If we want to improve our positioning on Booking.com as rapidly as possible in order to increase sales, it is obvious what needs to be done.
Increase commissions!
This maximizes the profits of Booking.com and in turn its web algorithm will reward us with good search results.
NB: This is an analysis by Francesco Canzoniere, ex-CEO of Viajar and now founder and managing director of Travel Performance.
But do increases in commissions have consequences? Yes, of course.
Just as when hotels go headlong into a price war (downwards), the same happens when they enter into a commission war, they all end up with the same market share, but with lower net income.
At times It is possible that the hotel feels obliged to pay higher commissions but it is also clear in many cases that this solution is chosen for its "speed and simplicity".
But is it sustainable to continue working with a strategy of "get some work and improvise"?
The data seems to suggest that the change cannot be postponed any longer.
Is it possible to make it so that it is the OTAs who ‘work’ for the hotel? Yes it is, but only If the right formula is found.
Let us see how to get started.
Positioning and strategic use of online travel agencies (OTAs)
When deciding on how to get good positioning on an OTA, we must ask ourselves which customer segment we want to reach.
Although this is a fundamental question when creating a campaign strategy, yet when asked, it is often answered with "I want to reach everybody".
But shooting at everything is like shooting at random and not only is it more expensive but it often produces worse results - lower sales and higher costs.
Determining which channel and intermediary to focus our positioning efforts, is driven by the potential that each online travel agency is offering in the interest of the hotel.
However, although the travel agency with which you want to collaborate is carefully selected, signing a distribution agreement neither guarantees that the broker will make every effort to sell your hotel, nor that our hotel will achieve the expected success among its customers.
Moreover, the general impression is that it is the hotelier who is working for the online travel agencies, rather than the other way round, as it should be.
In addition, the strategies and segments that the OTAs manage to encompass in different countries and tourist segments vary widely internationally.
Booking.com is the clear leader at European level for online room sales but in the US, at least for the moment, this is not so.
While Booking.com guarantees a more widespread and global presence every day, basing a distribution strategy on this one OTA is very risky.
Moreover, market dynamics and customer preferences force us to be in Booking.com or whatever is the next best thing.
The great illusion of "super broker"
The big mistake that many businesses make is believing that the broker will do everything possible to sell their hotel.
Maybe we should be talking about naivety rather than mistake, but in the end, whatever the brokers say, the reality is different.
The fact that an OTA wants to maximize income, does not necessarily mean that it will dedicate all its efforts to sell our hotel.
Understanding the logic of the OTAs’ business model is very important when positioning and trying to outsell competitors, while at the same time not having to carry more distribution costs or reduce prices.
Because, make no mistake, this is what brokers (and sometimes direct sales collaborators) often suggest to the hotel in order to increase sales through their web site - "make an offer/lower the prices" or "sign this voucher/pay this commission".
The business logic of the brokers
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The search results that the OTAs generate do not occur randomly but follow a clear strategy of maximizing sales revenue.
To understand how to improve the positioning of the hotel in OTAs we will take Bookiing.com as the reference but the same principles also apply for the rest (Expedia, etc.).
To achieve higher sales revenues Booking.com maximizes a formula similar to the following:
Expected Profit = (No. of reservations x Average selling price x % of commission) – Acquisition costs
Where we understand that:
No. of reservations = No. of queries x Conversion rate - Cancellations
This formula is clearly a simplification but is sufficient to understand the business logic of the OTAs, as well as most of the brokers.
Therefore, in this formula, the number of reservations depends on three factors:
- How often the hotel site is consulted
What the conversion rate is
How many reservations are finally realized (usually, if a check-in does not take place, Booking.com doesn't get paid)
Conversion Rate. It is worthwhile elaborating on this.
On what does the conversion rate depend? This is perhaps the most ‘intricate’ part of the formula because it is linked to all the other elements, directly or indirectly.
The algorithm of an OTA is usually a “reflection” of what positively or negatively affects their sales and marketing strategies. In this area the conversion ratio is a reference that allows both comparison between the hotels that are being sold, and the evolution of the effectiveness of the sales.
Let’s see some clear elements that influence the conversion rate from the point of view of an OTA (although almost everything applies to any hotel web page or any other broker)
1. The content
Booking.com has hundreds of people translating and writing hotel descriptions in several languages, while at the same time personalizing and optimizing the information.
Furthermore, the Booking.com algorithm ‘penalizes’ those hotels that do not provide comprehensive information about their hotel services (in the Booking.com extranet the percentage of information that has to be completed can be clearly seen).
