NB: This is a guest article by Chris Patridge, executive vice president of BackBid.
Over the past several weeks, there have been many opinions put forth about the OTAs - whether they are friend or foe, the best ways to use them, etc.
I have followed the conversation with great interest, not only because of my background as a revenue manager, but also because I have recently launched my own alternative online booking channel at BackBid.
One of the first things that comes to mind when considering the controversy is that I’ve noticed many people discussing the issue as if it was a new situation.
In reality, it isn’t.
The issues that hotels currently have with the OTAs have existed since the rush to sign up with these new booking channels in a panic in the early 1990s. I was there, working with many of the major chains as they dropped rates and embraced this new channel in order to appease management who was panicking as occupancy continued to drop.
But rather than delve into a long history of how hotels got themselves into this position, I think that is enough to say that we (hoteliers) fed the monster and now we have to pick up after it.
Before starting our discussion about the OTAs, let’s first examine the current business environment to get a bit of context. With the recent consolidation in our industry, especially in North America, we have seen the number of chains decrease while their marketing pull increases. This is a good thing for the industry.
Overall we are seeing some growth in bookings made through brand.com largely as a result of the big multi-segment chains that have been created through consolidation and their increased market might.
So, back to the question at hand: are the OTAs good or bad for business?
My answer is simple: it depends.
1. Hotel chains
For hotel chains and flagged properties, again my answer is: it depends. On the one hand, chains need OTAs less and less, but on the other, it can be a comfort even for the big guys to know that the OTAs are an option if demand should decrease, as a way to increase online exposure.
Unfortunately though, there are no OTA Market Managers that will tolerate a hotel that ignores them in the good times and asks for their “help” during the bad times. So it is important for chain properties to keep a balance. A great way to keep that balance is through opaque packaging.
Hotel chains should be using this type of opaque pricing to its fullest, even if the OTAs are not actively promoting the option.
The opaque nature of package deals allow hotels the flexibility to play with their sales mix – combining both room sales and "value-adds" - which often can be just as profitable as the room portion of a package.
Arguably, the big OTAs would rather hotels just sold rooms alone, as none of the big players really put any kind of value-added offering to the forefront of their results pages.
To them, it’s still a game of putting the rate ahead of the value or the brand. This being said, opaque packaging is a good compromise that the chain hotels should be using to give the OTAs some inventory, even when demand is high.
2. Boutique and independent properties
The independents and boutique properties (which also includes smaller chain properties) are struggling to compete with the Goliaths in their market, both in price and marketing exposure.
Independent hotels need to give the inventory that the big guys sell on brand.com and their CRO to the OTAs to compensate for their smaller marketing budgets. Independents should be thinking of OTA commissions as a necessary marketing cost.
So we have determined that yes, for independents and small chains it is necessary to include the OTAs as a part of a healthy market mix, but there are ways to play it smart.
First, hotels should be treating their OTA market managers as partners, not as the enemy. By "playing by the [OTA] rules" and maintaining consistent participation in seasonal sales and promotions, hotels may find that they receive better page placement, and as a result, better sales .
Over time, if the OTA market manager sees that a property is actively helping to sell rooms through their channel when possible, giving them LRA and keeping in parity, when it is contract renegotiation time, it is possible to decrease the commission rate that is being paid.
Using this "friend not foe" approach on behalf of my hotel clients, I have been able to lower commissions on several occasions, so I know that this can be a successful tactic for independent properties to consider.
Making opaque work for independent properties
One issue that strikes me as being overlooked in this ongoing discussion is the opaque online channels, and how they can play a role in a healthy market mix for independent and boutique hotels.
Many hoteliers maintain a very tight definition of what is opaque, basically limiting it to sites like Priceline and Hotwire that only divulge pertinent hotel details after the consumer has committed to their purchase. While it is true that these two sites are indeed considered opaque channels, I would suggest that there are other ways that a channel can be opaque.
To me, an opaque channel is one that allows hotels to post rates that cannot be directly compared to rates publicly available through other channels.
Under this definition, opaque channels now include anything that packages hotel rooms with other travel (air, car, etc), with attractions or meals at destination (dinner theatre, city tour) or with value-added elements (free wifi, parking, breakfast, etc).
Independent and boutique hotels should actively seek opaque online opportunities to bolster their online sales and remain competitive with the marketing reach of the big chains, while avoiding parity issues across the channels.
The opaque packages offered through OTAs are a great way to supply OTA inventory in high-demand periods, while skirting the parity issue. Virtually all the major OTAs offer hotels the opportunity to submit package rates that will be bundled with rental cards or air and offered as packages on the site.
While the OTAs insist that these rates be lower than your regular net rates on the site, the price point can often be higher than what would have traction on the highly discounted models of Priceline and Hotwire.
This is a good opportunity for independent and boutique hotels to offer online rates that will not draw sales away from more profitable channels such as their brand.com.
A robust mix of room types offered through the OTAs will also help you avoid parity and LRA issues by selectively yielding by room types in your various channels.
Another option for the independent and boutique hotelier is participation with members only sites like off and away.
The answer lies with the hotelier
All that being said, the OTAs are not going to go away anytime soon. Whether a flagged or independent property, it is important to be aware for hotels to be aware of how their property’s distribution breakdown can be optimized. Identify how to use OTAs best to satisfy your needs.
Big branded chains should use opaque packaging options to keep OTA sales from eroding more profitable channels. Give publicly priced inventory when possible but yield to other channels when the opportunity presents itself.
Small or independent properties need the OTAs to make up for the advantages that a brand would offer – i.e. increased exposure and a larger marketing budget.
They should use opaque packages but also load a broad selection of inventory types on the OTAs to selectively play with inventory when demand permits.
What do you think? Do you agree or disagree?
I would love to hear your thoughts, comments and arguments on the subject...
NB: This is a guest article by Chris Patridge, executive vice president of BackBid.
NB2: TLabs Showcase - Backbid.