If you work in hospitality you will know that in this fragmented, complicated business things are changing faster than your best barista can make a cappuccino.
Among the forces driving this are fresh acquisitions and consolidation of the big boys, new disruptive players and rapid shifts in technology and consumer behaviour.
Whichever way you look at it the writing is on the wall – hoteliers and hotel businesses need to adapt and see the big picture, or the sad truth is their rooms will fall empty.
NB: This is a report by Pamela Whitby, editor for EyeforTravel.
For the commercial captains of small and large chains and independent hotels alike – arguably those who should be running the business – there are tough times ahead.
It’s against this backdrop that we take a look at the big issues and what could be on a hotelier's wish-list for the coming year.
Wish No 1: OTAs, please create a cost-based marketing environment for hotels
When Lennert De Jong, commercial director of CitizenM, and two colleagues headed to New York in February to check out the market for the group’s first stateside hotel, they needed accommodation.
De Jong turned to the app of an OTA to find three rooms for seven nights in the hotel of his choice, and the bill came to $4,500.
A quick calculation of the likely 15%-25% commission that this hotel in New York would be paying to the OTA would make any hotelier wince. Many would also wonder, what are we paying for?
Certainly not massive acquisition costs; after all, if a customer regularly uses an OTA like Booking.com or Expedia to find a hotel – and there are 3 billion people out there who do – those are pretty low.
Compare this to a butcher. There is a cost price for everything and you wouldn’t expect to pay the same price for all meat would you?
As De Jong points out, when OTAs play the sole role of acquiring expensive business for the hotels, such as citywide keywords for a large market, they certainly need to price as steak.
When, however, OTAs become the app of choice over Brand.com, or provide systems for hotels, then they should consider pricing as chicken.
Agnes Roquefort, senior vice president for global revenue management at Accor, agrees:
"If OTAs bring us additional clients from long-haul customers, for example, then commissions are justified, but if they simply dilute or cannibalise existing loyal members, then we are indeed paying for nothing."
De Jong, however, is hopeful and believes that in the not too distant future, the industry can look forward to more cost-based marketing, and more cost-based rewards.
"That will happen more naturally and costs will come down."
If he is right then wish Number 1 can be granted.
Wish No. 2: Let’s level the playing field even further
Commissions could come down because of growing pressure on the big players. Indeed few today would argue that the big OTAs grew too fast, too quickly and that led to an uneven playing field, not to mention some deep-seated resentments.
What followed was an antitrust investigation in 2012 - first instigated by Skoosh (a smaller OTA) - into alleged price fixing that eventually culminated in an agreement last year between Expedia, Booking.com, InterContinental Hotels (IHG) and Britain’s new regulator, the Competition & Markets Authority (CMA) competition authority.
That deal would have allowed three giants of the industry to continue to discount but within closed user groups. That was not to be.
Last week a tribunal ruled in favour of Skyscanner, which supported by Skoosh, had appealed the CMA’s decision. However, although this is being called a win for metasearch companies, smaller OTAs and consumers alike, Dorian Harris, the founder of Skoosh, believes it may be too little too late.
"Expedia and booking.com have bullied their way to a virtual monopoly. Along the way they've bought up price comparison sites to ensure there's absolutely no transparency in the market and now Priceline is investing in the technology for hotels to manage their inventory."
Many would argue that such investments are simply good business sense and more recent acquisitions by Priceline (eg. Buuteeq, OpenTable and the property management system, Hotel Ninjas), and others by TripAdvisor and Expedia, point to a recognition that they need to get closer to hotels.
Indeed some hoteliers already enjoy a good relationship with OTAs.
Nick Aristou from Four Seasons Hotel is one. Earlier this year he told EyeforTravel’s managing director Tim Gunstone that providing there is an "open and communicative relationship", the OTAs can be "perfect partners".
Still, with Skyscanner’s recent win, bigger battles around competition in hotel room rates may be in the offing before Wish 2 can be granted.
Wish No 3: Tough negotiating skills and a magic wand to help choose the right channel to sell hotel product
There is no time for hoteliers to rest on their laurels and many hoteliers need to brush up their negotiating skills. Nordic Choice Hotels has proved this can be done.
Speaking in London earlier this year, Carl Oldsberg, the group’s VP of revenue and distribution, says that in 2012 they "turned off the snooze button" by embarking on a strategy that involved "rate disparity, no last room availability, lower commission and no unethical search".
To start with the OTAs didn’t like it, but now they have "transitioned from being enemies to being friends".
The OTAs certainly have a role to play in the distribution chain and while De Jong is willing to negotiate hard, he admits that he wouldn’t do anything to risk the billboard effect.
"Yes, it can be a tense relationship but I also love the OTAs because they give me the opportunity to launch a hotel in New York with 95% occupancy in the first month at rates that are above the compset."
For small independent hotels with little budget, the billboard effect the OTAs provide is an invaluable - if costly - service but one they probably couldn’t do any better themselves.
Still, there is more that can be done at the negotiating table, and hoteliers would be wise, for example, to ask for more in the way of conversion data. This can give many clues about who the competition is (it’s often not who you think!), how many visitors are needed to make an accurate pricing decision and so on.
For Roquefort what’s most likely to deliver wish number 3 is training.
"We’re putting serious effort into making direct websites more attractive, growing loyal members and training staff to understand when the direct web is key and when indirect channels can be useful."
Which brings to us our fourth plea...
