Can hotels win the direct booking wars? Or are the online travel agencies (OTAs) like Booking.com and Expedia just too big to fail?
Those are two questions no doubt weighing heavily on the minds of executives on both sides of the so-called direct booking wars.
On one side, you have the hotels, consisting of global players like Hilton and Marriott, as well as smaller, independent brands and properties. On the other, you have the OTAs, made up of Expedia, Priceline Group, and increasingly, Ctrip, as well as hybrid challengers such as TripAdvisor.
All of these entities are vying for guests to book with them and, for many years now, it’s seemed like the OTAs have had an edge and the commissions to keep them at the top in this constant struggle between the two.
Morgan Stanley Research estimated that the global hotel industry saw revenues of $570 billion last year and of that amount, brands took home about $11 billion for branding fees. OTAs, on the other hand, collected $16 billion in commissions.
Within the past year, however, hotels have started making bigger moves to try to get whatever market share they’ve lost to OTAs, along with those extra costs related to those steeper 15 to 25-percent commissions.
They’ve launched multi-million-dollar ad campaigns, as Hilton did with “Stop Clicking Around.” They’ve unveiled discounted rates for members of their loyalty programs, hoping these lower rates will elicit more direct bookings and build their loyalty membership enrollees.
While it’s still rather early to call the battle just yet, it’s never too early to start preparing for the many battles that lie ahead in these direct booking wars. Getting more direct bookings is just a start for hotels. If they really want to win the war itself, they’ll have to do much more than that to keep the customers they have, and acquire more in the process.
Be the Ultimate Negotiator
This is easier said than done, but it’s essential for hotel companies to try to negotiate the best possible commission rates they can from the OTAs, as Hilton and Marriott did last year.
When Marriott and Hilton renegotiated their contracts, they got the OTAs to agree to lower fees and eliminated last room availability, also allowing them to offer lower rates to their loyalty members.
Stephen Boyd, senior director and analyst for Fitch Ratings, said that he’s noticing commissions on a downward trend. “Commissions have been coming down for a number of years,” Boyd said. “They [OTAs] have been able to offset it from an earnings perspective by entering new global distribution systems, or increasing penetration. Expedia, for example, is lowering commissions on its own.”
Michael Bellisario, vice president at Robert W. Baird & Co., said most hotels have an edge in terms of negotiations right now. “I think we’re at a point in the cycle where brands have negotiation power with customers, owners, developers, and all third parties, including OTAs,” he said. “The industry has slowed a bit in recent months, and some people think it will continue to slow.”
Not only that, but there’s no better time to begin than now.
“If brands don’t exercise bargaining power today, whether through direct bookings, mergers and acquisitions, and things like that, if they don’t exercise that power today, they may not be able to exercise that again until this same point in the next cycle,” Bellisario said. “If not now, then when?”
Rate parity, which gives OTAs an edge, also seems to be waning and heading toward hoteliers’ favor. Rate parity prevents hoteliers from advertising lower room rates on distribution channels other than the OTAs, including their own branded sites. In Europe, however, rate parity has been banned in France, Germany, Italy, and Sweden.
Brands are also finding ways to circumvent rate parity by promoting “gated offers.”
Best Western CEO David Kong told Skift in June, “We just launched our new digital platform, the new BestWestern.com, which enables us to offer a gated discount rate to the Best Western loyalty members. We promote to our Best Western loyalty members. If they book with us directly they would enjoy a certain discount. Typically, it’s about 10%. But that’s only available if they sign in and then make that booking. That’s called a gated offer for that reason. Our contract with OTAs allow us to provide that kind of gated offer, and the OTAs can do the same thing. Now that we have that functionality, we’ve just begun doing it.”
Another tactic hoteliers employ involves managing parity, not only during the negotiation process but continuously. “One of the reasons why consumers believe OTAs are cheaper is that they sometimes are,” said Charlie Osmond, co-founder and CEO of Triptease. “There are rogue OTAs out there who change your rates and change them for certain audiences and times of day — there’s all manner of interesting, dodgy behavior. Hoteliers need to make sure that they aren’t undercutting them.”
No doubt one of the main reasons why Marriott decided to spend more than $12 billion to acquire Starwood Hotels & Resorts was motivated by the pursuit of acquiring scale, 30 brands’ worth of it. And when it comes to getting market share, size often does matter.
