The Importance of OTAs.
By Jil Larson
Wednesday, 7th July 2010
I recently conducted a revenue management workshop for front office and reservations teams, and as always found it an enjoyable and enlightening experience. 

There's that moment when light bulbs begin appearing all over the room and the energy level rises as everyone becomes engaged in the discussion.  On this occasion, the topic that excited the masses was, of all things, distribution channels.

The exercise was a simple one.  I listed each distribution channel and the costs associated with a reservation through that channel.  Then we applied the same reservation to each channel and as a group calculated the net profit received by the hotel.  The lesson?  Reservations that look the same are definitely not created equal.

By prioritizing the hotel's preference for reservation booking channels, from on site reservation calls to branded website and on down through the GDS and their associated fees to the OTAs and their commissions of anywhere from 17% – 30%, we gave the front lines the knowledge they needed to guide customers to the property's preferred channels.

After that epiphany, the focus quickly turned to the OTAs (or IMMs, or TPIs, or whatever they're being called this week.)  Unlike many hoteliers, I have no issue with OTAs.  They have a role to play in many markets.  When I hear complaints from hotels about OTAs and drill down on the issue, more often than not the problem lies with the hotel's handling of the OTAs, not the channels themselves.

I recommend a simple exercise to resolve OTA angst.

Consider both current and future market conditions, and identify the OTAs' importance to the overall success of your property.  As they are usually one of the lowest profit channels, they should be pretty low on your totem pole, accepted only after the room night needs of your more profitable segments have been addressed.  Calculate how much demand you anticipate from your more valuable (less expensive) channels, then any remaining rooms can be allocated toward OTAs.  Does that allocation end up at less than 20% of hotel room revenues?  Less than 10%?  In markets running extremely low occupancy, they may represent 50% or more of your revenue opportunity, but most urban markets have a base of corporate and group travel, and perhaps still some loyal leisure, that make the OTAs a lower priority.

Now we come to the part where many hotels make their mistake.  Effort versus impact.  If the OTAs ideally provide only 10% of your room revenues, they should be receiving no more than 10% of your revenue management efforts.  Do not allocate your attention to OTAs based on how much attention they demand, because this channel has market managers dedicated to being "in your face" 365 days a year.  They barrage you with emails about parity issues or lack of inventory.  They have hundreds of special "sale opportunities" for you to participate in if you respond immediately.  They will demand all of the time your revenue team has, and it is the hotel's responsibility to ensure they don't receive it.

This week I received an email from an OTA market manager requesting a call with me.  I knew what she was calling about and responded by email with a short story on her concern.  I completed the email with a polite decline of the call, explaining that I adhere to a strict 80/20 rule and her business falls into the latter category.  I can generate far more revenue focusing on my volume corporate and group business, even though they don't harass me on a daily basis, than I can attain responding to every request for attention from an OTA.

She was good enough to admit she agreed with me and there will be no phone call.

So far this year I've pulled properties out of four OTAs that sent threatening notes if we didn't pay more attention to them.  The revenue we'll receive from adding focus to our most valuable channels will more than offset any losses from pulling out of those low-producing, high maintenance OTAs.  But I've also increased focus on specific OTAs in specific markets with great success.  Your market managers are there when you need them.  It's your job to remember when you don't.

If your hotel team spends any time complaining about OTAs, it is likely doing something wrong.  If the complaint is about the high commission of OTAs, they aren't being managed to provide incremental revenue rather than deliver existing business to you at a high cost.   If the complaint is about how much time they require, stop giving it to them.

Service providers at Dynamic RM are proven leaders in the hotel revenue management field with established track records of success in a variety of hotel companies. These individuals are now independent contractors dedicated to the success of their hotels.

Dynamic RM was established by Jil Larson, a 25 year hotel veteran with leadership experience throughout the U.S.A. and Canada in revenue director positions at the property, cluster, regional, and corporate levels. When warranted, Ms. Larson involves partner revenue management leaders, each with particular expertise in specific markets, market segments, or software systems.

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