The direct debate: Debunking hype for independents
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In a world overflowing with distribution options and emphasizing direct booking, four industry leaders discuss their strategies. In Part 3 of HOTELS’ deeper dive, consultant and former hotelier Simone Puorto cuts through the noise for independent hoteliers. Stay tuned for Part 4 on Monday, and catch up on Part 1 (a Q&A with Marriott International Senior Vice President of Distribution Drew Pinto) and Part 2 (RLH Corporation’s Bill Linehan on that company’s unconventional partnership with Expedia).
As a former hotelier, Simone Puorto, now CEO and founder of Simone Puorto Consulting, Nogent-sur-Marne, Val-de-Marne, France, never felt at war with any distribution channel. But at some point, “Why should I give 20% to an OTA when I can sell my rooms directly?” became the new “Let’s sign with booking.com and increase our business to guests we won’t be able to reach otherwise.” Puorto writes about the hype and how independents can overcome it to yield the best rate. What if all this direct booking hype was not really the consequence of a rigid and scientific distribution cost analysis, but rather a smart marketing move by all those web agencies advertising themselves as the redeemer of the oppressed hotels fighting the anti-commission crusade?
Every reservation has a cost: Sometimes it is clearly defined (commission, markup), and sometimes more hidden (creation of website, hosting, adword investments, meta-search ads, booking engine transaction fees, branding activities, etc.). The cost per acquisition (CPA) for a direct booking is not always lower than the average OTA commission, but sometimes it’s higher. A hotelier in Paris was complaining all the time about the high distribution costs and tried anything to get some more traction on his direct channels. He bought a price-checker, offered discounted rates on the website, gave free breakfast, launched a messenger chatbot and invested a ton of money on advertising. Sure, direct bookings started pouring in – but with a CPA of 42% over an average OTA commission of 21%. A “direct” client might be yours forever, but a lot of hotels have very low returning guest percentages (if any), so customer lifetime value is just another word that means nothing out of proper context. I created a small focus group of clients and friends to substantiate (or to deny) my thesis. I grouped 50 independent and branded hotels around Europe, from 5 to 500 rooms, with different star ratings, and asked them:
• How would you describe your relationship with OTAs?
• What are the needed and necessary gives and takes for a better collaboration?
• What do you think the future of distribution will be?
• Is your direct booking CPA lower, equal or higher than that of OTAs?
Unsurprisingly, over 90% described their relationships with OTAs as a reciprocal collaboration. This answer came mainly from revenue managers and owners who tend to be more focused on profit and numbers. Fully 70% of hoteliers said they would like to get more transparency from OTAs, especially when it comes to guest email sharing. All hotels interviewed described mirror marketing (mirror sites, misleading ads, reseller lower rates, etc.) as one of the main obstacles to a better collaboration. The main discrepancy of opinion was on where distribution is going: Half the group voted for a future with more direct bookings and the remaining half for a landscape dominated by OTAs and metasearch/hybrids. Oddly, over 20% did not know exactly the CPA per direct booking or even how to calculate it. Around 10% admitted that their CPA is lower for OTA reservations, while the remaining 70% agreed that (no matter what) a direct reservation is always cheaper.
Branded hotels tend to have lower CPA (just like hotels with higher ADR and bigger room inventory), while CPA for smaller independent hotels is not very different from the average OTA commission. Having a lot of direct bookings does not necessarily mean higher profit; and understanding the hidden costs of any reservation is crucial to achieve and maintain a healthy and profitable mix. OTAs are just tools; use them accordingly. “Stop Clicking Around” is a great opportunity to cut distribution cost for Hilton, but not necessarily for smaller hotels, especially if with fewer rooms to sell at below average prices. For smaller hotels, stick to basic high return advertising campaigns and prefer commission model over CPC with metasearch ads to minimize the risk without being completely out of the meta game.