the Authors and HeBS Digital | October 15, 2015

By Max Starkov and Sara O’Brien

Background:

Despite a booming hospitality economy and record occupancy rates, ADRs and RevPARs, OTA market share is creeping up to frightening rates. It has been on a steady incline for some time; so much so that inflated OTA market share is starting to feel like the new norm.

The recession had far-reaching effects on the hospitality industry and today the OTAs continue to gain market share at an uncomfortable pace. Let’s take a look back to illustrate what we are referencing:

  • Pre-recession, back in 2007, 85% of all online bookings came via brand.com (i.e. direct) vs. 15% through the OTA channel (85:15 brand.com to OTA).
  • Fast-forward to 2012, when as a result of the great recession, the above ratio shifted toward the OTAs to become 72:28 brand.com to OTA.
  • Another fast-forward to present-day 2015, when the recession is long gone and our industry has enjoyed four consecutive years of steady growth in occupancy, ADRs and RevPARs. What do you suspect the brand.com vs. OTA ratio is? In the first half of 2015 it is 64:36 brand.com to OTA, another substantial shift in favor of the OTAs.

This trend isn’t promising. With the recent addition of new OTA-type services such as “Book on Google” and “Book on TripAdvisor,” brand.com vs. OTA ratios will likely shift to 50:50 within the next three years. For independent hotels – where the hotel website vs. OTA ratio is currently as low as 25:75 – we would not be surprised to see this ratio increase to 10:90 in favor of OTAs within the same time frame.

What brought about this transformative shift?

Here are the three main reasons why the OTAs are gaining market share at the expense of the direct online channel:

  • Lack of “Direct is Better” top-down strategy
  • Under-investing in digital technology and marketing to generate more direct bookings
  • A lack of an effective merchandising strategy, which would allow the hotel to “sell on value” vs. “sell on rate”

1. Lack of “Direct is Better” Top-Down Strategy

Hoteliers often lack an internal top-down strategy with the primary goal of generating more direct online bookings. Without such a strategy, the property ends up with under-staffed and under-budgeted direct online marketing efforts, bandwidth and focus. Property GMs and DOSMs are often pulled in many directions and left with little or no bandwidth and resources, causing them to overlook the direct online channel.

Hoteliers are primarily focused on enhancing the guest experience, with the intention of creating repeat guests. At the same time, they do not invest in the necessary digital technology and marketing to develop and retain the guests who book via the property website. In this case, a guest may love the hotel and stay only there when traveling to the destination. Yet the guest still books via Expedia or Booking.com, costing the hotel valuable revenue with every booking.

Who at the property “owns” the website and its results and performance? Whose salaries and bonuses are determined by the website’s revenue and ROI? Who is incentivized when the market share needle is moved from OTAs to direct online bookings? Most properties and hotel companies do not have clear responsibilities and incentives assigned to direct online channel production, resulting in a very muddled – but convenient for some – picture of channel contribution, ADRs and Cost-of-Sale (COS).

Add to the above the defeatist mentality and acceptance of the status quo at many hotel companies, and it is easy to understand why OTAs are increasing their market share even in these booming times for the hospitality industry.

When the property embraces a “direct is better” top-down strategy and the on-property team sets a primary goal of generating as many bookings as possible via the direct online channel – by far the most profitable channel today – the team can work together to seize market share from the OTAs as a united front.

A comprehensive “Direct is Better” strategy should include, at the minimum:

  • Corporate strategy on direct online bookings with direct share benchmarks and objectives, employee responsibilities, performance compensation tie-ins and bonuses, guest “book direct” value adds, and more
  • “Why Book Direct” page: Create a content feature on the website with information for guests on why it’s beneficial to book direct
  • Create a “Book Direct Incentive” in the form of free Wi-Fi, free upgrades, free dining credits, free breakfast, free parking, or other perks
  • Best Rate Guarantee: Come up with an unconditional Best Rate Guarantee for guests who book direct
  • Develop a customized “Why Book Direct Next Time” program at the property to target wholesale and OTA bookers and entice them to book directly, including a coupon upon check-out with 10% off on their next reservation or other book direct incentives
  • Educate staff on the above initiatives and programs and why the more bookings the property receives via the hotel website, the more profitable the property is, affecting salaries, bonuses, and the overall health of the hotel
  • Empower your guest-facing employees to match any lower rate for the hotel found elsewhere and provide book direct incentives to lure direct bookers

2. Under-investing in digital technology and marketing

Independents:

Under-spending by independents in digital marketing and technology has been a problem in our industry for many years. Independents should be spending a minimum of 4%-6% of their total room revenue on advertising/marketing efforts, of which at least 85% should be spent on digital marketing/technology. How can we justify such a high percentage going to digital? In 2016, the majority of hotel rooms (55%) will be booked online (Google Research). You cannot afford to under-spend in digital anymore! Additionally, the vast majority of travel consumers, leisure and corporate alike, plus corporate group planners and SMERF group organizers, do their travel planning and research online.

In addition, the process of planning travel is becoming increasingly complex, requiring hoteliers to engage the travel consumer at every possible touch point. When you think about the process for planning travel, it’s never a one-way street. Travel consumers might start with a Google search, watch a video, go to the hotel website, check reviews, and eventually make a booking. People are passing through so many different touch points, there is not a particular order. You have to be ready to stand out when someone makes their way to your website during their journey. The average travel consumer journey takes about 17 days, and the average visitor goes through eight research sessions, 18 site visits, and six clicks before making a booking (Google Research). E-marketer research shows that people go through 15.5 touch points just within the week before they actually make the booking.

