Online Travel Agents (OTAs) are third party booking websites, such as Expedia and Priceline, which offer travelers an easy-to-search database of travel providers. They also offer the opportunity to book their travel arrangements directly from their sites. These players invest highly in advertising, offering reward incentives and gaining the top slots in search engines. As the majority of travel and hospitality providers offer their inventory via OTAs, the user has a one-stop-shop for comparative shopping. Since their introduction in the mid-90’s
Online Travel Agents (OTAs) are third party booking websites, such as Expedia and Priceline, which offer travelers an easy-to-search database of travel providers. They also offer the opportunity to book their travel arrangements directly from their sites. These players invest highly in advertising, offering reward incentives and gaining the top slots in search engines which sometimes result in a noticeable boost of the KPI for a travel agency.
As the majority of travel and hospitality providers offer their inventory via OTAs, the user has a one-stop-shop for comparative shopping. Since their introduction in the mid-90's OTAs have increasingly gained market share, currently capturing 39% of the US online digital booking market. Forecasts expect this trend to continue, reaching 41% market share in the US for OTAs in 2020.
OTAs use different models, from reselling inventory they’ve already purchased, coined the "merchant model", or a commission-based model known as the "agency model".
Commissions can reach as high as 30%. It is this high level of commissions which has prompted the recent hotel wars between brand name chains and OTAs, with the former investing in campaigns to encourage direct bookings via their sites, such as the "Stop clicking around" campaign by Hilton and the "It pays to book direct" by Marriott.
Hotels offer travelers different incentives to encourage them to bypass the OTAs and book directly through them. These could be in the form of package deals, preferred booking rates or other perks such as early check-in or late check-out. Due to parity agreements, hotels can only offer preferred prices to groups of guests, such as its loyalty members.
In the Beginning
When OTAs first started activity, their model was heralded as a win-win for the various players. OTAs that purchased bulk amounts of rooms, or bought up excess inventory helped hotels during off-peak periods. The OTAs profited from re-selling these rooms at a profit for their digital service, while hotels received revenue on rooms they may not have been able to sell otherwise.
Hotels paid commissions on bookings, yet received value from OTAs' investments in digital advertising. This advertising created what is coined the "Billboard Effect", increasing the exposure and reach hotels received across multiple channels. With many visitors entering the supplier's website after visiting a booking site, this was especially worthwhile, particularly at the low level of commissions of between 5 and 10% that were the norm back then.
Trouble in Paradise
In recent years, the coexistence between OTA’s and hotels, which worked well for a while, has fallen on hard times. Many hoteliers no longer feel the relationship is win-win. Commissions have increased, reaching between 15-30% for larger hotel chains, and even higher for smaller players.
To make matters worse, direct bookings have taken a hit. This is because the OTA market share continues to rise, leading to decreased profitability for hotels.
What’s more, Millennials, also known as Gen Y, hold the largest travel market share at 33% and are drawn to OTAs for their ability to book memorable experiences at a great value. In fact, 52% of Millennials prefer to book their hotels via an OTA.
How can Hotels Increase their Direct Bookings?
As mentioned above, large hotel brands, such as Hilton and Marriott, have begun investing in campaigns geared at recapturing some of the market share. These campaigns aim to make travelers realize that they will receive benefits for their loyalty. With 52% of OTA visitors clicking on the hotel website in order to receive more information on the hotel and what it offers, hotels must take advantage of this opportunity to convert some of this traffic into direct bookings.
Below are a few ways to increase direct bookings:
1. Loyalty programs
One recommended method to increase direct bookings is to create a loyalty program. However, the Millennials market segment is less apt to join these programs, with Millennial leisure travelers subscribing to only 2.3 programs on average, compared to 3.2 in other market segments. In fact, 39% of Millennials believe that it is not worth it to join a loyalty program.
As aforementioned, due to price parity agreements, hotels cannot offer guests lower prices on their websites. They can only offer priority service and lower prices to set groups, such as loyalty members. With Millennials placing value in good deals and experiences, it is crucial to make sure the guests who visit your website know that they will receive the lowest possible price when they book direct, as well as additional perks.
