Any accommodation supplier from 5 star luxury hotels to boutique bed and breakfasts should read this timely article on hotelsmag.com.
In short, invest in your own website and push bookings through suitable direct channels and hotels can reduce their client acquisition cost by almost 9 times.
Or even simpler – dont place all your revenue eggs in the Expedia, Booking.com et al basket even if the OTA are selling themselves as marketing portals.
Here is an edited resume of the article:
HeBS estimates that 45% of hotel bookings in 2010 will be via the Internet (direct + indirect online channels).
How did the top 30 hotel brands do in the direct online channel in 2009? eTRAK reports that 70.9% of online CRS bookings came from the direct online channel (i.e. the major hotel brands’ own Web sites), while 29.1% came from the indirect online channel (the Online Travel Agencies-OTAs like Expedia, Orbitz, Priceline, etc.).
This constitutes an increase of the contribution from the OTAs compared to 2008, when 75.2% of online bookings came from the direct online channel, while 24.8% came from the OTAs. Compare this to 2007, when the direct channel contributed 76% of CRS Internet bookings.
In other words, since 2007 we have witnessed a significant shift from the direct to the indirect online channel and an increase in the OTAs’ market share.
This is a serious setback for the hospitality industry and a return to the old bad practices of the post 9/11 era.
Since mid-2008 travel supply has outweighed demand and hoteliers have been more susceptible to panic, resulting in deep discounting and embracing of the OTAs.
Not All Internet Bookings are Created Equal
Why should hoteliers care where their Internet bookings come from? The following case study clearly illustrates the cost effectiveness of the direct online channel:
• Direct Online Channel (Hotel Web site): US$12.92 per booking
(Cost per booking via the hotel’s own Web site, including site hosting and maintenance fees, marketing spend, campaign management fees, and Omniture analytics. Based on 530,000+ bookings in 2009 via hotel websites from HeBS’ hotel client portfolio)
• Indirect Online Channel (Online Travel Agency-OTA): US$107.57 per booking
(Based on average 2009 ADR in NYC = US$215.14 and 2 night LOS = US$430.28 x 25% OTA commission)
Difference between the cost of a Direct Online Channel and Indirect Online Channel booking = 8.3 times!
It is far more cost effective to sell your rooms via the direct online channel compared to the OTA channel (indirect online channel). On an annualized basis, just imagine what this difference in distribution cost constitutes for a typical New York City 200+ room hotel.
Naturally, we do not envision a scenario where 100% of Internet bookings are made via the direct online channel. The OTAs and other players in the indirect online channel do play a needed role in certain areas of the travel planning and purchasing process e.g. dynamic packaging (air+hotel+car+tour) for leisure destinations. Even in pre-Internet years, approximately 25% of all hotel bookings in the U.S. came via the indirect channel (travel agents, tour operators, etc).
Now, 15 years after the advent of the Internet distribution channel, the most cost efficient distribution and marketing channel ever, the indirect channel contribution should not be higher than 25%. On the contrary, due to dramatic changes in travel consumer behavior, and the inherent demand to deal with the “manufacturer” of hotel and travel products (i.e. travel suppliers like hotels, airlines, car rental companies, etc.), we should be witnessing a decline in the indirect channel contribution. What we should not be seeing is the current industry average of a 40% OTA contribution.
Just imagine the cost savings if 5%, 10%, 15%, 20% or more bookings are shifted from the indirect to the direct online channel!
In addition to being the most cost effective distribution channel, the direct online channel provides long term benefits and competitive advantages:
• Reduces dependence on OTAs and expensive traditional distribution channels
• Prevents brand and price erosion
• Cross-Channel / Multi-Channel marketing and customer engagement
• Allows the hotel to “own” the customer
• Builds brand loyalty
• Engages customers pre-, during, and post-stay
The Bottom Line: Invest in the Direct Online Channel
Hoteliers need a robust Direct Online Channel Strategy, accompanied by adequate marketing funds, to be able to take advantage of the steady growth in the Internet channel and the shift from offline to online bookings in hospitality.
Hoteliers must carefully employ ROI-centric initiatives including website redesign, website optimization and SEO, paid search, email marketing, online display advertising and sponsorships, mobile marketing and proven social media initiatives.
Even in this economy, you should not decrease or eliminate your hotel Internet marketing budget. The Internet, and especially the direct online channel, is the only growth channel for hoteliers and the only “light at the end of the tunnel” in this environment.
Market researchers envision growth rates in online travel as high as 11% in 2010 as projected by eMarketer. The online channel, and especially the direct online channel, provides hoteliers with the only viable option for any growth during these trying economic times.