OTAs are a fact of life in our industry. But there are so many negative feelings about them, constantly being stoked by hotel media, that it becomes difficult for hotels to form calm, cohesive OTA and rate-setting strategies.
OTA-bashing articles surface every few months, no matter what cycle the travel business is in. These articles usually involve screenshots of OTA rates being lower than the hotel’s direct rates, leading to complete disgust and a ton of hate reading. Other times, these feelings of fear and loathing towards OTAs are triggered at conferences by speakers going for some cheap applause.
I would like to ask you to put all that aside, and keep an open mind. Please remember that, as a revenue professional, your goal in life is not to teach the OTAs a lesson. It is to make more revenue! You should try to avoid Maslow’s hammer approach when thinking about your relationship with your distribution partners:
If the only tool you have is a hammer, it is tempting to treat everything as if it were a nail.
Your revenue strategy cannot be focused on proving that the OTAs are an evil empire, and that only your rate parity games will topple them. The goal of pricing is to make sure that you convert all of your hotel investments into revenue.
Now, if you’re ready, please read on to learn about some OTA and pricing strategies that have delivered millions in revenue for owners and operators that have embraced it.
The Rate Parity Games
Rate parity surfaces a couple of times a year. Usually, it is:
- Declared dead
- Something that is killing your direct revenue
I am posting a third option for you to consider: Don’t play games.
People are posting articles filled with “screenshots of proof,” as if they have finally located the Chupacabra or Bigfoot. A lower rate published on an OTA versus a hotel website is highlighted as a “gotcha moment” and a complete failure of your parity-based pricing strategy. The “game over” vibes are pretty doom and gloom (even for me). They make me think of Bill Paxton.
Rate parity should not be misrepresented as loading the same rates on all channels… and then immediately going to bed, zero follow up. Dynamic pricing requires a little bit more work than that. Once your rates are loaded, you have to keep an eye on the OTA channels, like Booking and Expedia, and monitor what they are doing with the rate you gave them.
Here are reasons/examples of how and why they might be showing lower rates:
- Are they running opaque promos?
- Are they running mobile promos?
- Are they running merchant model promos?
If the answer is yes, then please match these offers on your website. Instead of canceling your entire participation with them, do your best to implement competitive rates on your direct channels.
In other words, once the rates are uploaded to the OTA, don’t assume your revenue manager is then handcuffed and cannot make any edits! When you notice parity issues, do something about it right away. Some examples:
- Run your own private promos.
- Run your own mobile promos.
- Offer direct value that OTAs cannot match.
If your current booking engine technology vendor does not permit you to take these actions, then find one who does. The answer is not abandoning parity; it is having the smarts to monitor and enforce it on all channels when possible.
Ah, The Good Ol’ Billboard Effect
A big argument against rate parity in pricing is the idea that there is no billboard effect for an independent hotel that is listed on a global OTA. This study was first published back in 2009 by Cornell University, with another follow up written in 2017.
I am not here to debate the billboard effect. If you feel strongly that this does not have any relevance, then please withdraw from the OTA channels and watch your competition overtake you.
It is very easy for direct revenue fanatics to throw the billboard effect under the bus. Do you know why? Most of them are not personally invested in the asset. And if there is one thing that I have learned from working in revenue optimization for 20+ years, it is this:
It is very easy to be a revolutionary with other people’s money.
I will elaborate more on these revolutionaries below. For now, let’s look at some traffic and revenue stats for the top OTAs in the business:
|Estimated Monthly Traffic
|2021 Annual Revenue
|8.6 billion USD
|10.9 billion USD
If you want to opt out of this exposure and revenue stream because a consultant, marketing agency or software provider thinks you can 100% make up for it using their direct revenue software? Then all I can say is… good for you! Abandon all parity and put your lowest rate on your website. Then give it some time and watch your competitors do circles around you. The effect of this strategy is not sudden death but more like diabetes… a slow decline, which means that by the time you discover it, it’s too late.
There Is No Free Lunch!
It’s not just a saying! An actual mathematical theorem highlights a fact that we have all known for a while: There are no shortcuts to success.
Dealing with OTAs may seem painful when you just think of the commissions. However, do we expect them to give us traffic and revenue for free? Commission, while painful, is the cost of doing business. The Princess Bride probably said it best:
OTAs don’t owe you anything. You can try to undercut them and limit your participation to prove a point. But in the end, that decision is going to cost you revenue and loss of market share as an independent hotel. No amount of creative marketing or software can protect you from this outcome.
Guest Ownership Quandary
We can debate all we want, but hotels don’t “own” the guest. Neither do the OTAs or any other form of travel agent. Your hotel guest today is a little smarter than we like to give them credit for.
Since the pandemic, most hotels have seen their direct revenue share grow. In spite of the “death of rate parity,” the overall market share of every hotel that maintains true rate parity has gone up. How is this happening if the guests are mindless, price-driven sheep? This is happening for a simple reason: they are looking for value and not just a few dollars off the rate.
If you want guests to book direct, you have to showcase value in addition to a good rate. Flexible cancellation policies over the past two years drove a huge volume of bookings for direct channels. Hotels answering their phones and actually helping guests also enabled higher rates, plus more direct bookings and increased market share. Have you ever tried to locate someone at an OTA to quickly resolve your booking issues? There is no substitute for direct contact with someone who you are going to be staying with.
Give your guests a little more credit. Instead of “owning” them, offer them value that only you can give them. And please accept that people who are hooked on OTAs will always book there, no matter what. It could be loyalty, points, or just habit. Don’t wage a war to try to convert these guests on your website. It’s the same as trying to get a Marriott loyalist to stay at your independent hotel. Even if you have a superior product, he will pick the breakfast buffet with watered down scrambled eggs every time to maintain his status with the brand.
Playing Revolutionary With Other People’s Money
Direct revenue is a crucial component of your distribution strategy. You have to work to build and grow it whenever possible. Vendors often present direct revenue as a magical, pain-free solution to all your revenue problems. However, there is a limit to your reach and your budget when it comes to marketing your hotel to a global audience. This is particularly relevant to independent hotels that do not have a brand contributing to their revenue base.
I read something ridiculous last year along the lines of “You should withdraw your hotel from all merchant models and promotions.” Someone selling software and services was calling for hotels to withdraw from all the OTAs and then double down on offering mobile discounts on their direct channels.
I have noticed that most of the direct revenue revolutionaries are playing with other people’s money. If they were paying the mortgage, payroll, insurance and fees on a hotel asset from their own bank account, I guarantee you they would be participating in everything 24-7.
You see, I too fancy myself as a hotel revolutionary. However, I am not going to sabotage the asset owners’ finances to prove a point. That is highly unethical and risky behavior with negative consequences.
Your revenue strategy is not a zero-sum game that you play with your distribution partners. Celebrating lack of visibility on OTAs and assuming everything will magically come in “direct” is deeply flawed logic. An independent hotel today cannot afford this level of carelessness when it comes to their distribution strategy.
I wanted to share my thoughts on how your hotel can stop hating and start focusing on improving your revenue and distribution mix. My strategies have delivered millions in top line revenue for assets I have worked with over the years. So please view this article as more than a think piece. This is real cold hard cash we are talking about! And it might even feel good to let go of some of those negative feelings and start viewing the OTAs as partners. Focus on negotiating the best contracts with them, and make them work to your advantage. And take responsibility for maintaining parity by offering rates or added value that make your direct offers more appealing to guests.