Be Booked. Not Overlooked. (Part 2)

In part 1 of this article we briefly covered Digital Distribution Channels. These being Direct (Via your Website using an IBE (Internet Booking Agent) and a Channel Manager) and Third Party (via an OTA, Wholesaler or Tour Operator.)

We then touched on Digital Marketing and the various types. Namely: Metasearch, SEO, Direct, Social Media and Email.

So join me as we take a deeper dive into the above.

Metasearch

In 2017 Metasearch and OTA's brought in around 54% (US) and 65% (UK) of all bookings to hotels. This is a significant amount of revenue generated by them.

OTA's (Online Travel Agents)( Expedia, Booking.com):

These platforms allow customers to search for hotels, compare prices and then make a booking through their sites with the hotel providing the room. These sites set up contracts with hotels and B&Bs to secure inventory to do this.

OTA revenues come from the commissions hotels are charged for the bookings they intermediate. Whilst these used to be around 10 per cent, commission rates have increased dramatically over the last ten years.

Commissions charged by OTAs are typically 15-30 per cent of the value of the stay, although there is anecdotal evidence that they are sometimes even higher than this. In the UK commissions are generally paid on the VAT inclusive rate so the actual commission costs to hotels are closer to 18-36 per cent. Booking.com further supplements these commissions by asking hotels to pay for preferential placing – typically a further 3 per cent.

Metasearch platforms (e.g. Trivago and Tripadvisor):

These platforms compare prices offered across different OTAs and hotels. Metasearch firms make money through selling advertising on their searches like search engines. But rather than commissions, they charge a cost per click as well as for standard advertising. It is worth noting that two of the largest metasearch providers, Trivago and Kayak, are owned by the two large OTAs, Expedia and Priceline/ Booking.com respectively. Recently, certain metasearch players have moved into the booking space themselves – either through contracting with hotels for inventory or obtaining it through third party sellers. Notably, Tripadvisor has signed a deal with Booking.com to allow customers to book rooms directly on the Tripadvisor site.

Benefits of OTA's and Metasearch Platforms

Businesses that rely on platforms: For businesses such as hotels (especially the smallest, which do not have large marketing budgets), it is argued that platforms can offer a route to a market that was not previously open to them. The platform can connect them to potential customers all over the world. Hotels now report that the existence of such large players act as a disincentive for them to innovate to reach customers as their marketing budgets cannot compete:

‘The sheer size of the challenge would mean I would need to spend a budget too large to try and compete’

‘It is difficult to compete with the online presence of Booking.com’

‘OTAs are heavily impacting our bottom line so we have less money to play around with [for marketing activity]’

‘High commissions mean that marketing activity has to be curtailed’

OTAs have also worked out ways to restrict hotels’ ability to contact guests directly such as not providing the email address of the guest or not informing the hotel about the purpose of their trip. This makes it harder for the hotel to cater for guests’ needs and removes the ability of the hotel to create a direct relationship with the guest it is looking after.

Consumer benefits: The benefits for consumers of platforms, including OTAs, are widely held to be the convenience, choice and price comparison functionality they offer.

How and to what extent do online platforms shape and control the online environment and the experience of those using them?

Platforms have a profound effect on the online experience. They act as gateways to other websites and apps, as intermediaries and as sellers of services. This places them at the heart of the huge numbers of transactions undertaken online. The implications of this for UK consumers are particularly pronounced because British consumers buy more online than other Europeans.

The market for leisure and business accommodation is no exception. Research by Nielsen shows that hotels are one of the top three most popular items British people plan to buy online, while according to the ONS, nearly 40 per cent of adults made travel arrangements online in 2014. In July 2015, in the UK alone, Expedia, Tripadvisor and Priceline sites like booking.com were visited 144 million times.

Given OTAs only entered the market in the early 2000s, this represents a staggering transformation in the way hotel accommodation is sold and bought. Rapid growth and consolidation has allowed OTAs to develop considerable influence over all online sales through their very large marketing budgets. The Priceline Group (booking.com) is reported to be the biggest spender on Google AdWords, with a spend of nearly $1.8 billion in 2014. By dominating in paid search, OTAs have increasingly become a ‘toll booth’ on internet sales of accommodation. This is borne out by a survey we conducted of UK hotels where 87 per cent stated they would prefer to use OTAs on an as-needed basis, but are compelled to use them if they are not be shut out of the online channel and from there the web.

CONTROL OF THE ONLINE ENVIRONMENT: HOW SEARCH RESULTS ARE DETERMINED

One area of particular concern to us is the way that OTAs present search results. When a survey asked customers why they use OTAs, 82 per cent said it was ‘to get the lowest price’. From a consumer perspective, then, the OTA is doing its job if it helps guide them to the lowest price for a given location and class of hotel.

Because consumers do not look far beyond the first few search results, featuring high up in default search results is vital for a hotel to secure click-through sales. Therefore it is important to note that OTAs do not sort hotel search results by price by default.

In fact, the top results are those ‘recommended’ by the OTA. The basis of this recommendation is opaque and is comprised of the following factors:

• Price: OTAs gain a percentage of the total booking from their commission rather than a flat fee as in the airline model. It is therefore in their interest to promote higher cost hotels, on which – all being equal – the most commission will be paid.
•  Level of commission paid by the hotel to the site: hotels are told the more commission they pay, the higher they will appear in the sort results
• Conversion: The conversion ratio (i.e. the ratio of views to sales) that a given hotel achieves through the OTA (establishments fall in the sort order if people view the hotel listing but don’t subsequently purchase).
• ‘Competitive’ rates: Rather than some measure of value for money for the consumer, having competitive rates means that the accommodation provider agrees to provide the OTA with the same price for a room as they would to a customer booking directly with them through their website or calling the property directly. This is known as a ‘rate parity’ or ‘most-favoured nation’ clause and is typically forced on hotels in spite of the OTA’s high cost of sale.

Individual hotels are routinely threatened by OTAs if they attempt to offer the consumer a lower price through their direct channels (even when they have been permitted to do so to ‘closed user groups (CUGs) through national competition authorities’ commitments processes). 40 per cent of UK hotels surveyed reported they had been threatened in this way by a platform. This is rarely done in writing as the powerful OTAs can take unilateral action to punish hotels (such as by suppressing them from appearing on their websites).

What actually determines the sort order the customer sees (or even whether a hotel is displayed at all) is entirely shaped by commercial factors which, in apparent infringement of the Unfair Commercial Practices Directive, is not made clear to the consumer.

It is important to note that we know a consumer will rarely alter the default search on a website (ie. from the ‘our favourites’ or ‘recommended’ option). It would be more transparent for the OTA to display hotels in a list based on distance from the location the customer is looking for, or price – more objective factors that would actually help the user make an informed choice.

Personally, the more I read about OTA's and Metasearch Platforms the less I like them. Yes, I totally understand their huge reach and how this will help smaller hotels get found. But there seems to be too little transparency and they seem to have all the power. That doesn't sit well with me personally. Hotels need to be on these platforms, but I would prefer for all hotels to find a way to wean themselves off them if possible.

Well this went on a lot longer than I thought it would. In Part 3 we will take a dive into Direct Marketing touching on how to optimise your website and SEO.

Data on OTA's and Metasearch are from this article.