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Published on : Thursday, January 7, 2016
As someone who has been working in the hotel industry for more than 13 years, I still find it shocking to discuss independent properties’ pricing strategies with revenue managers. I am always amazed at how many of the properties are still using the OTAs as their main source of revenue and completely ignoring the direct channel.
Phocuswright and h2c’s Independent Lodging Market: Marketing, Distribution and Technology Strategies for Non-Branded Properties, shows that in 2015 “OTAs will represent 58% of US independent properties’ online volume this year, compared to a 48% share for chains”. European independent properties have an even greater reliance on third-party channels: the OTAs “will represent 74% of European independent lodging online bookings in 2015”.
Although many hoteliers may believe otherwise, independent properties often have a big advantage over branded properties in driving business to the direct channel, as it applies to revenue management strategy. Independent properties have a smaller staff and, typically, can be more nimble to adapt to market changes and update revenue management strategies and rates accordingly.
Most independent hotels don’t have the immense marketing budgets necessary to have a strong presence in the online channel so the OTAs should never be used as the primary source of bookings. Instead, independent properties should use the OTAs as a marketing medium designed to increase the property’s online visibility in order to generate an increase in direct bookings. In other words… the billboard effect.
If you aren’t familiar with the billboard effect, there is some great reading available from Cornell on the subject but I’ll give you a quick overview: the billboard effect refers to the increases in direct bookings experienced by hotels when they are listed on the OTAs.
This statistic makes sense because of the huge number of consumers that start their search for a hotel room on an OTA or a metasearch engine. In fact, “Expedia partners are featured in more than 150 brands in 70 countries, exposing partners through more than 140 mobile sites worldwide”[iii], which demonstrates the significant impact on a property’s visibility that the OTAs can have.
Cornell University’s studies on the billboard effect have shown that many hotels listed on the OTAs experience increases in direct bookings by up to 26%. That is a huge increase in direct bookings, especially when you consider that properties typically only receive 26% (in Europe) to 42% (in the US) of their online bookings through the direct channel (based on Phocuswright and h2c’s study).
Not only does the direct channel help minimize the cost of promoting and increasing a property’s visibility online, it also decreases the cost of acquisition. Since OTAs charge between 15% to 35% commission on each and every booking, that is a huge amount of money for hotels to be giving away, just to put a head in a bed.
In order to compete more effectively against the OTAs in the online channel, independent properties should also be equipping their revenue management team with the right tools and systems, such as revenue management systems (RMS) and channel managers. These technologies can empower revenue managers to increase their online visibility via the OTAs – and by doing so, ensure that the direct channel is their most profitable channel.