Online travel agencies (OTAs) provide hotels with often-overlooked revenue management benefits; an article by Cornell University's Center for Hospitality Research, 'Brave New World: Online Hotel Distribution', correctly points out that OTAs can become successful business allies to hotel properties.
OTAs allow hotels to extend their pricing strategy into channels otherwise unavailable to them; however, in order to get the most out of this alliance, hotel revenue managers must actively monitor all channels and attempt to maintain a 24/7 dynamic pricing model.
Of course, the most viable solution to such a daunting task is to manage these channels through effective revenue management software; but regardless of your choice of management, it's essential to provide rate parity and dynamic pricing based on a variety of forecasting data.
Let's take a look at three of the unique benefits that OTAs can provide to hotels' revenue management strategy:Virtual Billboard
Probably one of the most obvious benefits of having OTAs as business partners is the "Billboard Effect," which provides hotels with the ultimate exposure: multiple websites that offer up-to-the-minute pricing, user-generated content, virtual tours and location information.
Increasingly, customers are using OTAs as a research tool—checking rates and reviews—then booking through the hotel's proprietary booking engine/website. In his study, "The Billboard Effect: Online Travel Agent Impact on Non-OTA Reservation Volume", Cornell Professor Chris Anderson found that hotel direct bookings increased from 7.5 to 26% when listed on Expedia – a drastic increase that can have a huge impact on a hotel's profitability.Rate Parity and Rate Optimization
By utilizing multiple OTAs, it is possible to dramatically increase a hotel's web exposure at a considerably efficient ROI. The one drawback is in maintaining rate parity throughout all channels, including a hotel's proprietary site. The only way to overcome this drawback is to actively manage every single OTA partnership.
Technically, this should be done every second of every day in order to ensure optimum pricing and to avoid potentially undercutting a hotel's own rate through one of its many channels.
In addition to traditional online channels, there's a new trend not mentioned in the Cornell article: mobile booking. Guests are literally researching hotels (both from OTA mobile apps and websites) from the sidewalk hours or even minutes prior to arrival. The emergence of new "split-second" booking channels underscores the importance of up-to-the-minute channel monitoring and adjustment.Inventory Liquidation
OTAs provide hotels with a cost-effective way to liquidate excess inventory during both peak and low seasons. In addition, opaque OTA channels offer a vehicle to sell distress inventory anonymously; thus, rate integrity can be maintained even when it is necessary to heavily discount. While ADR will suffer through such methods, occupancy and RevPAR can be sufficiently upheld.
While a common belief is that OTAs are a detriment to hotel revenue management, the fact is, they can provide valuable research sources for potential guests and enhanced exposure for hotel properties. OTAs are not going anywhere anytime soon—they are a popular tool for consumers—so it is important to utilize them for the benefits they provide and get onboard with as many OTAs as possible to increase exposure and online bookings.
Of equal importance is the implementation of active, or dynamic pricing, and the maintenance of rate parity when using OTAs as a virtual billboard.
These practices will avoid pricing pitfalls, strengthening the business alliance between hotels and OTAs and increasing a hotel's bottom line. Sources/References/Notes
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- Brave New World: Online Hotel Distribution - hotelschool.cornell.edu/research/chr/pubs/roundtableproceedings/roundtable-15539.html
- The Billboard Effect: Online Travel Agent Impact on Non-OTA Reservation Volume - hotelschool.cornell.edu/research/chr/pubs/reports/abstract-15139.html