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There's nothing wrong with engaging OTA's services if hotel owners are completely satisfied they are getting value for money, the question to answer is will hotel owners in 2025 still be willing to pay their ever increasing fees and retain this single source reliance to sell their rooms capacity online?
Many hotels keep thinking that rate and inventory parity is the right online distribution strategy, however from a business and profit perspective it cannot be totally acceptable if the servicing costs continue at current levels and all the indications point towards they are likely to rise in the future.
Signing up with OTA's sounded good when the internet was still in its infancy “Same price offered on all channels and whoever finds the customer wins”. What could possibly go wrong? The hotel owner did not have to do anything but just go along with the OTA's business model.
In todays world the Internet is a vastly different animal with all the latest technology available and AI up and running, however it still is the number one show case for hotel owners to promote their products and service offerings direct to the consumer.
Direct selling, both telephone and website, has gained a large share of sales, demonstrating its great sales capacity and resilience. The trend is likely to continue in the future due to the current economic climate which is placing enormous pressure on consumers disposable incomes.
This huge increase has meant that many hoteliers have changed their passive or neutral attitudes towards direct guest selling to considering it a strategic pillar in their overall distribution strategy. In this post, we will analyse the reasons for this explosion, why part of this change will be permanent and what the small hotel owners need to do to position attracting customers into their sales funnel in the future.
Guest Benefits
From a guest perspective it is a no brainer as to who would book direct if major OTA's offered the same price or a discount? would you (don’t cheat)? A few lost users and maybe those who already know you would book directly, but for everyone else, especially international travellers, OTA's are the most likely option particularly with the explosion of the all inclusive and mobile phone phenonium. Trust, best price, customer service, and the best booking technology are just a few justifications.
But listen if money is tight and you need a holiday tech savvy searchers will be looking to book the best deal possible. So what happens in the process of looking for the best holiday deals? They search the Internet to find their perfect holiday deal then inevitably make direct contact with the hotel owners to secure an even better deal! A process that potentially places the hotel owners at risk with the big OTA's owner OTA agreements, be warned. There is no doubt hotel owners can offer a better deal than OTA's because the price they offer OTA's includes commission rates of varying percentages 3% - 20% is the norm. This will only be achieved if hotel owners focus on the belief that a direct guest selling strategy only works with dedication and commitment to the strategy itself.
What model are you signed up to?
Big OTA's in the main operate two systems The Agency Model & Merchant Model.
There is a steady and growing trend towards Booking.com’s determination to migrate from its original “agency” model to the classical “merchant” model used by many OTA’s and bed banks "reports Mirai" . The merchant system is being aggressively sold to strengthen the companies growth and BC expect this 40% to grow in 2022 and 2023. see bar chart below.
Here's how each model works:
Agency model: The client pays the final price to the hotel (either at the time of the booking or at the check in). Typically after the check out month, the hotel pays the agreed commission to the OTA.
Merchant model: The client pays the full final price to the agency or OTA (not to the hotel). Normally after the check in date, the OTA pays the net price (final price – agreed commission) to the hotel.
“Gross rates” (when the hotel sets the final asking price) have traditionally been tied to the agency model whereas “net rates” to the merchant one. However, it’s not a technical requirement and you can distribute both rates in both models. When Booking.com first started years ago, it exclusively operated under the agency model as opposed to its arch-rival Expedia, that mostly operated under the merchant model. This agency model was indeed part of Booking.com’s huge initial success as hotels loved the many advantages this model offered:
The good news according to the OTA's.
Dealing with payments is definitely complicated and a lot of work, especially for independent properties.
Fraud and chargebacks are very painful for hotels. There are few things that frustrate hoteliers more than receiving a chargeback from a client, especially when he/she did enjoy the stay in the hotel. A bad chargeback experience can last in the hotelier’s mind for ages. Booking.com knows it and lures hotels to its payment solution arguing that they would forget about these frustrating experiences (which is true). A brilliant example of pain point marketing.
However, the OTA does not relate, and even less addresses, the root of the problem which is the very low quality of its bookings compared to other channels. By “quality” we mean the chance that these bookings are ultimately cancelled or, even worse, end up in a no-show. It is somehow contradictory that Booking.com appears to be “solving” a problem that they are part of. Nonetheless, the OTA very smartly positions itself as the solution and, once again, the hotel industry takes the bait.
The bad news the merchant model brings that hotels don’t like at all.
At first, it might look like a romantic Hollywood with a happy win-win ending. Unfortunately, this is not the case. The merchant model has big negative consequences for hotels:
Higher cost. VCC or virtual credit cards that Booking.com uses to pay hotels have an additional commission to hotels that averages 3%. Expedia uses VCC as well but it calls them EVC or Expedia Virtual Cards. Most of the VCCs are issued in the US and the European Union, so for hotels located outside these two areas, their costs will be even higher as there is an additional cross-border fee to process payments.
Negative impact on cash flow. If Booking.com collects your non-refundable rates and pays you on the booking date (according to its own payment FAQ page, “this is generally set to one day after the check-in date, except for eligible properties where the VCC is activated when the reservation becomes non-refundable”, you’ll lose the positive impact on your cash flow as it goes straight to the OTA.
Loss of differentiation. Many hotel chains used perks such as transfers and upgrades to differentiate their direct channels. If Booking.com massively does this, this differentiation will be gone.
Potential disparities. Would you give the largest OTA in the world the capability to undercut your direct channel with its margin? That’s exactly what you’ll be doing if you participate in “Payments by Booking.com” solution.
