According to a new report from Kalibri Labs, they and their peers which launched direct- booking campaigns in 2016 certainly did.
Compiling data from its database of more than 25,000 hotels in the U.S., including validated costs and daily transactions directly sourced from the hotels’ systems, Kalibri Labs found that there was indeed a shift in consumer behavior toward brand.com sites versus online travel agencies such as Booking.com or Expedia. More consumers than ever before chose to book direct versus booking on a third-party site.
The Kalibri study looked at data from May to December 2016, when the majority of major U.S. hotel chains mounted direct-booking campaigns, and examined an estimated 52 million transactions from some 12,000 hotels in the upper midscale, upscale, and upper upscale hotel segments. The hotels examined participated in book-direct campaigns.
Direct Booking Equated to More Money
Not only did the campaigns encourage consumers to book direct, but the study also found that these campaigns were more beneficial for hotel owners than previously assumed. The hotels’ direct-booking campaigns — even by offering discounted rates to consumers — were actually generating more revenue for hotel owners than the online travel agencies were.
Kalibri Labs found that the net average daily rate of brand.com discounted loyalty rates was higher than the net average daily rate of room rates on the online travel agencies. The median net revenue benefit ranged from $9,000 to $33,000 per hotel as well, taking into account all discounts and loyalty and commission costs.
“I was startled with the results,” said Chad Crandell, managing director and CEO of CHMWarnick, a hotel-asset-management and owner-advisory-services company that represents more than 70 hotels. “Initially, when they [the hotel companies] announced these book-direct programs, I was quite skeptical that this would be a win for owners. I thought it would be a win for brands because they would try to direct those customers to their websites.”
Crandell, like many others in the hospitality industry, worried that these discounted room rates for loyalty members — the most common feature of the various hotels’ book-direct pushes — could cannibalize the hotels’ business. CHMWarnick has properties that carry brands from Marriott International, Hilton Worldwide, Hyatt Hotels, and AccorHotels, among others.
“I thought the premise of discounting our current best customers at the hotels and offering them discounts seemed kind of foolish: Why discount your best customers when that is really the core of your business?,” he said. “I was pretty sure discounts would be in that loss. Yes, we’d gain more reward members, but I though it wouldn’t be a cost benefit to the bottom line. But I was proven wrong: The study showed it did have net positive impact on ADR [average daily rate] booked but also on cost of that hotel acquisition.”
He also noted that even though hotel occupancy rates in the U.S. are at an all-time high, hoteliers haven’t been able to grow their room rates as much as they would like. That’s another reason why it’s so important for hotel companies to be marketing the benefits of direct booking because rooms that are booked direct are the lowest cost for owners.
Loyalty Really Does Matter
Cindy Estis Green, CEO and co-founder of Kalibri Labs, said that perhaps the most surprising finding from the report was the importance of loyalty.
“I didn’t think the percentage of loyalty contribution and how much it’s grown would be that high across the board,” Green said. “I came to appreciate how central loyalty is to what’s going to happen going forward.”
The study found that for upper midscale, upscale, and upper upscale hotels, four to six of every 10 room nights booked were driven by loyalty members. That same 30 to 40 percent growth rate in loyalty contributions was also consistent with the brands reporting membership growth of 30to 40 percent from 2015 to 2016, too.
“That is a significant increase in the number of reward members,” said Crandell. “We got the attention of the customer — maybe 15 years too late — but we finally did. But now what? Will we have to continue to offer discounted rates forever more to keep them interested? Cutting the price will lead to a shift of share of short-term business. But long term, it’s not a good strategy.”
Green said that’s where loyalty comes in. When she refers to “loyalty” it’s not just about points-based programs, but the benefits that travelers get from joining these programs, and the impact they have on their hotel selection decisions.
“Whoever makes the travel experience more seamless and friction free will stand out. If those benefits create a convenient, seamless travel experience, it’s a very compelling value proposition. The fact that consumers were kind of able to be moved like that — again, no one knew what would happen — the fact that it does move consumers tells me that consumers are looking for benefits. It isn’t always necessarily price driven. A lot are repeating customers. They’re not always going for price; the rates were higher in some cases.”
How the Direct Booking Pushes Need to Evolve
If discounted loyalty rates are not a sustainable strategy for getting consumers to stop clicking around and book direct, then what is? Crandell and Green believe that paying more attention to the entire travel experience — not just the hotel stay itself — is crucial.
“We need to control the whole guest experience,” said Crandell. “Customers today are increasingly wanting to not be surprised.” He said guests are looking for features like the ability to choose a specific guest room, to check in on mobile, to use their phones as hotel room keys, and to know their favorite beverages are in their room.
“Hotels can control all that,” he said. “OTAs [online travel agencies are just selling rooms and saying they sell at the lowest price. They don’t control the rest of the guest experience after they sell them that room. Hotels need to control the actual guest experience so they really have loyalty.”
However, online travel agencies, as well as other travel companies (Airbnb, anyone?) are also trying to make inroads in having more control over the overall traveler experience, too, with their own loyalty programs and the ability to often package entire vacations for consumers.
Crandell said that to combat that, hotels need to be more creative in how they think about experiences beyond the walls of their properties.
“Hotels will have to maintain that experience not only inside the hotel but also outside the hotel,” he said. “You need to have a personal concierge on your travels. That’s traditionally what a hotel concierge did. But we have to take that physical experience from the old days and turn it into a virtual one today.”
That focus on how digital technology can enhance the actual traveler journey is where hotels need to direct their investments toward, said Green.
“It it’s not going to be a benefit in the form of a discount [in the future], there are lots of benefits that come from using an app to do mobile check in or use keyless entry,” explained Green. “Those are terrific benefits for consumers whether or not they are frequent travelers. If I were a hotel owner, I’d want to see more engagement on those apps, to see recurrence; to see customers going back to the apps and to other hotels in the same brand family. If I were an owner I’d be paying attention to that to see that my brands were developing those kinds of services for travelers.”
Crandell added, “Hotels need to make investments in technology and training and customer relationship management tools and remain relevant if they want to preserve market share and grow it back.”