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OTA-Hotel Relationship: The Sabre-Rattling goes on....

While OTAs give the visibility, reach and the much needed exposure to the hotels, which hotels themselves cannot attain, the kind of arm-twisting by OTAs in terms of rate parity and high commissions are a major concern for hotels today. Hospitality Biz tries to understand the issue in hand and find out how the technology providers are helping the hospitality players to balance their distribution processes to remain unbruised from the OTA onslaught.

Wednesday, March 9, 2016, 14:00 Hrs  [IST]

Bhaskar Pramanik, Chairman of Microsoft India while participating in a hospitality conference recently, commented that the online hotel distribution channels of the likes of Expedia, MakeMyTrip, etc. today make more money than many established hotel groups, because the latter have failed to leverage the advancements in digital technology to their benefit.

The kind of stranglehold the online travel distribution channels have been able to establish over  hotels in the last decade or so is quite bewildering. From a negligible presence in the beginning of the new millennium, Online Travel Agents (OTAs) have been able to carve a niche for themselves. They have both, leveraged  internet technology and also exploited the need of the hotel industry for alternate channels of distribution arising from dwindling demand  due to global recession.

Of course, OTAs have helped hotels immensely, especially those who were not part of the chains, to attract a larger audience whom they otherwise could not have reached out  to.  OTAs also opened up avenues and  helped create a level playing field for independent owners and smaller chains.  However, all this came at a cost.

Rakesh LambaPrincipals should guarantee Common Display Price

Online Travel Portals which are armed with large foreign funding are squeezing hoteliers for lowest possible rate and have brought almost a monopolistic situation. They are in a way abetting unethical practices in the travel and tourism industry. Many Tour operators have to shut shop and many are on the verge of closure because Tour operators are not able to compete with the heavy discounting by portals. But, is anybody making money in the process? The answer is, none! The whole beneficiary in this game of one-upmanship by travel portals is direct customer. The ARRs of hotels have gone down drastically, and the offline agents have literally swept out of business because OTAs sell inventory lower than their purchase price to kill the competition.

I think the time has come that hotels should play the role of a principal and product supplier and frame rational sales policies for the tourism industry.

We do not want to stop hotels to offer attractive special rates to offline or online tour operators producing results for them.
All we request to hotels is to have strict policy of common display price for off line and online agents and let it be a service oriented industry not with price war, which bring down the service standards.

Common Display Rate policy will be a win-win situation for the entire industry. It is important to all verticals of the industry to follow certain ethical practices so that interests of the industry as well as the clients are safeguarded.

This cost did not  not bother hoteliers as long as the market was booming and rates were really high. But, the situation changed with increased supply  and  heightened competition.  Rates started declining sharply. The commissions paid for bookings coming through  OTAs started pinching  hoteliers. Moreover, the stringent clauses  like Rate Parity that OTAs imposed on the hotels really started taking its toll.  Hotels accepted these clauses for the fear of being dropped down from the OTA’s search list. Overall, these conditions brought about a harsh impact on hotel revenues.

Hospitality industry experts point out that the recent trend of consolidation in the hospitality industry is, in no small measure, a means of unshackling the iron grip of OTAs on the industry.  Such  consolidation, they feel, will help hotels to create value by combining distribution strength so as to challenge the  might of the OTAs.  According to rough estimates, the saving Marriott would have by acquiring Starwood, in distribution cost alone, will be to the tune of 200 million USD.  

Deepak MavinkurveThe hospitality industry today is facing the same challenge that the airline industry faced 20 years back. Over 25-30% of the total business is still controlled by the intermediaries,which is actually not adding much value to hotels. The hotel industry is still in the stranglehold of the likes of Expedia,  MakeMyTrip, etc. However, all these online channels put together are not able to push the hotel occupancies beyond 55% to 60%, points out Deepak Mavinkurve, Founder & CEO, RepuFact.