There’s definitely strength in numbers. Bellisario said, “Marriott is big enough now to really flex their muscles to the OTAs. That’s why we’ve been saying bigger is better. It’s not that brands can’t win, but the OTAs are clearly reacting to the changes and incentives brands have made recently. The fact that they are reacting means they see that size and scale as a risk.”
Fitch Ratings’ Boyd said that the Starwood-Marriott merger not only helps with negotiating power to drive down OTA costs but also to help them get even bigger when they pitch new franchisees as to why they should choose their brands. “Smaller hotels may also look to merge with other partners to increase their scale and independents will be more willing to join a soft-brand collection.”
Soft-brand collections like Hilton’s Curio Collection, Marriott’s Autograph Collection, or Hyatt’s Unbound Collection give independent hotels access to bigger brands’ own distribution channels without having to fly any branded flags and still retaining independent status. In recent years, the major brands have unveiled a number of these collections in the hopes of bringing these independent properties into their fold and increasing their global reach.
Just having scale for scale’s sake isn’t enough, however. “We are seeing so much hotel consolidation,” said Richard L. Harris, CEO and co-founder of Intent Media. “That gives them more leverage. They start to become like multi-brand marketplaces on their own. The lines are starting to blur and walls are cracking open. We are seeing markets move from closed environments to being more open marketplaces and taking cues from search engines versus being retail big box stores,” said Harris. He pointed to AccorHotels’ Fastbooking feature and its recent acquisition of luxury homestay provider onefinestay as a prime example.
AccorHotels’ Fastbooking enables smaller independent hotel companies to advertise their properties on AccorHotel.com for lower commission rates and access to customer data from Accor. AccorHotels CEO Sebastien Bazin told Skift that since acquiring Fastbooking in 2015, it has been “immensely successful.”
“For me, it has a huge merit as being the first marketplace being curated by one hotelier, on behalf of hoteliers, and we’re going to be enlarging probably to 12,000 hotels, from 4,000 today, of which two thirds are going to be independent,” he said.
Acquiring an alternative accommodations provider like onefinestay also adds to the variety and depth of the brands within Accor’s own portfolio. “That way, hoteliers can say, if we don’t have a property that meets your needs, look at onefinestay or all of these other brands we have,” Harris said.
One of the biggest differences between the OTAs and hotels is how much they spend annually on their marketing budgets. For example, Priceline spent an estimated $2.8 billion on marketing last year, while Marriott’s estimated annual marketing budget is about $100 million.
Both Priceline and Expedia, the two biggest OTAs, also outspend hotels more than two-to-one on marketing. In 2015, it’s estimated that both Priceline and Expedia spent more than $5.7 billion on direct advertising. Factoring in hotel investments in their respective loyalty programs, they still spend less than OTAs, with only about $5.3 billion total for the five largest hotel brands (Hilton, Marriott, IHG, Choice, and Accor), according to Morgan Stanley Research.
Hilton and Marriott have both funded marketing campaigns aimed directly at consumers, appealing them to “stop clicking around” and telling them “it pays to book direct.” Hilton, by most estimates, has spent the most of the major hotel companies with its Stop Clicking Around campaign, launched in February. The multi-million dollar campaign’s debut coincided with the launch of its discounted member loyalty rates.
“This is the year that they have all stood up and said, ‘We’re going to spend millions to educate consumers and tell them direct booking is better,” said Triptease’s Osmond.
Examining data from January to March 2016, Morgan Stanley Research noted that mobile and desktop traffic for five of the largest U.S. hotel companies (Marriott, Hilton, Choice, Hyatt, and Starwood) have gone up “meaningfully year-over-year.” The median growth in traffic for all five brands was 126.6 percent for mobile traffic and 17.9 percent for desktop traffic.
During Hilton’s most recent second quarter earnings call, Hilton CEO Christopher Nassetta said that since launching those Hilton HHonors rates, membership enrollments have increased nearly 80 percent year over year. In the second quarter, Hilton added 2.4 million new members and its share of occupancy by members was nearly 56 percent in the second quarter, up more than 400 basis points year-over year. Nassetta also said the Hilton HHonors app accounts for 23 percent of Hilton’s direct web traffic and app downloads are up 66 percent year over year.
But is this really enough to win the war? That’s the big question, and while Hilton and its peers’ efforts may be having an impact, this is just the start. To really win the direct booking wars, hotel companies have to be willing to make big, effective, and influential marketing investments that dispel the myth that lower rates can only be found on the OTAs.
“The No. 1 reason by guests come to a hotel site, leave, and book elsewhere is they think OTAs are cheaper,” said Osmond.
