A lot of hoteliers may operate on the assumption that the benefits of a direct booking strategy will far outweigh distributing largely through third parties such as online travel agents (OTAs).
In particular, the costs associated with booking fees via OTAs are seen as a major pain point and that accepting a higher number of direct bookings will reduce costs and increase profit.
New research published by Infrata states this may not be the case. The report on hotel distribution costs examined the distinction between distributing through direct and indirect channels, and uncovered some interesting findings.
Here are the main takeaways:
The difference in revenue from direct and indirect channels is statistically insignificant
Admittedly, the report found the average net contribution of all the studied direct distribution channels is €4.59 per booking greater than the average of all the indirect channels – and the overall net contribution from all channels is €80.94.
However, when comparing only the net contribution of OTAs with Brand.com, the net contribution is €78.43 with the OTA channel contributing €0.12 more per booking than Brand.com.
This led to the conclusion that if a hotel were to shift its entire inventory (away from the OTA channels to Brand.com), there would be a statistically insignificant change in the overall net contribution to the property’s revenue.
If a hotel were to shift its entire inventory away from OTAs to Brand.com, there would be an insignificant change in the overall net contribution to revenue
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There are repercussions of an all-out direct strategy
While hotels may save on commission fees by predominantly promoting a direct booking strategy, there are risks and extra costs attached.
Moving away from third parties will mean a hotel is likely to face a drop in occupancy, which would require increased spending in the areas of: customer acquisition, online marketing, technology development, and guest services. Usually these costs would be carried by the intermediary.
The hotel is also likely to lose revenue from a decrease in ‘The Billboard Effect’. According to the report this could be between €7 and €10 per booking.
‘The Billboard Effect’ should not be understated
Up to 35% of hotel bookings are a result of a traveller discovering the hotel on a third party site and then visiting the hotel to book direct.
Without this effect, a hotel would have to increase spend on tactics like search engine optimisation to compensate for the lost bookings. This expenditure could reach up to €10 per booking.
When a hotel is advertising via an OTA, the spend is conducted by the channel, meaning a hotel garners can secure more bookings from native search without the accompanied cost.
Each hotel and guest is a unique case
Differing guest profiles have a strong preference for particular channels, so costs will fluctuate depending who your hotel is hoping to target.
For instance, millennials are going to be on the hunt for value and could be more likely to join a lucrative loyalty program, if they don’t find a great deal on a third party site. In any case, the more ‘loyal’ customers you have, the better off your hotel will be when it comes to costs.
It’s much more expensive to attract new customers than to retain existing ones, especially within an online environment. Google and other web search ads are now the main way to drive traffic to websites, since they’re most likely to be the consumer’s first touch point.
The most effective ads are paid and unbranded but these are expensive and are also ‘owned’ mainly by the major OTAs (Expedia, Booking.com) and not the hotels themselves.
It should also be noted hotel room revenues vary greatly by geographical location, by customer mix, market supply/demand and type of hotel. For instance, in Europe the average daily rate can be 100% higher in luxury and upper scale than economy and midscale properties. This will naturally have an impact on the costs the hotel incurs, and can afford.
Ultimately, finding the ‘best’ distribution strategy will first require some in-depth analysis of your own property, its current position, and the potential to shift to new markets or new channels to optimise profit.