Deeming online travel agency fees too high, hotels turn to loyalty programs to push direct bookings.
Last week we launched the latest report in our Skift Research service, The State of Loyalty in Hospitality 2017.
Below is an excerpt from our Skift Research Report. Get the full report here to stay ahead of this trend.
While online travel agencies have been instrumental in helping attract new business to properties, hotels have a clear interest in reducing the true cost of guest acquisition, especially when it comes to repeat bookings. As we explored in-depth in our recent 2017 Outlook on Hotel Direct Booking, OTAs take between 10 and 15 percent of room rates in commission from large branded chains and between 15 and 25 percent for independent properties.
While OTAs are certainly a crucial part of the booking ecosystem, most hoteliers across property types agree that OTA fee structures are on the excessive side, with the majority of groups indicating that a commission rate of around six to 10 percent would be more “fair.”
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A big focus of many loyalty programs is to incentivize direct bookings, aiming to cut the true cost of acquisition. However, establishing what a true acquisition cost is can be challenging, particularly when vast amounts of marketing and ad spend are not counted as acquisition cost, but rather offset as a marketing/advertising expense. For example, Your Rate by IHG Rewards Club offers its members special rates, allowing them to get around price parity agreements with OTAs.
“There’s no question that a loyalty program is the most effective tool we have to defend ourselves against OTAs and the one problem we haven’t been able to solve, as an industry, is that the distribution costs keep rising, and there’s no end in sight,” says David Kong, CEO, Best Western. “I think next year we’ll see an even higher distribution cost for our hotels, so we have to offset that by producing more business through the brand channels, and the loyalty program is a good reason for people to book with a brand directly because, if they don’t, they won’t be able to earn points.”
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Photo credit: IHG Rewards Club InterContinental Hotels Group