Statistics reveal that 75% of hotel bookings for independent hotels happen through OTAs. But out of the 75% business earned by small-scale hotels, about 20% of room revenue is charged by the OTA as commission, says Amlan Ghose, Managing Director, Prologic First. The situation will soon go bad to worse as far as OTA monopoly on the hotel industry is concerned. It has been the OTAs so far, but going forward the hotels will have to deal with giants such as Google and Amazon  as well, feels Ghose.

Udai Singh SolankiCan Hotels ignore OTAs?
Although, OTAs are  costly partners for hotels, they still cannot be ignored considering their overarching reach and marketing might. Technology solution providers to the industry underscore this. Udai Singh Solanki, CTO & MD - India, eRevMax, explains that most often OTAs are the first point of call for potential guests. While larger brands with a substantial marketing budget can compete with OTAs on visibility and presence, independent hotels have to depend on OTAs for brand awareness, given their budget constraint.

Amit Saberwal, CEO, Commeasure too, agrees that none of the channels should be ignored and when it comes to OTAs, it is almost impossible. “With OTAs, the bargaining power of hotels with customers is higher vis-a-vis when they negotiate individually,” he asserts.

Mike KistnerMike Kistner, CEO, RezNext Global Solutions adds that OTAs are also instrumental in generating demand during low-occupancy periods. Rather than spending on small scale marketing activities, independent hotels can use the same fund to drive better reach through OTA partners, he says.

As per a report, OTAs spend an average of USD 300 per hotel on promotions and marketing. If hotels want to do it on their own, they would end up shelling out something around USD 7,000 to USD 10,000, which is a hefty amount. The question lies in the tradeoff between the OTA commissions paid by hotels and what the hotels save in terms of direct bookings, whether the additional cost can be justified, outlines Ghose.

Avijit Arya“It' takes two to tango, they say, but hoteliers and their direct channel spend and the ability to experiment and the willingness to personalise every experience and invest in software  and technology  is still being debated at least in the mid and budget segment hotels,” says Avijit Arya, CEO, Internet Moguls.  Despite big mergers, the fundamental question remains as to the capacity of  these hotels to strengthen direct bookings on their site.   

On the other hand, Ronnie Sarkar, COO, IDS Next feels that the days of OTAs dictating terms are getting over. Individual hotels are now leveraging the power of the internet and right Search Engine Optimisation (SEO) techniques to promote their own There is a gradual shift in the way all hotels are leveraging technology, he says. Independent hotels are jumping on to the bandwagon of international hotel chains and established local chains along with other alternative solutions such as the aggregation models like OYO Rooms. The OTAs are actually reducing their commission to become competitive and stay relevant, outlines Sarkar.

What’s the right distribution mix?
It is certain that OTAs cannot be wished away by hotels under any circumstances.  They have to work in tandem in an endeavour to be visible across channels.  But, in the meantime, hotels can try and balance their act by using intelligent  tools and solutions.  It is important to hotels to make their own website  more updated, informative, experiential as well as bookable without hassles.

Europe acts tough on OTAs

The French National Assembly last July had voted against the suppressive rate parity clauses in contracts between hotels and Online Travel Agencies (OTAs) . The law applies regardless of where the online booking platform is based and sets a fine up to 150 thousand euros for its violation.

This is the first decision at the legislative level, in Europe, that explicitly prohibits such anti-competitive clauses in these agreements that has been restricting forcing hotels from selling their rooms at lower prices than offered in the OTAs.

Even before that, in early 2015, a German court in Bundeskartellamt had ruled against “best price” clause by Hotel Reservation Service (HRS), a German OTA. Even the Düsseldörf Higher Regional Court rejected German OTA’s appeal against the decision of the lower court and said that they cannot impose such clauses on hotels.

Emphasising on the 3-point strategy, Solanki said  that about 48% of guests spend more after visiting personalised e-commerce efforts by the hotel. Thus, each guest needs to be treated differently. Secondly, dynamic rate marketing, which updates real-time hotel inventory, availability and pricing to customers, through paid search and email marketing can be a great tool to drive more direct bookings. Last but not the least, each property needs to invest in a booking engine which provides a seamless experience to the guests across devices, easy to book options, recent user reviews and visually rich content which can help covert lookers into bookers more effectively.

