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Three Tough Questions for the Hotel Industry

Three Tough Questions for the Hotel Industry

I was taking a road trip a few weeks back that really started me thinking about the current state of the hotel industry. The trip started in Miami Beach, Florida and over the span of ten days/nine nights, I drove to Georgia, South and North Carolina, where I was attending a conference.

During the drive, I stopped in various cities where I stayed in a variety of hotels for a single night – some pre-booked, some bookings made at the last minute via OTAs (using both mobile, tablet and desktop versions of the sites). In general, the hotels that I selected were either 3, 3.5 or 4-star properties, located close to the major highways in each city.

As an experienced revenue manager, I always check the rates online (via OTAs) and then contact the hotel directly to see if they can match (with incentives) or beat the online rate when booking a hotel room. Why do I do this? When I was a revenue manager at The National and The Palms hotels in Miami Beach, Florida at the beginning of my career, I always instructed my reservations team to offer a better rate to any customers who call in after finding our properties via an OTA. If we weren’t able to offer a lower rate, I empowered my team to match the online rate and offer a value-added incentive to encourage the customer to book directly, such as free parking, free breakfast or a free airport transfer.

During this trip, I realized that I am in the minority in regards to this revenue management strategy – and I am continually baffled that this is the case. While it may seem counter-intuitive to offer a discount on a booking that (assumedly) the customer will make online for full price, it is actually a strategy that will increase your property’s profits drastically over the long run.

The math is simple. You can elect to offer the guest a 2% to 5% call-in discount on their direct booking, or you can lose up to 30% in commissions when they book through the OTA. Additionally, when you redirect the guest to book through the OTA because you are unable to match the rate or close the sale during the call, you run the risk of them not booking with your property at all. Remember, OTAs present potential guests with hundreds of competitors at the click of a mouse, so if they call you, don’t let them walk away!

So this brings me back to my questions for the hotel industry:

Why are hotels giving away money to the OTAs (when it only hurts their own bottom line)?

Why are hotels blaming the OTAs for increasing the cost of acquisition when the fault lies with the hotel if they are not incentivizing customers to book directly whenever possible?

And finally, why are hotels reluctant to initiate this change when it’s a given that it will save them money?

I’d love to hear your thoughts on why hotels are still following this very traditional but costly revenue strategy. To share your thoughts or to find out more about changing your revenue management strategy to encourage more direct bookings, please insert your comments below. I’m looking forward to hearing from you!

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16 thoughts on “Three Tough Questions for the Hotel Industry

  1. Agree with your comments entirely – but also remember that 25% of the OTAs revenue will go on marketing – and that this marketing is competing directly against your own Hotel’s marketing making life harder in the future.

    As OTAs get stronger commissions go up, more dollars are spent advertising, more dilution from being one of many hotels on a site and loss of company loyalty all result in less profit for your hotel- so as you say whats so difficult in understanding the need to look after the guest that wants to book directly with you.

    As the Manager of a hotel that is part of a chain our focus is on improving the number of direct bookings. One of our KRAs is a measurement of the percentage of direct vs indirect bookings and while OTAs are an important source of business there are times when we are happy to go it alone and only sell through our own site making sure that we support this with adequate SEM and promotion of the site.

    Thanks for highlighting this

  2. Many hotels are still traditionally binded by the terms of relationship. They are still afraid if their OTA partners find out that they are undercutting their prices through call-in reservation. The thoughts of getting kick out from the listing gives the manager some fears. But of course if they could incentivize their guest it would be better than giving direct discount to the room rate, but probably the department concerned might protest that their product is given away as a freebie. For example F&B would protest if the guest is given free breakfast, and shouting because of that, they couldn’t cover the cost. Perhaps it’s not only the mentality of the Revenue Manager in question that we should fix, the other departments like F&B or Spa should have the same mentality as a Revenue Friendly department.

  3. there’s a fundamental flaw in this article. You mention you instructed your reservations team to match or further discount customers who called in after finding a lower rate on an OTA. Well therein lies the root of the problem. Customers shouldn’t be finding lower rates on OTA’s versus your brand site or call center. You were doing your company a discredit if that was the case. Spend time ensuring you are in rate parity across distribution channels and this simple solution you’ve recommended is never required…and you’ve earned far more revenue in the long run.

    1. He didn’t say lower rate via an OTA – he said give a lower rate when they call direct.

    2. Not sure you understand the article. Even if you have price parity across OTAs and on your own website, you still want customers to book directly with you over the phone for a number of reasons. Firstly, you save on OTA commissions. Secondly, many smaller hotels use third party providers for their own website booking engines, which means they still pay commissions on bookings taken via their own website. Thirdly, and most importantly, it gives you an opportunity to better understand the prospective new guest’s needs and preferences, which means you are more likely to end up with a satisfied customer in the end. OTAs mostly capture only the most basic information, which can result in something being missed (eg the guest needs a quiet room, but hasn’t bothered to write that in the comments section). Finally, it gives you an opportunity to build rapport with the guest, which makes it more likely they will want to call you and book with you again directly, in the future.

  4. I agree with the point made here and thank you for bringing this up for a discussion. Being a manager who handles reservations and revenue upto an extend, I have been trying to save that extra bit of commission amount that goes to the OTAs. This has a major impact in increasing the ADR of the direct booking which eventually made an impact in the overall ADR of the hotel when you take it for a period of a month or more.