Photos are also important and the hotels are encouraged to improve both quality and quantity.
Airbnb has a team of professional photographers whose only concern is to remedy the poor quality of many pictures provided by owners of apartments and rooms.
2. Comments
Positive comments may persuade a customer to book a higher priced hotel than another that is similar but with more negative comments.
Whereas, in the case of both hotels having the same price, the probability that the highest rated hotel will get the reservation climbs notably.
3. A better price
Booking.com can offer better prices in a situation where different offers coincide (not exclusive between them).
In general, this capability is still limited in many hotels’ own reservation systems although they are improving.
Besides, the hotels not only sign price parity clauses but also guarantee that they will post the best available rate on Booking.com at all times.
4. A larger inventory
To increase the number of bookings, Booking.com also needs to be able to sell as much hotel inventory as possible.
The more they can sell the better, and this is fundamental at times of high occupancy when it is easier to sell and when furthermore the last rooms are also the most expensive.
For this reason brokers include clauses that compromise the hotel to give access to the very last room available for sale.
This also justifies the minimum sales allotment clauses i.e. the minimum number of rooms that the hotel authorizes to sell every day.
If the hotel could close sales on days of higher occupancy, without being penalized, Booking.com would lose access to the easier sales (during periods of high demand conversion rates are higher) and the most lucrative (rates are usually higher).
Average selling price
Regarding the average selling price per booking, Booking.com is interested in it being the highest possible but obviously within the logic of the market.
If in the meanwhile the hotel sells directly and below the price charged in Booking.com or if their competitors do, then sales will be lower for Booking.com.
For this reason price parity agreements are signed. Some OTAs "penalize" hotels with positioning when they detect price disparity.
On the other hand, if two hotels have similar values in all elements of the aforementioned formula, the highest price will be prioritized in search results (the theory being that this higher price maximizes benefits).
Commission percentage
In Booking.com, hotels usually pay a minimum sales fee of 15% and 17% to participate in the ‘preferred’ hotels program.
The more commission the hotel pays the higher its positioning in search results. The hotelier also has a tool which shows how to improve ranking for each percentage increase in commission (the increase in ranking can be more or less proportional to the increase in commission).
Without doubt this is very influential in improving the quantities of bookings sold in Booking.com. However, does more quantity always mean more net income? In many cases no.
Other factors
Other criteria in OTA results management that is often taken into consideration is the variety of results, for its brand positioning in the market.
If the algorithm does not take into account brand factors, such as the variety of offers and products, the results may maximize sales in the short term but penalize attracting other OTA customer segments in the medium and long term (if we only encourage sales of four star hotels, those seeking alternatives will go to other websites and not return).
Of course there are more factors to consider. Furthermore, the logic of the Booking.com algorithm evolves, just like with Google and all eCommerce websites.
However, if we use the aforementioned criteria, we can better understand how to improve our positioning in Booking.com and in the rest of the OTAs.
How to improve positioning in Booking.com and OTAs generally
Applying the aforementioned logic, here are some examples on how to improve hotel profitability in the face of Booking.com's interests.
How to influence their algorithm to favor us in search results, without having to pay commissions.
1. Comments
If we can increase the comments score, we can also increase the number of bookings and therefore the total profits that Booking.com achieves through our hotel.
And how can we achieve this? By inviting the more satisfied clients to write their (best) critiques in Booking.com.
2. Photos
"Seducing" more customers will more and likely increase the conversion rate.
Photos are a key tool in capturing the online community. Invest in a good photography service, ensuring meticulous preparation, and carrying out testing to see which ones attract more attention and further stimulate the decision to book your hotel.
Be careful, hotels are often advised to keep some photos just for the hotel website, in some cases it may be successful but in many others it is simply stupid.
3. Cancellation Policy
In times of low occupancy, remove any restrictions in order to improve the likelihood of getting more sales.
On the other side, this will also increase the number of booking cancellations.
4. Increasing availability
The more availability we upload the greater the potential benefit we offer Booking.com. But be careful.
What happens to your hotel profits if you sell more than you should through brokers?
We could continue with many more examples…
Maximizing the brokers’ algorithm without paying more fees or having to lower prices can generate significant improvements in profitability in the short term but also in the medium and long term.
However, if we do not include these actions in a global distribution strategy, we may end up transferring stocks from cheaper channels (website, phone, email, cheaper brokers…) to more expensive OTAs which damages hotel profitability.
NB: This is an analysis by Francesco Canzoniere, ex-CEO of Viajar and now founder and managing director of Travel Performance.