Marketing is absolutely crucial for hotels to be able to compete with the OTAs, said Joe Humphry, former CEO of hotel booking site Travelweb from 2002 to 2004. Travelweb was launched in 2002 by Hilton, Hyatt, Marriott, IHG, Starwood, and Pegasus Solutions to give Web users direct, more immediate access to the central reservation systems of hotels.
“To get into the OTA business now, you have to have a billion in marketing. I don’t know that they [hotels] would spend a ton starting another OTA at this point,” he said.
But what about smaller or independent hotels? What can they do when their marketing budgets are even more limited than their bigger competitors?
While many smaller and independent hotels have historically turned to organizations like Leading Hotels of the World, Preferred Hotels & Resorts, and Small Luxury Hotels of the World, for example, to benefit from their marketing budgets and efforts, Osmond said there’s no better time for independents to market direct bookings than now.
He suggested independents and smaller hotels take advantage of what the big brands are doing and “piggy back on the consumer messaging out there.” He said, “Provide a simple message on your sites, telling your customers you prefer they book direct. Don’t steal Hilton’s ad campaign but put the same message front and center. Consumers intrinsically know they want a direct relationship and they want to cut out the middle man — you just need to be clear to show them the best deal is direct.”
About Those Member Rates
There’s plenty to be said for the benefits of these discounted member rates, but they shouldn’t be the only value being offered by hotels to their guests. In short, hotels need to make guests offers they can’ refuse, but they can’t fixate solely on member-only rates to do so.
“What really needs to happen for this to be successful is to get people who typically book on OTAs to convert to becoming rewards members and booking direct,” said Baird’s Bellisario. “But measuring that will be very tough and if you don’t get that crossover — if no one goes from bucket A to bucket B — you’re giving people who want to already book direct a discount. You’re discounting people who already would have booked direct with you anyway.”
As we’ve demonstrated before, not all member rates are created equal. It’s not enough to simply offer a better price, even if that’s ultimately what most consumers are looking for when they are looking to book a room. Hotels also need to consider offering additional ancillary services or rewards to sweeten those direct booking rates. Some hotels do so by offering perks like free Wi-Fi, as Hilton and Marriott do, or by offering small rewards or perks like Wyndham and Choice do.
Osmond said he’s even heard of some hotels that offer a welcome foot massage, or a free scuba lesson for guests who book direct. “Those additional services, in addition to the different rates, make it that much more enticing for guests to want to book direct,” he said.
Focus on Conversions
As Bellisario pointed out, conversions matter: hotels need to, as Johannes Thomas, managing director of Trivago said, “turn lookers into bookers.”
Ravneet Bhandari, CEO of LodgIQ , a hotel revenue management platform, agrees with Bellisario about the importance of conversions. “That’s where the focus needs to be,” he said. “Hoteliers stop short of focusing on the right metrics. You can spend money on distribution and it’s pretty formulaic. Online marketing, or being able to drive traffic is a fairly formulaic thing. But what happens after you fill your funnel? The OTAs are the second and third top advertisers on Google. Even if the brands come together, which they’ve tried to do with Room Key, they’ll never have that purchasing power. They don’t focus on conversion in funnel to the extent that OTAs do.”
So what can hotels do to convert lookers into bookers?
Intent Media’s Harris said it’s wise for brands to invest in some conversion improvement tools such as Voyat, Triptease, and Stay Wanderful. “What they are doing is leveraging the playing field between OTAs, metasearch, and hoteliers themselves. The OTAs and metasearch companies invest millions into attracting the best and brightest in tech, user experience, data management, and data analysis to become these massive multi-brand marketplaces and because of that, they have a conversion advantage.”
Not surprisingly, Thomas suggested hotels look to metasearch engines like Trivago to “experiment the right ways to use the channel” and he said that although Trivago is owned by Expedia Inc., the company “operates strategically and financially on our own” and that any smart hotel will make sure they have a “healthy marketing mix.” Potential biases aside, looking into metasearch engines has proven to be a good conversion tool for hotels.
Another way to focus on conversions is employing sound revenue management. “You need to make sure the price is optimally calibrated for maximum conversion,” said Bhandari.
As important as price is for a majority of consumers, however, hotel brands also need to make sure they don’t enter a pricing war.
