Owning a Tourism Business is awesome

24 Jan 2011

OTA Participation to Partnership

OTA Participation to Partnership

Here is how to manage your OTA relationships to drive maximum value.

Friday, January 14, 2011
Kristi White

OTAs have the ability to attract shoppers. Deep advertising pockets place OTAs in front of millions of consumers every day. To benefit from their substantive spend, hoteliers need to strike a balance. With OTAs, the key is to move from a participant to a partnership mindset, leveraging these relationships to drive maximum visibility and value. In other words, full and active participation in building and managing the relationship is critical to its success. To make this transition, you need to understand the success factors for developing a strategically sound partnership with an OTA.

If your hotel is properly positioned, advertising dollars spent by OTAs can benefit your hotel both directly and indirectly. Let’s start by looking at the real value of that presence.

Benefiting from the billboard effect: the first-page advantage

In October 2009, Cornell Hospitality Report published an article titled, “The Billboard Effect: Online Travel Agent Impact on Non-OTA on Non-OTA Reservation Volume.” A well-researched document, it presented the reservations value of hotel placement on an OTA. Four test hotels (three branded properties and one independent property) spent 7–11 days cycling on and off Expedia over a three-month period. In the 7–11 days each hotel was displayed on Expedia, it appeared at the top of the first page. On the off days, the property was not available on the OTA site.

During these periods, average daily bookings were monitored. The study found that when the hotels appeared on Expedia at the top of the first page, their average daily bookings increased—from a low of 7.5 percent at a branded hotel to a high of 25 percent at the single independent hotel—versus the days where they were not displayed on the site. In total, the billboard effect was estimated at 20 percent. In effect, a hotel that receives 10 percent of its overall contribution from the OTAs also receives another 10 percent in direct web bookings contribution by being promoted on the OTAs. This halo effect of direct bookings would in theory cut the margins paid to the OTAs by half.

At face value, this study implies that just by being on the OTAs, your hotel gains a 10 percent direct web contribution. However, we need to look more closely at the optimum page placement for the test hotels. How many hotels have the luxury of first-page, top-of-the-fold placement or even first-page placement? In any given market that number is probably no more than 20–30 hotels rotating regularly into those spots. So, if you are one of those hotels, you undoubtedly benefit from the billboard effect. However, if you are not on the first page, the billboard effect is probably not as strong, and the farther you get from the first page, the more diminished the effect becomes.

At the Cornell Hospitality Research Summit conference in early October, Brian Ferguson from Expedia lifted the veil on customer booking patterns. He told conference attendees that 95 percent of Expedia’s bookings occur on the first page, and 47 percent of those are in the top six spots. This reinforces the Cornell study finding that the maximum billboard effect will occur when you are in the top spots or at the very least, on the first page.

Being seen from the start: the OTA advantage

What is the major advantage, then, of participating in the OTAs that might outweigh the associated costs? Simply stated, it increases the likelihood that you will be seen at the onset of consumer research. Studies have found that travel shoppers use OTAs more for research than for booking. The chart below shows where consumers begin the booking process: 31 percent start on one of the OTAs. And many search engine and meta search results also direct consumers to OTA sites. So, by being on the site somewhere, you will potentially be viewed as shoppers begin their research, becoming part of the consumer’s consideration set.

Source: 2009 National Leisure Travel MONITOR

This effectively broadens your hotel’s marketing reach, as the average hotel doesn’t have the budget to reach millions of consumers at the point of research. From the perspective of reaching customers you couldn’t reach on your own, the OTAs definitely provide a boon for hotels.

Choosing the right program: how to make it work

As you consider developing a more strategic relationship with the OTAs, evaluate the programs in which your hotel participates. Multiple options are available, each providing a different opportunity to market your hotel, depending on your need:

Standard Merchant Rate – This is the base offer where your hotel signs a contract for a specific margin, and offers a rate that is discounted by this amount from your best available rate (BAR).
  • Advantage – This is the OTAs’ most common offering. Customers have full awareness of the hotel they are purchasing and can use these rates to help with their research process.
  • What to Do – Make sure you offer inventory when you need rooms filled and keep your long-term rates competitive. Also, make sure your hotel gets positive ratings to enhance your page placement. Be consistent in your strategy since most ranking algorithms use history to determine future placement.

Packages – With this program, your hotel can offer deeper discounts because the rate is suppressed as a part of the total package. Therefore, consumers don’t know what rate they are paying for each portion of the package.
  • ADVANTAGE –Your hotel can offer deeper discounts when you need to move distressed inventory. A segment of travelers prefer packages.
  • What to Do – Offer a limited amount of inventory as needed to build a base of business without damaging yield opportunities. Increase available inventory when projected occupancy is well below target. Make sure you look well out in the future when managing these rates, since dynamic packages have a much longer advance booking window than room-only rates, and longer length of stays.

Promotions – This option offers a unique merchandising opportunity to create excitement for specific offers such as length-of-stay discounts or value-add offers.
  • ADVANTAGE – This option improves site placement and enables your hotel to uniquely merchandise special offers that the OTAs showcase on their sites.
  • What to Do –Understand your booking window and average length of stay and ensure rates are properly fenced in order to prevent trade-down and rate dilution. Also, offer your promotions to all OTAs as well as your own proprietary booking engine for rate parity.

Opaque – These programs suppress your hotel’s identity until after the point of purchase.
  • ADVANTAGE – Your hotel can use these programs to move distressed inventory without eroding brand and pricing integrity.
  • What to Do – Actively manage your opaque rates as occupancy increases versus closing them out to maximize your RevPar. Either raise your rates or control discounts through use of length-of-stay controls. Use the pricing data provided by opaque sites to price your rooms to ensure that you capture demand as needed and that the incremental revenue contributes to your bottom line. Also, remember it is never too late to load opaque rates, since the channel has an extremely short booking window. A significant portion of opaque bookings are made on the same day as check-in.
Leverage your market manager: the key to a strong partnership

The foundation of a strategically sound partnership with the OTAs is building and maintaining a relationship with your market manager—the OTA employee assigned to helping your hotel use your OTA program more effectively. Manage this relationship the same way your hotel manages key corporate accounts. Developing strong OTA relationships can help your hotel move from being an OTA participant to an OTA partner.

If you can move from passive participation to active partnership, your relationship with OTAs can be advantageous for your hotel’s occupancy and profitable for your bottom line.

OTA Participation to Partnership: "- Sent using Google Toolbar"

No comments: