Do I need to use OTA to increase room revenues?

Hotel reservation websites such as OTA provide a stable source of hotel reservations, which can reliably bring customers to the hotel without the hotel having to make too much effort.
On the other hand, this “effortless demand” pays a heavy price: up to 30% commission per booking.

In fact, I don’t think this is a big problem.
Let me first explain if the hotel does not sell through OTA:

  1. To sell through other distributors, such as travel agencies, wholesalers, bloggers, group buyers, many bloggers can sell far more rooms a day than travel agencies, and many well-known bloggers can sell more than 3,000 rooms a day.
    But you still need to pay commision to these channels and their commision are dynamic, which will cause management difficulties and confusion.
    If you feel that you want to save money, then you can spend more time managing these channels.
  2. To sell rooms through your official website.

I think this is the favorite option of all hotels.
Especially those four-star and above hotels, because they have IT engineers, as long as they hire a designer, or find an outsourcing website design company, and then integrate the payment system, you will save the OTA commission.

It is a pity that there is no free lunch in the world, and the 3rd payment system has to be paid 3% of your revenues.
Finding an outsourcing company to help you develop a website requires USD $100K or higher.
And usually you need to revise it every 3 to 5 years, because the internet technologies change too fast.
You also need an IDC for your servers, you may choose a cloud provider such as GCP or AWS, or rent an IDC and maintain it by yourself.

But no matter which method you use, you need an IT team, you have to pay for network bandwidth, you have to pay for the salary of your engineers and designers, you have to pay for the protection of information security, there are too many hidden costs.

On average, it costs about 20% of your revenue per year, and you have to consider the issue of employee resignation and service interruption.

Let’s discuss OTA again.

High prices of OTA commision can be treated as marketing costs or taxes for hoteliers.

The OTA commissions are usually the second largest expenditure of hotels than labor.

Some revenue or channel managers think to reduce reliance on OTAs through smart pricing strategies.

But it is flawed, because to reduce OTA dependence, it must be decided in accordance with the overall environment.

That is, you need to consider where your customers book rooms.
If you can’t find the trend of your customers, you will waste your budgets.

Don’t go against the trend of your customers!!

Nowadays, consumers are accustomed to booking on OTA.
As a hotel manager, if you just spend money on the branded website and spend advertising budget to attract consumers and expect consumers to book on your hotel’s branded website, that is the reverse operation.

What is an online travel agency?

OTA is an Online Travel Agency.
It refers to travel agencies that mainly conduct business through the Internet and apps.
Your consumers can book hotels from websites and apps without the help of traditional agents.
Although OTAs are no longer considered new technologies, they are a huge driving force for hotel room sales and online reservations in the hotel industry.

Large hotel groups like Hilton have reduced their reliance on these distribution channels, but many independent hotels rely solely on OTAs to sell rooms, and do not even have their own booking engines.

20 years ago, customers needed to book hotels by visiting retail travel agencies or booking agents at airport counters by phone or in person.
When the Internet became popular, consumers began to search and book hotels on their own.

Let’s see what’s the condition for travelers now.
There are now only three holding groups of OTAs, which control 95% of the market, and there is only one new major competitor and it’s Aribnb.

Booking Holdings was founded in 1997 as Priceline.com.
Since then, it has gradually become the dominant player in online booking, and most of its revenue comes from Booking.com.
It also owns Agoda, Kayak, Cheapflights, Rentalcars.com, Momondo and OpenTable.

Expedia Group was established in 1996 as a division of Microsoft, and it was spun out in 1999.
In addition to its flagship website Expedia.com, it also owns Hotels.com, Hotwire.com, Orbitz, Travelocity, trivago, Venere.com and vrbo.

Ctrip was established in 1999 and has become China’s leading travel website.
It acquired Skyscanner in 2016 and Trip.com in 2017 to expand globally.

Founded in 2006, Airbnb was originally a home-sharing website and an emerging participant in the OTA field for “home”.
It acquired Hotel Tonight in 2018 to accelerate its expansion in the hotel supply field, and AirBnb’s continued investment supports its ambition to compete globally as an OTA.

Expedia and Booking spent more than $10 billion in advertising in 2018.
OTA still dominates on the demand side and on the supply side.
 
What are the benefits of OTA for consumers?

Why does OTA manage to capture such a large travel demand and place itself between travelers and suppliers?

Why do they continue to dominate?
Key points are listed below.

Choice and diversity.
First, consumers like to concentrate all their choices in one place. They want to make sure that they see all the options available for a given search. It reduces uncertainty.

Price.
Second, consumers want to be able to set prices for hotels. All options are concentrated in one place, and prices are easier to compare. OTA saves a lot of trouble, without having to open a bunch of web pages or apps to view various hotels.