(source: www.marriott.com)
Loyalty programs should be easy to use, and suitable for the various market segments, from Baby Boomers, who are known loyalty plan users, through Millennials.
Marriott's Rewards Program was voted the best loyalty program in 2017 by Smarter Travel, due to its superiority on a number of factors such as program payback and number of rooms. Marriot has also managed to offer a program which targets different market segments as it combines its standard points system, suitable for its Boomer clientele, with additional ways to earn points, such as by posting about a stay on Twitter or Instagram, checking in on Facebook, or interacting with their app.
2. Work with travel agents
After an extended period in which travel agents lost a large portion of their customers to online booking alternatives, these service providers are enjoying a revival. The sheer volume of options available online has led many customers to forgo the comparative shopping experience, which may or may not save them a few bucks, but will definitely cost them hours of their time.
Many travelers now prefer to let agents comparative shop and find them the best deals. Research by the American Society of Travel Agents (ASTA) shows that travel agents save their customers $452 and 4 hours of planning per trip on average.
Surprisingly, Millennials, who prefer OTAs to direct bookings, are increasingly turning to travel agents, with 34% using the services of agents and an additional 39% planning to use one in the future.
These travelers are looking for memorable experiences, and agents, particularly those who specialize in specific niches, are considered market experts, with inside information on the best hotels and attractions necessary to create the desired "experience".
In fact, 60% of Millennials are willing to pay more for a travel agent’s knowledge of travel destinations, and 83% use agents because of this expertise.
Travel agents partner with a set of hospitality providers. They offer their clientele hotels which suit their needs in terms of location, amenities, price and more. Some hotels are offering their travel agent partners the opportunity to book guests at loyalty program rates, increasing the benefits these agents offer their clients, and of course, the volume of non-OTA bookings to the hotel.
3. Reviews and user generated content
One of the reasons travelers turn to OTAs are their user reviews. According to TripAdvisor, 96% of their users consider reading reviews important when booking a hotel, with 83% usually, or always, referencing reviews before making their decision. 76% are influenced by pictures uploaded by guests, and 63% prefer to read reviews, see pictures and book online from the same website.
As mentioned above, just over half of OTA users choose to visit the hotel's website. By integrating reviews and user generated content, such as pictures directly on their websites, hotels can decrease the chances of visitors returning to the OTAs to finalize their booking.
4. Highlight Experiences
With the growing market share of Millennial travelers, it is important to market to this demographic. Make sure your homepage offers some insight to the "experience" you offer.
Large brands with numerous hotels and international reach, should portray the experiences they offer across their brand hotels, while smaller hotels can easily showcase their uniqueness on their landing pages.
Partnering with local service providers and attractions can create worthwhile packages that offer today's traveler the experience they crave.
(source: www.hilton.com)
What the Future Holds
It is clear that, at least for the near future, large hotels chains are not about to back down. They are enjoying the billboard effect and making every effort to retain website visitors and convert them to direct bookings. There are costs involved, of course, be it their direct booking campaigns or the priority pricing they offer their guests. However, the upside is the creation of a loyal customer base that will continue to seek out direct bookings.
Surprisingly, OTAs may not suffer in the long run. Smaller hotels still have much to gain from the exposure they receive via OTAs. These hotels have less bargaining power and often pay OTAs the highest commissions. As large portions of the younger generation still prefer OTAs, and as this market continues to grow, OTAs may find that the shift in bookings is actually in their favor. Their loyal customer base, who opt for memorable experiences, such as those available with unique independent hotels, will generate them higher commissions per booking anyways.
Eran Feinstein is the founder of Direct Pay Online, a global e-commerce and online payments solutions provider for the travel and related industries. With over 14 years of experience leading technology, sales, marketing and operation teams, Eran is an authority in the East African e-commerce and payments arena. He's also an avid marathon runner.
