With Expedia’s recent purchase of Orbitz, Expedia and Priceline now own 94% of the US online travel agency (OTA) market, according to Phocuswright data. New channels such as Book on Google and TripAdvisor Instant Booking will surely disrupt the market further.
NB This is a viewpoint by Kenny Lee, VP of marketing for Revinate.
What does this mean for hotels? Hotels use OTAs to acquire new customers, and the consolidation of the companies means there is less competition, potentially leading to larger commission fees.
And now, TripAdvisor and Google, two of the top online sources of trip planning inspiration, have released OTA-like features. Hotels may soon see fewer direct bookings and higher commissions. Unless hoteliers take action now, middlemen will soon own the relationship with their guests.
The retail problem
This model is standard in other industries. Much in the way that hotels get bookings through OTAs, clothing designers sell their wares in department stores. Automobile manufacturers let dealerships interact with potential buyers.
But brands today face unprecedented competition in retail environments. For example, in 1980, there were six brands of blue jeans in the US. Today, there are over 800.
In the 1960s, the American automotive industry was dominated by the big three automakers, but has since exploded into dozens of companies with hundreds of different versions of sedans, SUVs, and more.
When a consumer walks into a department store, or starts shopping for a car, she is presented with a multitude of seemingly identical products.
Hotels have the same problem. How many hotels are there in your market on TripAdvisor? How do you differentiate yourself from a competitor with a similar price point and offerings? How do guests see value in booking directly with you, rather than booking through an OTA?
The benefits of a direct-to-consumer model
For your hotel, the answer may be to avoid the retailer-like environment of the OTAs as much as possible.
In other industries, some brands have discovered ways to skirt the saturated retail market and get their products directly into the hands of consumers. For example, let’s look at a few benefits that direct-to-consumer companies Tesla and Patagonia have reaped as a result of pursuing direct, one-to-one relationship with their customers.
- Strengthened brand integrity
Tesla is the American automotive company that designs, manufactures, and sells premium electric cars. Instead of working with auto franchises, it opened its own stores and sells directly to consumers. This model has the advantage of keeping dealerships, which have a lot of power to set prices and can give the customer a bad experience, out of the mix.
Diarmuid O’Connell, Tesla's vice president of business development, told the Washington Post:
“Our stores are as much education venues as retail venues — in fact, probably more so. We don't think that we would succeed using an intermediary model where we sell a product that someone else sells to the public.”
By selling directly to consumers, Tesla maintains control of its image and customer experience.
The result of owning the customer experience? According to Bloomberg, Tesla owners are more likely to be repeat buyers than customers of any other automotive company.
Another company that has done this to great success is Patagonia.
The outdoor clothing designer and manufacturer's mission statement is, “Build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis.” While available in retailers such as REI, Patagonia has placed an emphasis on its standalone stores, catalogue, and internet sales.
It also touts an Ironclad Guarantee policy: Any Patagonia product can be returned to the company for repair, replacement, refund, or for recycling when at last the item is no longer wearable. Damage due to wear and tear, even on a 10-year-old jacket, will be repaired “at a reasonable charge.”
This initiative gives consumers a reason to have a relationship directly with the brand.
The results? Patagonia’s loyalty initiatives appear to be working. In 2012 Patagonia revenue rose by a third year-on-year to $543 million, while in 2013 rose by 6% to $576 million.
What do direct-to-consumer initiatives mean for Tesla and Patagonia? They mean that they aren’t just manufacturers or wholesalers. They are their own vertical retailers, with complete control of creative and their supply chain. They can tell their brand story as intended and build direct consumer connections, without the interference of intermediary brands or companies.
- Control over the relationship, the data, and the insights
A direct-to-consumer strategy therefore lets companies such as Tesla and Patagonia have complete control over the relationship with their customers. This is about a brand’s ability to talk to a target market, as well as to listen to consumers.
The direct-to-consumer model has allowed Tesla to become a status symbol in the San Francisco Bay Area and increasingly across the country. Patagonia has built a solid base of die-hard customers to double its scale of operations and triple its profits. Consumers have built a strong relationship with these brands and as a result are willing to pay higher prices for their brand promise.
What could this mean for hotels?
If you think of OTAs as retailers and put hotels in the position of companies such as Tesla and Patagonia, think of how much can be gained with a direct-to-consumer model. By building a direct relationship with guests, hotels can control their brand images, their data, and the relationships with their guests.
It’s true that OTAs are a great way to get new customers in the door, in the same way that REI is a great way for Patagonia to acquire a new customer who was completely unaware of the brand previously.
But once a guest has experienced a hotel, shouldn’t the hotel continue to foster that relationship?
According to 2015 TripAdvisor data, 80% of hoteliers agree that increasing repeat bookings is “very important” to the future of their businesses. Hoteliers get it: fostering relationships with a base of customers to create loyalty is critical in today’s competitive hospitality environment.
With a direct relationship, brands can collect very rich data, gaining insights on customer needs, preferences, and buying behaviors. This is far superior to the current model, where hotels have little to no data on their guests, especially when they book through OTAs. By leveraging their guest data, hotels can personalize their marketing and their consumer experience, especially for loyal, repeat customers.
Let’s look at some numbers: According to Experian, for promotional mailings, personalized emails generate transaction rates and revenue per email that is more than six times higher than non-personalized emails. For brands in the travel space, the case is even stronger - personalized subject lines can result in a 65% lift in unique open rates.
Clearly, consumers respond well to brands that make an effort to get to know them and talk to them based on their specific needs, interests, and preferences.
And the great part is that there’s no excuse for not doing so.
Even smaller independent properties can see great benefit from engaging with their existing guest database. The right customer relationship management (CRM) solution and marketing automation program will integrate with existing systems to aggregate guest data. With this information, you can not only learn about your guests, but you can use that data to deliver personalized experiences that create valuable relationships and lifelong customers.
Like what you’ve read here? If you’re considering the purchase of a CRM for your hotel, don’t get too far before asking yourself these questions.
NB This is a viewpoint by Kenny Lee, VP of marketing for Revinate. It appears here as part of Tnooz's sponsored content initiative.
NB2Image by Shutterstock.