Wish No. 4: An answer to the question: how much should I invest in my direct channel and how much in mobile?
Let’s face facts. It’s not without reason that the hotels were pushed into agreements with OTAs that led them to willingly give away 15 – 25% of their revenues.
Yes, 9/11 and the big bad OTAs may have had something to do with it but in the end many would argue that hotels just didn’t invest enough and early on enough in the online experience.
By reacting quickly to consumer behaviour, the OTAs on the other hand stormed ahead.
CitizenM is one exception to the rule. As a relatively young company without any legacy, the eight-year-old hotel firm was in a position to invest early – and heavily - in making its online experience as slick as possible, a process that is on going.
Accor too has put the direct channel, and driving loyalty through a great guest experience, at the centre of its business model.
At the same time, big chains like Hilton have aggressively targeted members with loyalty programmes – and by improving its online experience - and today its HHonors programme has 38 million members.
But those loyal guests also come at a price; they’re only loyal, after all, because they are getting something for free.
For the OTAs, the game is to lure away those loyal guests. So while the OTAs may today be flying the Mr Nice Guy flag, they aren’t daft. They know that with lower commissions – and the rise of metasearch - pressure on margins will continue.
They are finding way to secure a bigger chunk of the hotels’ business – hence the recent acquisition trail.
Savvy hoteliers are responding by focusing on the guest experience during the stay – the one piece that the OTAs cannot own. In today’s world this includes the online experience and a crucial element of this mobile.
EyeforTravel’s recent Mobile in Hospitality Report 2014 shows that 62% of executives believe mobile devices will see the biggest growth in booking volumes in the next 12 months.
But while some are investing in things like mobile-check in to smooth the guest experience, many are still missing the boat. EyeforTravel’s research also shows that while over half of consumers want to manage bookings across all devices, only a third of hoteliers have met this need.
The OTAs, on the other hand, are well into the swing of the mobile party; booking.com’s mobile app has been downloaded over 20 million times, Expedia’s over 11 million times.
Wish No. 5: Help with small data first, so that big data can become a reality – and no crazy solution’s providers please
Many hoteliers know they need to invest in technology but there are so many solutions out there it can be very confusing – not to mention expensive.
Roquefort says:
"Innovation has to be at the core of RM and pricing but for the past two years we’ve had new technology companies knocking on our door with crazy big data solutions."
That poses a big challenge for revenue managers whose brains are already tied up trying to extract data from a range of different systems.
According to Roquefort, it’s about identifying those that will be the most useful and that will help to create value, in line with the group’s needs.
"We have to avoid the short-term wow effect!"
Forget big data, De Jong argues that hoteliers are doing a really bad job with small data, and even getting basic things right like price positions or guest behaviour would be a good start on the road less travelled.
Wish No 6: A common dashboard with a data in one place, and for hoteliers to be come true traders
Ask 20 different revenue managers in the same town to come up with a forecast and you’ll get 20 different decisions.
As De Jong explains that’s because today if you are trying to optimise one day in the future, hoteliers need to go to six or seven different systems to make a simple decision which all, in the end, lands in an Excel spreadsheet.
In De Jong’s ideal world, he would like to see hoteliers become effective traders where the best brain, and of course the best product, wins the day.
What would help that dream is for all hoteliers to have access to a single data platform, and the good news is that some solutions are emerging. Such tools can help hoteliers to do more in depth data analysis such as competitive benchmarking, and to understand better how the broader market works.
Making big data small and usable is something citizenM, along with other future-minded hotels, is working on with a platform called Snapshot, which De Jong claims is a first of its kind.
Wish No 7: Can we talk about a revolution?
The way things stand De Jong says he is always going to fight with OTA's for every single first-time guest, but it doesn’t have to be that way.
It’s not that he doesn’t want direct bookings, but he also understands the power of the OTAs and argues that some hotels just don’t get the big picture.
"They [the OTAs] are the future because they have the skill, the size and the expertise."
So what could really change the game in this tense, highly fragmented market?
De Jong takes an alternative, some would argue revolutionary, view:
"If a company with the technological skill and expertise of say Google or Priceline were willing to agree to cost-based commissions – and I believe they will – I would be the first one to say that we will quit all of this, we'd give up the fight. What’s the point of duplicating in what is already a highly fragmented business?"
To cement his point, De Jong says that if he were to write a book, he would not set up countless channels, including his own website, to sell it on, nor would he invest in behavioural targeting.
"No. I’d simply sell it on Amazon."
Citing Airbnb and Uber as similar success stories that have rolled up the reservations market for homestays and taxis respectively he concludes: "Hotels need something similar."
The last thing Harris wants, however, is a world run by the big OTAs.
"I joined the [Skyscanner] appeal because it was unbearable to think of Expedia and booking.com on the same side of the bench as the CMA. The companies I'd complained about were defending the authority I'd complained to."
Which just goes to show, you don’t always get what you wish for.
To make your wishes heard and to join the debate don’t miss Smart Travel Analytics & RM in Berlin on November 24-25 where Agnes Roquefort, Lennert De Jong and numerous other commercial captains will be making their voices heard
NB: This is a report by Pamela Whitby, editor for EyeforTravel. It appears here as part of Tnooz’s sponsored content initiative.
NB2: Join us in Berlin on November 24-25 for our Smart Travel Analytics and Revenue Management event to hear more from CitizenM and Accor and other leading travel brands Best Western, Kuoni and TUI.
NB3: Wish list and mobile direct images via Shutterstock.