    Yes, I understand the commission OTAs charging on the bookings mady through them are spent for marketing purposes also, it is done on a large scale like hotels in a particular region or hotels of similar grade or so. This actually does not bring in the exact effect on a particular hotel in the OTA’s marketing list. Even at the time of booking, a guest seeing the add ons highlighting on the booking page such as WiFi free or breakfast free will also come under the marketing expenses which is something I understood through the interactions with my OTA counterparts. In short, the marketing is done largely for the OTA itself, not for the hotels associated with it.

    Now, on this platform, trying and increasing the direct bookings without letting the guests who contact the hotel walk away can be a good idea to increase the income. This has to be understood with ith the fact that it will help to make guests loyal to the hotel as well.

  5. The rise of the OTA has been the demise of my business. My small 5 room Boutique Hotel has always enjoyed high occupancy levels. 65% to 90%.
    The OTA’s now intercept any bookings that would have come directly to me and thus, I now I pay approximately US 1,000 in commissions a month for very little added value.
    I am doing exactly as you recommend, but few people realize that The Hotel has to pay a commission and innocently go ahead with making the booking. OTA’S also give clients the impression that they are getting the best rate, thus denying the client an opportunity to negotiate a discount.
    OTA’s may be good for a struggling business but bring little benefit to an already successful one.
    The commission rates they charge are predatory. Even clients are shocked when I tell them the back story.
    Hoteliers have to object to those rates. OTA’s are making millions doing very little. When I tried to stop one channel because their commissions had increased to 35%, they threatened me with a prohibitive penalty charge I had overlooked.
    OTA’s are probably here to stay, but those commission rates must be tempered.

  6. @ Jack
    We totally agree with you Jack. Since most hoteliers still don’t follow that practice, we wrote the article to provide a solution that would be useful for all of those hoteliers who refuse to keep their rates in parity across all channels. Thanks for your comment.
    Best regards, Jean Francois

  7. Come one, come all and BOOK DIRECT! Couldn’t agree with you more. Our hotel property trains all ambassadors on Guest Conversion. As an independent property we have been very successful converting OTA guests to Book Direct , because we operate our own in-house call center.

    Frontline employees at large hotel chains, usually take the option to transfer reservation calls to their branded CRS. Once the call moves, to a call center, across the country, you can imagine the emphasis on moving revenue to the bottom line is not at the same priority as it would be with an on property reservationist.

    OTA’s are a must as you can take advantage of National Advertising leveraging new guests to your property. Once OTA guests arrive it is up to the hotel staff to convert guest and change their buying habits.

    Cheers to all!

  8. There are lots of things you can do to help combat the OTA’s
    (1) this is completely free and gives the guest a perk of your choice when they book direct
    (2) tell guests that you have to pay 15% or more commission and will be happy to discount if they ring direct or free upgrade or gift or whatever
    (3) we have a built in discount on our online booking for repeat guests ie they get a code on our business card they can use and it can be given to everyone or anyone – we also give away keyrings which when we do the next batch they will have the code on and are very popular
    (4) and are also fighting as had as they can to educate the public.

  9. Good piece as always. Following up on Jim’s comment regarding marketing costs. Having switched online marketer (if that’s a phrase) recently and taken my eye off the ball, I was horrified to realise that all they had done was increase my cpc on my own hotel brand name from c 11c to over 70c. When contacted I was told this was to counter the bidding from TPW. said they do not outbid sellers on brand names, however TA and others where not so forthcoming with this guarantee. So it’s like an arms race it seems, with the winner in this case being google. And the name of our hotel – currarevagh if you can publish it – is very obscure so not exactly a high cost word to bid on in its own right. So Jim is correct, not only are you slipping 15% from the bottom line on each TPW booking, but the marketing costs are aslo increasing for no extra return.
    As a small hotelier, 12 rooms, it is a constant battle to keep acquisition costs from creeping up. It seems everyone from the booking engine provider and on is taking a bigger piece of my pie. There must be another way to get the power back into the hands of the people that provide and work for the primary product!

  10. I do think lowering your room rate to undercut an OTA devalues your overall product, that said offering a discount of between 5 – 10% or incentive bonus, is in my mind the best thing to do to increase revenue, although there are negatives, OTAs give you more visibility, based on the amount of bookings and availability you give them as well as a host of other factors, unfortunately, the more direct bookings you receive, the less indirect (OTA) bookings you will receive, and if this cannot be fulfilled on a long term basis, the short term gain may outweigh your long term goals of a high occupancy and average room rate… OTAs are unfortunately a beast we have to work with.

  11. OTA’ should never have a lower rate than your sight. Price them to suit your business model.
    Because the OTA’s are master marketers the general public thinks of them first, hence we need the contribution the OTA’s can bring.
    Once your OTA guest checks in sell them on your property, sign them up in your loyalty program, incent them, if you wish, to book directly for you the next time. Send the home with your website info and a positive experience

    The OTA is not going away, learn to live with them, deliver fair profit to your owner.

  12. I own a small B&B close to Bruges ( Belgium ). We tried as long as possible to avoid oat’s, because of the huge costs. But since they became so popular and are so easy to find a place to stay, we lost about 70 % of our foreign costumers. The main reason : if you try to find us by simply searching for ” b&b Bruges ” you will find us on the page 1O of the results. The first 5 pages of results will be off different oat’s. So for us there is no other way than to “work” with them.
    The ideal world for us and our guests would be if they used the oat to find a place to stay and then call us.
    Personally i do not “dare” to undercut the prices ( you see that even in this reply I am careful ), but I can assure you that people who do the effort to please us by calling will be considered “preferred guest’s / friends.

  13. After reading your article i have instructed my front office to give a discount of 5% to anyone asking for a discount. Better than handing out a 20% discount to OTAs thanks for waking me up.

  14. OTA is1st choice if our off line agent in slowly respond regarding occupacy

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