Nevertheless, in every case these sites bring unique customers to view and evaluate your property or your market, and an opportunity for a hotel to boost revenues and market share.
Opaque. A subset of the “merchant” group above, these sites offer customers a way to book hotels at deep discounts, while providing hotels a way to fence effectively and discount without promoting wholesale rate changes that may affect numerous channels.
Sites like Hotwire and Priceline give hotels the chance to compete for a unique, price-sensitive customer in a marketplace where the hotel names are shielded from the customer until a non-refundable booking has been completed. Often billed as “last-minute” channels, these sites can book incremental business for hotels with customers who usually “buy-up” to a higher star category or a better deal any time of the year, not just at the last minute. Competition is often aggressive on these sites given the nature of the discount environment, sometimes as high as 60-70% off of retail rates.
Customers using opaque sites tend to be the least brand loyal and most price-sensitive, so an opaque customer is generally incremental to the hotel’s RevPAR and market share. Recently, Expedia started offering opaque hotels through its Expedia Unpublished Rates module (powered by Hotwire, an Expedia company), and Travelocity introduced Top Secret Hotels, evidencing that hotels continue to use these models effectively as incremental boosts to their top and bottom lines.
Newsletter and private sale. Travelzoo and Travel Ticker by Hotwire paved the way for member-based deals newsletters and the recent launch of several new “private sale” sites, such as JetSetter, Rue La La and SniqueAway. These sites each deliver a deal-focused customer base and provide hotels the ability to offer specific promotions for significant need dates, e.g. low season dates or gaps in the booking window or forecast.
Private sale sites are often focused on dream destinations or luxury properties, while newsletters typically include more wide-ranging travel deals. Because there is no fence for membership beyond an e-mail address, standalone rates on these sites will generally need to be matched through merchant model sites (and potentially other channels).
In most cases there is an up-front marketing expense associated with using these sites, either an insertion fee into the newsletter or other advertising component. Some also charge a margin on transactions (if booked on their site) so the ROI for the private sale or newsletter model needs to be evaluated before the offer is made publicly available. However, these sites offer hotels a way to build brand loyalty, lists for future marketing campaigns and much needed business over slow dates or for new brand launches.
Social media and review. Social media in travel includes an ever-growing list of players that can add value to a hotel’s marketing strategy. TripAdvisor is the leading company in the traveler reviews space, with more than 40 million user-generated hotel reviews and a range of ways hotels can drive business to their property through the site.
New collective-buying sites like Groupon and LivingSocial are also starting to provide sales opportunities for hotels, albeit in a deep discount and mass market (yet localized) manner. Additional models like Off & Away offer customers unique social buying experiences that can provide incremental bookings.
Similar to the private sale models, collective buying sites should be analyzed and fenced before an offer is produced, but these sites certainly can offer immediate brand trial and revenue for hotels in definite need.
Search engines. General search engines (namely Google, Yahoo and Bing) and travel aggregator sites like Kayak also provide value in the travel ecosystem, although obviously in a different manner with different economics for the hotel supplier. The search engine channels run on advertising models by which hotels pay for leads from the search engine which can be a very effective or a very costly way to drive revenue.
The list of online businesses for the travel industry continues to grow and the models continue to evolve. Implementing specific strategies for partnering with these sites and understanding their fundamental value to the market is imperative for any hotel marketing and revenue management team. Recognizing that these strategies are complementary to other channels, part of the overall distribution and revenue management strategy and using them effectively will be key to industry recovery as we enter 2011 and beyond.
Want to Learn More?
This topic will be addressed as part of the 10-part Revenue Management Webinar Series produced by the HSMAI University, HotelNewsNow.com, and STR. Begun February 23, 2010, and going through December, each month a webinar will cover various aspects of cutting edge revenue management in today's economy in conjunction with articles written by members of the HSMAI Revenue Management Advisory Board. If you’re not able to attend a live program or the date has passed, archives are available.
Jay Hubbs oversees hotel supplier relationships for Hotwire.com, an Expedia Inc. company, as part of the Expedia Partner Services Group. A graduate of both the School of Hotel Administration at Cornell and the Wharton School of Business at the University of Pennsylvania, Jay has extensive experience at the property, regional and corporate level of hotel and revenue management.