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Contributed by Estella Hale, Chief Product Evangelist, SHR
The debate concerning direct versus OTA bookings has been raging for some time now. In May of this year, the European Technology and Travel Services Association (ETTSA) released a report called Hotel Distribution Costs, examining what they considered the costs associated with direct and indirect distribution channels for hotels. The report concluded that hotels attempting to boost direct bookings at the expense of agencies and OTAs risk having lower occupancy rates with little savings on costs. But is this really true? And what about the lack of personal guest data via the OTAs? Does this play a part in creating a real, lasting relationship with that guest?
To kick off our Hotel Tech Podcast series, we sat down with Wendy Norris, Corporate Director of Revenue Management and E-Commerce for Valencia Group, to discuss the study, what she has seen in her day-to-day, real-life experiences, SHR’s position, and what this all may mean for your hotel business.
First of all, though I definitely find the study interesting, it felt a bit too general as it uses a blanket approach in its recommendations. From Wendy’s point of view as a professional hotelier who is living the cost of distribution each day, ETTSA seemed to flat-line all the rates in every channel; GDS, OTA, and direct all being listed as the same rate for the sake of having a baseline. “In our case at Valencia, and in the independent world in general, that’s just not reality,” she explained. “Rates are often different per channel as well as the distribution cost per booking on each of those channels.” At SHR, we’ve also observed that the ADR is different depending on the channel and the guest, and feel there is great value in taking this into consideration. Wendy also mentioned that she has noticed a much higher ADR on direct bookings for her hotel group. Yet for her, it’s about more than just profits. “At Valencia, we’re all about personalization, so we want to customize the guests’ bookings as well as their stay once they’re here,” she said, “With direct bookings, we can build a real relationship with that guest.”
Wendy’s personalization comment pushed the conversation in another direction. In the study, ETTSA points out the massive reach of the OTAs and the money they can spend versus what the hotel can do. With this, I agree. The guest is searching for a destination at first, and that’s where the OTAs rule. But when the guest moves into the booking path and engages on your website or direct channel, you can connect with them more personally with relevant offers that can raise the value of your ADR. Wendy added that due to the Billboard Effect, a phenomenon whereby simply being listed on an OTA website boosts direct bookings, the OTAs can really help at the destination level. “But once the guest starts seeing us, we hope that we can then capture them on our own and turn them into a direct booking,” she explained. Do they still need the OTAs? “Yes, especially for independents, because we just don’t have OTA market spend, so they do provide a great service.”
Ultimately, it really comes down to connecting with your guests. I feel that through the last two decades, the trust of the guest as to what they’ll experience has changed for their good. Now there is so much more content, they have a better idea of what they can expect because of abundant photos and better booking engine capabilities. The OTA reach definitely helps get that message across. That’s why it’s so important that hoteliers be on all the different channels, where their guest wants to meet the hotel. “By them booking directly, we can personalize things and gather guest profiles to really tailor the hotel experience to them,” Wendy explained. “Guests don’t generally like to share info via the OTAs, so you really need a healthy combination of OTA reach and direct personalization.”
As for the social aspect of booking, we discussed how you can re-create an old-school literal billboard effect meaning word of mouth via social channels and reviews. “Your name doesn’t have to be listed in a guide book anymore for people to feel that you’re going to provide a good experience,” Wendy said, “But you do need to make use of today’s media channels to get the word out.”
Coming back to the study, over all we felt ETTSA touched on very valid points about cost, and reminded us that hoteliers need to incorporate real distribution costs into their revenue strategies. RevPAR is very common and heavily relied on, but we really should be looking at Net RevPAR for a truer picture of what costs are. “After the study came out, I dug through our reports and it was very enlightening,” Wendy said. “I always knew that our direct bookings had a lower cost, but I didn’t realize just how low. Our net ADR is a full 10-15% higher for direct and web than for OTAs.” But, she added, “You also have to look at your cost of distribution, your reach, and if you have the right distribution technology partner to round out the real picture.”
For me, what Wendy did by reviewing her reports was refreshing, and I think more hoteliers should follow her example. Studies like this should serve as a real call to action for hoteliers to take a good, honest look at their real distribution costs and their true net ADR and Net RevPAR. If you can look at your channel participation while you maximize your revenues, you’ll not only meet your guest where they are, but more often meet your revenue and hotel business goals in the process.