Analysts from Morgan Stanley Research estimated that should hotels and OTAs become embroiled in a pricing war, it’s a lose-lose situation for all involved (with the exception of the consumer). Should a pricing war ensue, the stock value would drop an estimated 29 percent for brands, 31 percent for hotel owners, and 13 percent for OTAs. Should hotels win, brands stand to see stocks rise by as much as 16 percent and owners by 3 percent, with OTAs seeing a 23 percent drop in their stock values. Should OTAs win, brands would see a 16 percent drop in stock values, owners would see a 3 percent decrease, and OTAs would see a 27 percent increase.
Pay Attention to Search
Conversions aren’t necessarily everything. Most often, when people are looking for a hotel, they often start with a search engine and that’s one area where hotels could improve on what Harris calls “revenue per search.”
Harris said, “The real war isn’t between the OTAs and the hotels. The real war should be between the search engines and the hotels and OTAs.”
“Focusing just on conversions alone is a bad strategy,” Harris said. “You’re forgetting the other half of the equation which is that there is a lot of latent media value embedded inside of e-commerce sites. Most users are interacting with the commerce sites and search engines and not just as transaction engines. It’s not just about transactions; it’s about media revenue and how you deliver value to the customer.”
Google a phrase like “hotel in New York City,” and the top links that appear will likely be from an OTA, or from Google itself, for example.
To maximize revenue per search, Harris said hotels need to start thinking more like OTAs and metasearch platforms and “help consumers understand the options, but also help in the discovery process as they figure out what options are available and what they want to buy.”
That means delivering customer value through search engine functionality and advertising, Harris said, and that’s also a strategy Trivago is pursuing with its investment in Base7booking, a hotel management system that primarily helps independent hoteliers drive direct bookings and run direct marketing campaigns.
Make Your Sites Easier to Use and Book
Once a potential guest makes it to your site, it’s crucial for the site itself — whether mobile or desktop — to offer an easy-to-use, engaging user experience. Digital competency is an area that many hotels have focused on in recent years but there’s still room for improvement.
“Hotels really need to help travelers find properties and rates using their interests to lead the shopping experience,” said travel industry consultant Henry Harteveldt of Atmosphere Research Group. “Allow travelers’ budgets to lead the shopping process for the hotel — show me the hotels in my price range. Let me know savings apply to other rate types.”
Like Triptease’s Osmond, Harteveldt said hotels can also learn from how airlines sell optional products, or ancillaries, and he said they should also be focusing on making the mobile booking experience better. Additionally, he said sites need to have “better content, whether it’s visual or better quality photography, video content, or social media content.” In short, he said, “Hotels need the richness of the OTA but enhanced with a better, more creative shopping experience that allows the traveler to enjoy more relevant results.”
Harris from Intent Media said hotels should also be using data science to tailor the user experience and to deliver targeted ads to consumers on their sites.
Let Them Shop Around — On Your Site
Another way hotels can improve the online shopping experience? Become more of your own multi-brand marketplace and, better yet, why not advertise your competitors’ and/or OTA’s prices on your site as well?
So, in addition to listing the rate for your hotel room, why not show the rates from your direct competitors in that city, or maybe even showing the rate as advertised on an OTA?
“You can be helpful by showing consumers competitive prices,” said Harris. “You can earn some media revenue by connecting people with that information and connecting them to where they are going next, even if that’s one of your competitors. That’s smart because you’re being more helpful to customers and monetize your visitors while being helpful to them.”
That level of transparency could also boost a customer’s trust in that brand. “The second motivation for a hotel brand to do that is if I show them competitors’ rates I may be able to increase their confidence that it’s the right thing for them to do to book right then there and now,” Harris added.
Don’t Forget About the Guest Experience
One area where hotels have a major advantage over the OTAs is controlling the actual guest experience during their stay, and it’s arguably one of the most effective ways to engender loyalty among customers.
“The hotel is the best expert on their own property,” said Osmond. “You can never find anyone at the OTA who has knowledge of that property to the degree that the hotel does, and having live chat on your site gives guests access to your knowledge and ability to serve them and engage them in the sales conversation.”
However, as Harris pointed out, there are signs that OTAs are beginning to attempt to enter into this space as well. “I wouldn’t rule out the OTAs being able to drive customer loyalty through to the trip itself,” he said. “If they become more involved in the in-market experience through tours and activities or customer relationship management on property, and becoming that liaison between the guest and the hotel, that could be a game changer for the OTAs.”
That’s why it’s crucial for hotels to make guests’ travel experiences easier overall with the use of mobile apps, to know how to surprise and delight guests, and to find the best ways to engage and communicate with guests the way they want to interact with the hotel.
