We have been wrong about online travel agency-hotel commissions the whole time

Commissions paid by hotels to intermediaries have risen by more than 7% over the course of the last year.

This is according to the 2017 Trends In The Hotel Industry study from CBRE.

This is ringing alarm bells across the industry.

Not only because it eats further into hotel profits, but because it is also the clearest sign yet that we have been thinking about the booking ecosystem the wrong way around.

NB: This is an analysis by Matthew Stubbs, CEO of BookingTek.

Most industry observers were expecting to see intermediary commissions falling. Hotels have successfully upgraded their loyalty schemes and launched new marketing campaigns to encourage guests to book directly.

The rationale goes that if customers are encouraged to book directly, and are incentivised to do so, a proportion of them will.

But this doesn’t appear to be happening. We have to look again at our assumptions because something is clearly going wrong.

It’s not wise to launch intermediaries first and add direct booking second

I think the most common error has been to underestimate the power of launching direct booking first.

Many believe that the order we launch our online booking facilities doesn’t matter; that, as a hotelier, it makes no difference whether you launch a direct booking platform first or list your rooms on third-party websites first.

But, it does make a difference. It makes a huge difference.

Because the first booking channel launched gets a head-start on building a trove of customer data, such as names, preferences, travel history, and email addresses, that can be leveraged for marketing.

In the bedroom booking space, for example, OTAs got a three-to-four year head start on direct channels.

Within a few more years, third-party websites had ownership of a wealth of customer data.

It’s now very difficult for even high-quality direct booking channels to have a major impact when they are launched.

The intermediaries are out in front, leveraging their stash of emails and data to counter hotels’ offers with clever marketing and better discounts, increasingly engaging customers in very personalised ways.

This would explain why it is difficult to reverse the rising tide on commissions.

Undoubtedly, it is also true that as intermediaries get a firmer grip on the market, they also have the power to increase their fees. But the role of data is also very big.

The industry needs to think twice before hitting the repeat button

The lesson is that hotels should not list on intermediaries as a temporary booking solution.

They can’t list on OTA sites and then expect to easily attract those same customers to their own direct booking channels at a later date.

Over the last 12 months, hotels have sensibly placed more focus on additional facilities and services, such as meeting rooms and spa facilities, to boost revenues.

Increasing revenues from these sources have been particularly effective due to the global decline in tourism.

Many hotels have also turned to online booking to push revenue, making these facilities easier and quicker for customers to book.

But intermediaries are also looking at these same secondary products right now.

They can see an opportunity to increase their own revenues too.

The CFO of TripAdvisor recently said he sees “hotel-like” commissions in the tours and activities business, for example.

It is in this context that these same intermediaries are tempting hotels to list their additional facilities and services on their websites first.

Executives may be thinking that this is a sensible short-term strategic move, and that they will be able to win customers back to direct booking channels in the future.

But if analysis of the bedrooms business is correct, then hotels risk losing these customers to intermediaries forever.

If hotels launch on third-party booking websites first, they are effectively gifting over these customers long-term.

Peaceful co-existence is possible

This is not to say that direct and third-party channels cannot coexist. They can. And they can do so peacefully.

In any successful long-term strategy, there must be a balance, and intermediaries will always have a role to play in creating it.

However, to truly thrive, the evidence suggests that hotels need to launch direct digital booking channels first; collect and collate all their customer data; and then add on third-party sources to secure valuable “top-up” business – customers who wouldn’t have booked through the hotel otherwise.

As hotel executives turn to additional services and facilities to generate more revenue, they should make sure they launch direct booking channels first.

Loyalty schemes and other incentives won’t bring guests back in the long term. Once customers have booked through third-party sites, it’s difficult and expensive to win them back.

NB: This is an analysis by Matthew Stubbs, CEO of BookingTek.

NB2: Hotel money image via BigStock.

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