To achieve a level of real success and lessen dependence on the OTAs, hoteliers must invest in the correct digital technology and marketing techniques to engage users and drive bookings throughout the entire path to purchase.

We have a very concrete whitepaper on the subject: The Smart Hotelier’s Guide to 2016 Digital Marketing Budget Planning. Page 21 offers a 2016 Digital Marketing Budget Snapshot and the “Budget Outline & Allocations” section (pages 6 – 19) outlines exactly how to structure your budget to achieve the right mix of ROI-generating initiatives.

Branded Hotels:

Branded properties can easily make the mistake of assuming that all their digital marketing is covered by the brands. Brands do provide great value in a number of areas such as national-level advertising, international brand exposure and large corporate meetings. However, the brand does not have the bandwidth to cover the marketing for the property-level and regional and local niche initiatives. Many major hotel brands do not allow their franchisees to use branded keyword terms in their own paid search campaigns on Google or Bing/Yahoo. Each branded or franchised property must have its own digital marketing strategy to capture leisure and family travelers, weekend and local travel business; target the property's important customer segments and feeder markets, weddings, small and mid-size corporate groups and SMERFs. These are all travel segments the major brands are not equipped to even consider targeting.

The main objective of a branded hotel’s own digital marketing initiatives is to generate incremental revenues aside from what the brand provides. Under the right conditions and with the proper digital marketing strategy, a branded property may achieve significant revenues above and beyond what the brand provides.

We have an excellent blog article on the subject: Branded Hotel Guide to Generating Revenues Above-and-Beyond the Brand. The article outlines how to create content driven, non-branded, customer segment-focused campaigns, which are untapped by the brand’s digital marketing efforts.

3. A lack of an effective merchandising strategy to “sell on value” vs. “sell on rate”

The commoditization of the hotel product, in which hotels are forced to compete with the OTAs strictly based on rate, leaves the hotel little opportunity to communicate the value of the hotel product to potential guests. To combat this and “sell on value” as opposed to “sell on rate,” hoteliers need an effective website merchandising strategy.

The direct online channel offers limitless opportunities for the hotelier to present the hotel product and value proposition directly to the online travel consumer. A merchandising strategy is centered on communicating the unique features of the property (hotel services, meeting and event space, the latest promotions and special offers, local attractions, and more) and focuses less on the rate alone. A strong website merchandising strategy allows the hotel to showcase merchandising content on the prime real estate of the website – front and center of the visitor’s attention – and personalize relevant content based on the user.

Some easy ways to start or enhance your website merchandising strategy include:

  • Use the main image and marketing messages on the home page to promote property special offers, amenity promotions, value-adds and property points of differentiation. For example, if you need to fill weekdays during a particular season, create a special for % off weekdays, or entice guests to buy two week nights get the third night free.
  • Implement “Smart Rates,” or a dynamic rate promotion banner or promo tile on the mobile and desktop website featuring real-time availability and price, example: “Tonight’s Rate in Deluxe King is $199.”
  • Create marketing landing pages for each promotion or happening at the property. In addition to showcasing each promotion or event and increasing conversions, these landing pages add SEO value to the website.
  • In the Meetings & Events or Weddings section, utilize main image promo slides, marketing messages and promo tiles/banners to convey the top points of differentiation. For example, tout event space features (e.g. square feet, capacity, etc.), visual characteristics (e.g. historic, modern, or professional space), famous chefs or culinary distinctions, unique space options (e.g. a courtyard for private events, etc.), or other interesting aspects of the space.
  • Create special offers based on local events, e.g., include two tickets to a local concert, sporting event, or show. You can then list the event on the Events Calendar, create a special in the Special Offers section of the website, and promote the special on the promo tile and/or main image of the home page.
  • Create an automated push of the property specials, offers or events and happenings from the website CMS to the property profiles on social media.
  • Utilize “Reservation Recovery” applications to expose 100% of visitors to your property’s special rates and offers, fight against reservation abandonment and steer visitors to complete a booking on the property website.
  • Implement Dynamic Content Personalization to serve relevant content to the website visitor based on geo location, demographics and purchase intent.
  • Improve the user experience and increase conversions with a “Smart Booking Widget,” by displaying past date and room selection, relevant or pre-populated information to the visitor.

Implementing a strong website merchandising strategy will maximize room bookings and revenue on the property website, generate group leads and RFPs, sell and promote the hotel services (dining, spa, etc.), engage and convert potential customers, and more.

Conclusion

Hoteliers – it’s time to take back your direct bookings. The recession is long gone and we have been enjoying a steady growth in occupancy, ADRs and RevPARs for the past four years. We implore you to make generating direct bookings and stealing share back from the OTAs a core corporate strategy and the top priority in 2016. You will reap great revenue rewards in 2016 if you: 1) set a top-down strategy and organizational goal of generating more bookings from the property website 2) spend the optimum amount in digital marketing and technology for your property and 3) set up a strong merchandising strategy to promote the value of your hotel product versus selling strictly on rate.