“What’s changed is digital,” said George Corbin, senior vice president of digital for Marriott International, describing Marriott’s development of mobile requests and mobile check-in. “Now we have a way to reach you every step of the way and help you throughout your journey. Once you get past the booking phase — that’s where some of the friction of travel, all those stress factors, come into play. If you use these services and you’re a Marriott Rewards member, you will have a superior stay.”
Offering services to guests that make their travels that much easier build loyalty. Starwood Hotels in Europe and the Middle East, for example, recently began offering portable, pocket-size global hotspot devices that offer unlimited Wi-Fi to guests so they can always stay connected, whether on property or off. There’s a small rental fee for most guests to rent the device, but elite members of the Starwood Preferred Guest loyalty program can have complimentary access to the Skyroam devices.
And knowing how to surprise and delight guests is also a way to build a direct relationship with guests. Local Measure, a Sydney-based customer intelligence platform, is working with a variety of hotel companies including Accor Hotels, Virgin Hotels, and Trump Hotels, to essentially “geo-sense” a hotel to offer better customer service and engagement with guests. Its platform pores through social posts, online feedback, and user-generated content that’s shared publicly online to help hotels and other companies better engage with their customers.
Jonathan Barouch, chairman, CEO, and founder of Local Measure, said that during a pilot phase with Accor Hotels, monitoring social media enabled a Pullman hotel property to surprise a honeymooning guest who booked her stay through an OTA with a honeymoon welcome amenity. Because she hadn’t booked direct, the hotel had very little information about that guest on file, but when Local Measure noticed her social media posts they were able to alert the hotel, and allowed the hotel to form a more direct relationship to the guest.
Other hotel brands are going so far as to also consider the guest experience beyond the hotel itself. Hotels like Four Seasons and Peninsula Hotels, for example, are offering branded experiences beyond the hotel room to guests as well.
And even if a guest doesn’t book direct, giving them a memorable experience might just be enough to convince them to book direct the next time.
Modus Hotels CEO Aaron Katz, who oversees a portfolio of 11 lifestyle hotels in the Northeastern and Mid-Atlantic U.S. Katz recalled a time when he attended an Expedia conference and listened to Expedia CEO Dara Khosrowshahi speaking to hoteliers.
“He stood up there and said, ‘You guys all criticize me for how much I charge you for guests to come to your hotel. I think you’re looking at it wrong. Look at us as the cheapest source of referrals that you could imagine. If they come through me, you pay me once, and if they come back to me again and again, shame on you. You should make them a loyal customer.'”
Katz said he was struck by Khosrowshahi’s message because “he’s right.” He added, “If we pay 20 percent to get a customer, that’s not an expensive way to get a loyal member into your organization. You get that opportunity to turn that person into a loyal member of your organization.”
So, Who Ultimately Wins?
The truth is that this war is far from over, and it’ll be a war that could, foreseeably, last indefinitely. And hotels that are in it to win it, know that.
Hilton CEO Nassetta said as much on the company’s recent second quarter earnings call. “So, we’ve gone on this campaign, and the one thing I want to note, that I have said on prior calls that’s really important is, this is going to be — this is a long-term strategy, this isn’t a flash in the pan; we’re going out and doing a stop-clicking-around campaign,” he said. “That’s the beginning of years of effort and initiative to really evolve HHonors as a club to better serve our customers and to continue to bring more people into a very direct relationship with us.”
They also know that as much as they may, or may not, view the OTAs as an adversary, they know that, should we enter another economic recession like we did in 2008, the OTAs will be invaluable to their ability to stay in business.
OTAs also aren’t the only challenge hotels need to consider. There’s the growing demand for alternative accommodations providers like Airbnb, as well as the fact that, as Harris pointed out, search engines like Google play an integral role in whether a customer books direct.
A number of major hotel brands recently reported softer second quarter earnings, as did Expedia. And while it’s not clear whether this positive economic cycle is on its way out, there’s no better time than now for brands to strengthen their relationships with customers, when they still have a bit of an upper hand.
Regardless of who ultimately wins the direct booking wars, one thing is clear: the biggest winner is the consumer.
“If they can get a cheaper rate by booking brand direct, and if they get loyalty points by being a rewards member, they certainly win,” said Fitch Ratings’ Boyd. “With Marriott and Starwood combining and with all the other consolidation taking place in the industry, there’s a much bigger system for them to use those points, and more opportunities to stay overall.”