Strategies hotel owners should consider to compete with OTA's merchant model.
It is advisable to stop participating in any programmes you are offered by the big OTA's. At the moment it’s still optional for hotels to opt in although with the growth data provided above and the OTA's business strategy to increase the merchant operating model it may eventually become mandatory (as is the case with Expedia) so while you have the option hotel owners should make the decision to stop participation as soon as possible.
If you are required to participate, or decide to participate nonetheless, you should seriously consider the merits of starting the process of formulating a direct guest selling strategy of your own and prepare the business to initiate a direct online booking channel accessed directly off your own website! this action plan will allow the business to compete head-to-head with OTA's against their new framework.
Get out of your comfort zone. OTA's are living very well on it at your expense, adapt your mindset in a way that you learn what the OTA's suggest and apply those recommendations exclusively to your direct channel! Start working for you and your family. and take back control of your business. Start the process of building a Direct Guest Selling Strategy today.
Own a Responsive Website. Your business website is the first point of contact with prospective customers online, it represents and promotes your business, therefore it's a valuable cost effective asset and marketing tool, make sure its creative, user friendly, mobile friendly and functional it must also include your own simple to use direct guest booking engine.
Guest Loyalty Programme. Offer your existing clients (known repeaters) a guest loyalty programme and gradually move all your existing bookings through it. The programme could include different levels to better segment your loyal clients. Add a unique value proposition for each level and display your offerings everywhere on your website and social media channels.
Build up a customer database. Gather customer data from your direct bookings that will rapidly grow, gaining access to your clients’ personal data to later communicate with them in future email marketing campaigns.
Guarantee Best Room Rates. Ensure you show in your own booking direct channel the best room rates of all your channels. Prominently display your best rate available on your website and on all metasearch engines, the more visibility the better. Do some research on the big OTA's find out what their selling and what offers hey are promoting and make sure your rates and offers are better or at the very least comparable. Check out your OTA's agreements and make sure you are not being used, undercut in any way and not liable for discounted promotional offers.
Set-up a safe and secure payment system. Dealing with payments is definitely complicated and a lot of work, especially for independent properties, therefore its imperative hotel owner develop a safe & secure payment method, like Wix hotels for example to accommodate online guest booking. Fraud and chargebacks can be very painful for hotels.
Work with the OTA's. Its best practice to work with OTA's not against them, they are here to stay and aren't going anywhere soon. If you are the owner of a hotel with more than 40 rooms then consider Integrating as many OTA channels as you desire through the onboard channel manager (included in the Wix Hotels Software) this service however will attract a 3% booking charge, so think carefully before you commit.
Challenge your Google Profile. A great place to start is Google Hotels Google offers a wide range of functionalities completely free of charge that can be a great help to hotels in their distribution and direct sales strategy. The analytics and monitoring tools give you a great chance to measure the impact of your marketing campaigns and adjust your strategy accordingly, which can help make your advertising campaigns more effective and also maximize your (ROI) return on investment.
Increase profitability With Direct Online Booking.
Direct selling is enjoying its sweetest moment so now is the time to take complete control of your business with direct guest bookings off your hotel website. It presents holiday outlet owners with impressive benefits, it provides the platform and opportunity to take complete control over every aspect of seasonal or long term rentals, increase profitability with direct online booking and guest will love the opportunity to grab a deal.
So why is direct sales performing and experiencing “its finest moment”
There are many reasons that have led to this situation and each hotel will be able to identify with some but maybe not all of these reasons, according to a recent mirai study report.
Among the top performing channels is direct selling, which is surprising everyone with share increases in the magnitude of up to 300%. According to a recent Site Minder report, the direct channel has gained market share in almost every country analysed, overtaking Expedia in many of them and closing in on Booking.com.
Customers are looking for accurate hotel information
Guest want the best price guarantee.
It attracts more local and domestic customers
Less need for air travel and package holidays.
Greater brand awareness & relevance.
Same language and time zone
Booking direct on mobile devices
In conclusion the Decision to develop online direct guest booking of course is yours!
Although direct sales have been gaining ground every year since the pandemic it has created a before and after effect for many hotel owners. It is not a strategically designed direct channel booking model but created by the pandemic itself with guests calling the local hotels direct to book holidays.
The direct guest selling strategy booking movement has now created the opportunity for hotel owners to take advantage of this strategic asset, that should be nurtured, developed and adopted. Of course, many of the variables that have led to this growth will gradually change and return to normality.
The above facts offer a compelling argument for the hotelier owners to adopt change, however changing a business model is never easy but consider this as business owners around the world figure out what the business landscape could look like post pandemic, energy crisis and inflationary factors, one thing is certain: many old habits/processes will have to change, in some cases, permanently.
Remember that direct sales is not a goal in itself and no hotel can survive on direct sales alone. What is really important for any hotel is to maximise profitability and create a sustainable model without having to depend on an intermediary. In the search for this balance, it is clear that direct selling has, and will have an even more fundamental role in the future. Last but not least remember this its your hotel and rooms not the OTA's! so look after them both and carry out business on your terms. This Mirai article by Pablo Delgado (The reasons why customers use booking.com) is a sobering read!
Don't get left behind, optimize, secure your businesses future, develop customer relationships, build a strong online presence and move into the new world of no fees Direct Online Guest Booking, you'll be the beneficiary eventually.
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Updated 29-06-2024
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