Kistner highlights the fact that hotels need to focus on driving collaboration in the industry rather than competing with OTAs. Most importantly, all hotels should have a strong brand strategy that works in tandem with the OTA strategy. While OTAs provide hotels with a potential market reach, most consumers prefer to check the hotel’s website before going ahead with the booking. Making the best deals available on the OTA is not enough; it needs to be backed by the brand’s story across all online touch points, he believes.

Amit SaberwalSaberwal stresses that one should not put all the eggs in one basket but focus on diverse channels at the same time. Along with focussing on 10-15 OTAs, a robust and direct marketing plan must be backed with right pricing of rooms, an innovative loyalty program and incentive to repeat guests.

When hotels sell through OTAs, they are just one more hotel available in the given location in the same category, says Ghose.  OTAs do not upsell hotels. On the other hand, if hotels sell directly, they can upsell by combining various other things like Spa, other activities around the destination, etc. The only way forward for hotels is to strengthen their digital management and improve direct bookings through their own efforts. While doing so,  hotels need to be cautious about abandonment. They have to deal with abandonments midway, Ghose warns.  

Online reputation also has a huge impact on hotel bookings. User generated feedback is among the most trustworthy sources influencing consumer purchase patterns. Hence it is very important for hotels to extend the highest level of service to their guests and proactively collect feedback. Guest feedback should then be shared across multiple touch points to build a positive reputation of the hotel among the consumer base.

Social media is another cost-effective platform to connect with the target audience, especially when millennials form a large segment of today’s market. Sharing engaging and interactive content, including images and videos, are a great way to communicate a hotel’s brand experience with the audience, says Kistner.

Ronnie SarkarThe landscape has changed significantly with the advent of aggregators like OYO Rooms and Zo Rooms, asserts Sarkar. With aggregators buying rooms upfront from hotels, the hoteliers are in a comfortable spot now, utilising their marketing budgets and campaigns. The positive fallout of that is the hotels get known to repeat guests and has a wealth of information about their guest captured in their hotel ERP.

While  small and mid-sized hoteliers are still reluctant to go to the next level of marketing  to lure direct customers, there are of course, some action from independent hoteliers to challenge the might of OTAs,  says Arya.  “Those small hoteliers who are willing to fight it out, the power of technology and personalisation  are  yielding great returns .”

Innovating with Hotel’s Website & Loyalty Programme

According to a study conducted by Cornell School of Hotel Administration, New York, guests who enrol in loyalty programmes stay 49% more and spend 49% more per year. Solanki states that it is reason enough for independent hotels to design their own loyalty programme  and promote the existing ones effectively for maximum returns.

On the other hand, the hotel’s webpage is the cheapest channel. However, good SEO techniques need to be followed to attract guests. This will enable hotels to control their own destiny, comments Sarkar.

Guest profiling is another important step towards improving direct bookings. Knowing the customer’s preferences begins with knowing your guests. Along with demographics, hoteliers should capture the  likes and dislikes of a guest, purchase behaviour and travel patterns. This information can be leveraged to plan highly targeted e-mail campaigns and drive repeat business through the website. Loyalty programmes could also be personalised based on this data, offering guests a more enriching experience at the property, feels Kistner.

Lamenting on the neglect, he asserts that most often, mid-market hotels fail to see the potential that they can drive from their own website. An engaging website integrated with a customer-centric internet booking engine can not only improve conversions, but also allows guests to access your credibility. While developing a fully functional website may incur one-time cost, but this channel yields a higher return on investment than the rest.

However, loyalty programmes are no more the exclusive offerings of hotels any more.  OTAs have even started rolling out their own consumer loyalty programmes to keep their customer base happy. They are offering it free for customers with attractive miles attached to it.  Expedia has recently launched their loyalty programme – Expedia + with numerous benefits attached to it.  This is definitely a direct challenge to hotels.