User experience.
Finally, these options and price comparisons are shown in an easy-to-use experience, prioritizing rich content.
The user experience across devices (mobile phone, APP, RWD) is also consistent.

In fact, OTA puts customers at the center of their operations and continuously optimizes the user experience.
OTA provides customers with what they want and completely surpasses hotels, which strive to keep up with the pace of digital transformation such as e-commerce and mobile shopping.
Moreover, as long as OTAs perform well in digital user experience, hotels will still be at a disadvantage.

OTAs are still popular with travelers because they are ideally located at many touch points throughout the customer journey.
 
What problems does OTA bring to hotels?
Of course, this position of power is not good for the hotel.

The inventory must be updated separately on the extranet of each channel to avoid double booking before they start to use siteminder.com
If some channel management systems are not used, this may lead to overbooking.
There is a lot of overhead in managing these channels.
Moreover, since many OTAs have loose cancellation policies, hotels face high cancellation rates, which may curb revenue.

Market concentration gives OTAs greater pricing power, which leads to increased commissions.

Incentive opacity.
Consumers are not clear about the lack of transparency in how commissions affect the visibility of hotels.
For example, “Higher commissions get higher visibility” can be interpreted as sponsorship.

Lack of brand control.
Hotels have almost no control over how their hotels are displayed on OTA. They must meet the specific standards of each platform.
In addition, the different policies on each platform can cause confusion for hotel staff because it becomes complicated.

OTA puts itself between the hotel and the consumer, hides the hotel’s e-mail, and reduces the sharing of data with the hotel.
This makes it more difficult for hotels to establish long-term relationships with  guests.
OTAs have a vested interest in preventing this from happening because they don’t want to lose customers because of direct bookings.

How does the hotel fight back?

In order to meet these challenges, the hotel has some core technologies: room rate management and room rate intelligence.
As prices have a direct impact on profitability, these tools have become “must have” tools for hotels today, providing hotels with 24/7 monitoring, automatic alerts, and in-depth data analysis.

The room price tool monitors the rates of all distribution channels and shows any violations.
Because each price problem may lead to a deterioration in the ability to sell inventory.
Active monitoring can help you increase the profitability of your hotel.
Some tools propose a room pricing action plan that defines a clear process for regular monitoring and adjustment of the most pressing low-price issues.

However, it would be a big joke if the hotel hopes to counteract the OTA through room prices adjustment automatically.
Because price is not the main factor that determines the order, reviews, star rating and the distance between the attractions are the main reasons for customers to book a room.

So don’t be fooled by the companies who have been brainwashing hotel personnel over the years.
They will say that purchasing their room pricing system(rate management system) can make the hotel money, and they will also tell you how important the room price is.
Unfortunately, according to the research report, there are three major factors that determine whether consumers want to book a room.
The first is the review(rating), the second is the hotel-star, and the third is close to the scenic spot.

In order to sell their room price adjustment system to hotels, companies continue to invite various conferences and events, and use various channels to brainwash hotel operators and employees, making them believe that they have only one choice, which is to reduce room prices or increase prices.

Why do these companies continue to educate hoteliers that only price is the focus?
The reason is that they only know the collection price, other more advanced information, they don’t collect and don’t know how to analyze it.
For questions in this regard, you can ask otaminer.com for more assistance.

In addition to room prices need to be monitored, effective management of OTA also requires analysis of room price competitiveness.
Room rate intelligence tools give hotels access to the types of in-depth data analysis that has allowed OTAs to dominate for many years.

For example, some tools not only provide insights about individual hotels, but also provide broader market and regional-level analysis that can improve the competitiveness of hotels.

As Airbnb joins the ranks of global OTAs and price parity becomes the primary consideration, hotels must use their tools to define (and maintain) the right business mix.
As your hotel develops its price monitoring rules, it will optimize its prices and channels to achieve the ideal distribution mix.
The right combination can increase revenue not only by selling rooms at the best price, but also by leveraging new channels and curbing underperforming channels.

One thing to note is that airbnb.com is for daily rental suites for family rooms, while booking.com is for hotels.
Although the two ethnic groups overlap, they are still somewhat different.
So do not enter airbnb.com rashly, because all of them are daily rental suites.
airbnb.com can be used by homestay operators, but not suitable for star hotels.

Success lies in maintaining a profitable distribution strategy, which is dynamically adjusted on a channel-by-channel basis. This is a technically assisted solution:

OTA will make every effort to become part of the sales path.
If you work with them, you have to keep your eyes open to do it.
The trick for each hotel and brand is to determine which channels are flowing and which channels are available in each market.