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Are You Leaving Money on the Table?
By Jean Francois Mourier, CEO of REVPAR GURU
Friday, 24th June 2011
 
Maintain rate parity and drive direct bookings to make the most money from every booking -

'$149 per night? On Expedia, the same room is being sold for $129 per night. I'm calling you directly; why can't you match the price they're offering for your rooms?  It doesn't make any sense.'

"I'm sorry ma'am, but I'm not allowed to honor the rate of any third party online travel agency sites.  Can I go ahead and book you at $149 for your two night stay?"

Click.

It's a scene that is repeated numerous times each and every day in hotels around the world. And it is one that makes absolutely no sense (or cents!).  Hoteliers offer their best prices through the OTA channel, which means that they are not only offering consumers a discount through these channels, they are also giving away between 15 to 35% of the total dollar amount earned to the OTA in commission payments.  It sounds illogical (and it is) and begs for answers to two questions:

What makes hoteliers and revenue managers continue to offer their best rates through the expensive OTAs rather than the cost-effective direct channels?

Shouldn't hoteliers authorize their reservations staff to make decisions that will benefit the hotel's bottom line, rather than losing opportunities to convert potential OTA-customers into direct bookers?

Let's set these questions aside for the moment and first examine two principles essential to successfully exploiting OTAs: 1) using them to showcase your hotel's property, while 2) eliminating their tendency to undermine the hotel's direct channel rate and leave "money on the table" by charging a healthy commission rate.

The OTAs as Virtual Billboards

Other than effectively putting "heads in beds," the greatest benefit an OTA provides to a hotel is the "Billboard Effect," the proven effect of hotels increasing their reach and visibility through "advertising" their property on the sites.  OTA listings give hotels visibility on a vast network of websites that essentially advertise and promote their product, but, as we all know, this advertising comes at a significant price.

So savvy hoteliers should focus on the Billboard Effect of OTAs as advertising tools, rather than expecting it to fulfill all (or even the majority of their bookings). Hotels should focus on using the OTA Billboard Effect to steer customers, who often use OTAs as research tools, towards a hotel's direct booking channel – either online or by phone.  Even Melissa Maher, Global VP of Strategic Accounts and Industry Relations at Expedia agrees.  At a recent breakout session at the New York University International Hospitality Industry Investment Conference, Maher said:

If you look at our promotions and our global reach, we get a billion searches on our sites a day, so we think we bring visibility. What is changing is our hotel partners are trying to capture that business on their own. We think we're a demand generator, and we support the hotel taking the customer, whether they convert on Expedia or a brand site or another OTA that's great too.

In Chris Anderson's study, The Billboard Effect: Online Travel Agent Impact on Non-OTA Reservation Volume, it was found that a hotel's direct bookings jumped almost 20% when listed on Expedia.  However, to take advantage of this effect means that hotels must maintain rate parity, for if rates are not held constant across all channels, we're back to the (ineffective) telephone conversation at the beginning of this article.

The Challenge of Maintaining Rate Parity

The only true way to maintain rate parity is to actively manage all channels, including OTAs and the hotel's direct booking channel (phone, proprietary booking engine, etc.).  Hotels are in the position to dynamically change their rates minute-by-minute, hour-by-hour, but unfortunately, most hotels aren't.  Again, leaving money on the table.  Maher asserted this in the break out session by saying, "Hoteliers should use OTAs to their advantage and yield manage…you can change your rate 300 times a day, but there are not a lot of folks taking advantage of that."

Is Maher correct?  In my experience, yes, she is.  REVPAR GURU's hotel customers often come to us because they've realized the truth in Ms. Maher's comments.  These clients understand that it is in their best interest to maintain rate parity, exploit the OTA Billboard Effect, and drive customers to their direct booking channel.  Overwhelmed with trying to manage every single facet of every single channel, hoteliers realize the need to move to a software solution: the most potent way to dynamically change rates on a daily basis.

Time to Stop Leaving Money on the Table

Now let's return to the two questions asked at the beginning:

What makes hoteliers and revenue managers continue to offer their best rates through the expensive OTAs rather than the cost-effective direct channels?

This is a two-fold answer based on the principles we just discussed. First, the last ten years have brought commoditization to the hotel industry through heavy OTA discounting during periods of economic distress.  Instead of using OTAs as virtual billboards, hotels are still trying to compete on price through their OTA bookings; it's time to stop doing that.

Second, it can be explained by referring to our discussion regarding maintaining rate parity.  Specifically, hotels are falling behind in the technology required to maintain parity.  Because they are so technologically deficient, not only do they lack the ability to adjust their own rates accordingly, they can't even validate the OTA prices that customers are quoting.

There simply is no way to keep up with OTA pricing without a sophisticated system that gives the reservations team the "agility" to both monitor up-to-the-minute pricing across all channels, and execute pricing tactics instantly.

Take our extranet for example.  While REVPAR GURU monitors variables such as page positioning, historical pricing data and inventory control, our extranet system allows real-time optimization from anywhere. The reservations team not only sees real-time data, they can override and adjust pricing variables regardless of location.  Such a system brings hotels beyond par with the technology OTAs are using to beat them at their own game.  It also gives staff the ability to make informed decisions quickly, which brings us to answer the second question.

Shouldn't hoteliers authorize their reservations staff to make decisions that will benefit the hotel's bottom line, rather than losing opportunities to convert potential OTA-customers into direct bookers?

Yes.  The answer lies primarily with the hotel's ability to foster an environment that encourages staff-level decision-making.  Hotels must create policies and staff-training programs that help to ensure that the reservations team monitors and optimizes rate parity through the software solution.

In addition, hotels should consider incentivizing initiatives: encourage staff, even monetarily, to not only consistently maintain rate parity, but to actively promote and convert OTA buyers into direct channel bookers.  If a system such as this one is effectively operated, theoretically there should never be a need to "honor" Expedia's (or any other OTA's) rate.  The reservations team, by using technology to their advantage, will have already matched or beaten Expedia's rate by the time the customer calls.

When hotels effectively combine these two principals—using OTAs as virtual billboards for their direct booking channel, and maintaining rate parity—with upgraded technology and superior reservation team training and incentives, they will finally be able to be sure that they are never leaving money on the table, or losing money through the OTA sites.

Sources/References/Notes

hotelnewsnow.com/articles.aspx/5702/OTA-debate-stresses-better-channel-management

About REVPAR GURU

REVPAR GURU provides hotels around the world with an alternative revenue management software system, designed to deliver maximum bookings and profits. As REVPAR GURU's custom-designed Yield Dynamic Price Engine is the only real-time revenue management system available on the market, it meets the rapidly changing needs of hotels in a very demanding business environment.  REVPAR GURU's  system offers dynamic rate optimization, real-time pricing, integrated internet and extranet yield channel management and GDS sales distribution, to increase a hotel's RevPAR intelligently and effectively, while maintaining rate integrity and automated rate parity. Since 2004, REVPAR GURU's software system has been used by hotels worldwide to increase occupancy and RevPAR.

Headquartered in Miami, Florida, additional information can be found at www.revparguru.com or by calling +1.786.478.3500.
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