It’s a Win-Win Partnership: OTAs
OTAs have a different story to tell.   OTAs have essentially been catalysts in bringing business for hotel brands, says Ritwik Khare, Senior Vice President and Head  Business Development -Hotels, OTAs play a very critical role in making hotels expand their reach and acquire new customers to experience their product. Both OTAs an hotels have the same common agenda – increase occupancy and ARRs and hence it is a great win-win partnership. This has also changed very significantly in the last couple of years due to the increase in booking hotels on the mobile phone app, highlights Khare.

Sharat DhallAsserting on the positives with OTAs, Sharat Dhall, President, opined that OTAs spend on distribution of hotel properties to its potential customers as they better understand the customer buying patterns. Additionally, OTAs also enable their partner hotels to fill rooms at the last minute that otherwise could go vacant as also better understand the offerings of their competitors.

Amit TanejaThe relation of Cleartrip with its partner hotels is beyond transactional, confirms Amit Taneja, Chief Revenue Officer, Cleartrip. “We also share new areas of demand and customer trends which enables hotels to update their offerings with time. Both the OTAs and hotels are part of the same ecosystem and two sides of the same coin. We at Cleartrip see them as partners and not customers, he adds. “OTAs bring in more value to the brand and assist in establishing the new kids on the block, which is where OTAs may ask for higher commissions,” comments Taneja.

Commenting on the OTA loyalty programme, Dhall  said that the hotel loyalty and OTA loyalty are poles apart in terms of  their  objectives.  “The loyalty programmes by OTAs are mainly focussed at customer retention and repeat purchases. However, hotel loyalty programmes are restricted to booking  the same hotel chain across locations.”

Criticality of Rate Parity
While hotel industry observers find the rate parity issue that OTAs mandate on hotels as  a stumbling block , OTAs feel that it is a critical element  in the partnership. Removing the rate parity will result in rate war among the hotels resulting in a crisis for smaller hotels.

Rate  parity is extremely critical to manage the markets as removing it could lead to an exacerbated price war and even the death of certain hotels, observes Dhall.  The only hotels that can win and sustain will be the chains that already understand the concept of rate integrity and get enough engagement with their customers independently, he feels.

Ritwik KhareExpressing similar views,  Khare said that rate parity helps customers be more confident of their buying decision and hence in the long run it is good for both the hotel and OTA. Over time hotels can decide their most effective channels of sale and partner accordingly.

Strike the Balance
A study revealed that more than 50% of travellers visit a hotel’s website after seeing a property listed on an OTA. Hence, the balance is of utmost importance. The hotel has to be careful in displaying the right deals and details of their property on the OTA, such as good photographs, exact description and amenity list, competitive rates and positive reviews. This can indeed help hotels get recognised on an OTA which could also lead to potential independent visits to the hotel’s website, urges Dhall.

The focus of hotels, however, should remain on striking a healthy balance between the OTA bookings and the direct bookings through hotel’s website. With the increasing dominance of OTAs, hotels must foresee the future and avoid their full dependence on OTAs. The OTAs are one of the sales channels, but not the only one. Hotels need to be very careful while defining the limit for OTAs because if they fail to certify their independency with intermediaries, hotels may lose control of their business and may cut the chord with the potential option of direct sales.

Amlan GhoseA research done on Indian hotels by Millward Brown, an American multi-national firm headquartered in New York City, has identified walk-ins as the dominant channel for hotel bookings in India, with more than one out of four hotel bookings across India. Combining the walk-ins and phone queries received, the hotel receptionist could be overseeing 40% of a hotel’s business, outlines the report.

US-based hospitality technology company, Navis says data reports are apt for the Indian hotel industry as well. It states that the ownership of the guest is at stake. Hotels require data to effectively market to past guests and access to this data will play a role in how hotels and the OTAs move forward. Train front desk staff to collect key data from guests at check in, and focus on growing the direct channel in 2016 to ensure that the guests are ‘yours’ rather than the OTA’s, asserts Navis.

It further suggests that to offset rising commissions, hotels must shore up reservation sales to ensure that valuable phone channel reservations are maximised to the fullest. Based on an average of stay values, phone reservations bring in 38% more revenue than OTAs and almost 9% more than web reservations. To ensure that this voice channel reservation value is maintained, hotels should implement call tracking, regular coaching, and reward reservation agents with performance-based incentives.

Navis also urges the hotel industry to know their visitors and plan accordingly. Look at historical booking data, tying bookings back to the keyword or search query that drove the booking. There is a gold mine of data in a Customer Relationship Management (CRM) that integrates data from a variety of both, online and offline sources. With this data in hand, hotels can dig deep into the channels, guests, their behaviours, the property’s reservations department and revenue, in order to develop a plan that is informed by real guests, tailored to weed out what hasn't worked, and driven by what is known to be profitable.

  Jean Francois MourierRevenue Management Resolutions for Independent Hotels in 2016

Jean Francois Mourier, CEO, Revpar Guru

Phocuswright and h2c’s Independent Lodging Market: Marketing, Distribution and Technology Strategies for Non-Branded Properties, shows that in 2015 ‘OTAs represented 58% of online volume of United States independent properties this year, compared to a 48% share for chains.’ Independent properties in Europe have an even greater reliance on third-party channels; ‘the OTAs here represent 74% of European independent lodging online bookings in 2015.’

Although many hoteliers may believe otherwise that independent properties often have a big advantage over branded properties in driving business to the direct channel, as it applies to revenue management strategies, Independent properties have a smaller staff and, typically, can be more nimble to adapt to market changes and update revenue management strategies and rates accordingly.

Why should the direct channel be the primary booking channel for independent properties V/s the OTAs? Most independent hotels don’t have the handsome marketing budgets, necessary to have a strong presence in the online channel. So the OTAs should never be used as the primary source of booking. Instead, independent properties should use the OTAs as a marketing medium designed to increase the property’s online visibility in order to generate an increase in direct bookings. In other words – ‘The Billboard Effect’.

The Billboard Effect refers to the increases in direct bookings experienced by hotels when they are listed on the OTAs.

This statistic makes sense because of the huge number of consumers that start their search for a hotel room on an OTA or a metasearch engine. In fact, Expedia partners are featured in more than 150 brands in 70 countries, exposing partners through more than 140 mobile sites worldwide, which demonstrates the significant impact on a property’s visibility that the OTAs can have.

Cornell University’s studies on the Billboard Effect have shown that many hotels listed on the OTAs experience increase in direct bookings by up to 26%. Not only does the direct channel help minimise the cost of promoting and increasing a property’s visibility online, it also decreases the cost of acquisition. Since OTAs charge 15% to 35% commission on each and every booking; that is a huge amount of money for hotels to be giving away, just to put a head in a bed. In order to compete more effectively against the OTAs in the online channel, independent properties should also be equipping their revenue management team with the right tools and systems, such as revenue management systems (RMS) and channel managers. These technologies can empower revenue managers to increase their online visibility via the OTAs, instead of using it as the primary source for new bookings. By doing so, ensure that the direct channel is their most profitable channel.

Online to lead the future
Despite the controversies surrounding the sharing of the pie,  hotels continue to be the lowest penetrated travel segment when it comes to e-commerce in India. The online transaction for hotel products is nearly 17%.  However, as per reports this is poised for a quantum jump to 25% in the next couple of years. While 3.4 million booked hotels online in 2014, this is expected to grow to 8.4 million in 2016.  

This is quite promising for Online players. Big boys have already started preparing the ground work to grab the opportunity in hand. MakeMyTrip recently announced an agreement under which International,  a leading travel service provider of accommodation reservation, transportation ticketing, packaged tours and corporate travel management in China, has agreed to make an investment in MakeMyTrip. Upon completion of the transaction, Ctrip will invest USD180 million (Rs 1,200 crore) in MakeMyTrip through convertible bonds. The funds, as per reports,  will go towards aggressively increasing MakeMyTrip’s market share in the online hotel booking space from 25% to 50% in the next 3 years. With 25% market share in online  hotel bookings in India, MakeMyTrip is currently the market leader in
this category.

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