Scenario 1: Hotel A gets 70% of bookings through OTAs.
Due to such dependencyon OTAs, it pays an exorbitant commission fee from its earning. At the sametime, Hotel A has to deal with higher rate of booking cancellation, which isagain bad for its financial health. Moreover, Hotel A does not even get tomaintain its customer database as its OTA partners don’t provide guests’ mailids and other contact details.
Now let’s look at the scenario 2: Hotel B receives a sizeable amount ofbookings via its website. The booking engine integrated into its brand websitenow delivers around 60% – 65% of booking. Due to less dependency on OTAs, nowHotel B saves big on its commission pay-out. Moreover, it has to deal with amuch lesser percentage of booking cancellation. Most importantly, Hotel B nowmaintains its own customer database to use the same for further communicationswith its guests.
So, what exactly has worked well for Hotel B? The answer is simple – Hotel B clearly understands the importance ofdirect booking and it has taken all possible steps to generate maximum directbookings while methodically lowering its reliance on OTAs. Impact of direct bookings – Higher direct booking, higherprofit marginJust imagine, with an average of 20% to 25% commission rate, the kind ofamount a hotel pays when it gets over 70% of its bookings from OTAs. Now, howit would look when the same hotel generates around 70% bookings directly andfor rest 30% still comes through OTAs. The entire revenue earned via directchannels goes to the hotel. In other words, with direct booking your hotel’s acquisition cost perguest also goes down.
Additionally, direct booking leads to 2X average increasein booking value compared to OTA. Additionally, according to SiteMinder,average booking value on direct hotel website is nearly double compared to thaton third party channels. Now, does not it add to your hotel’s bottom line?Less booking cancellation, lessworriesHotels have to deal with around 40% – 50% cancellation of bookings thatthey get from OTAs. Reason – guests tend to book with multiple properties whilebooking via an OTA. They generally do it as they wait till the last minuteuntil they finalize the destination. Ultimately, they have to keep one bookingand abandon the other.
This translates into ‘lost revenue’ and this gets more serious with theabsence of a well-planned revenue management strategy. It can also throw ahotel’s occupancy forecast off the track. However, for a hotel that acquires maximum direct bookings, things canstill improve. Researches show that a hotel faces around 18% to 19%cancellation of bookings that it gets from its direct channels.Grow your customer database, talkto them directlyMany OTAs have this policy of not providing guest mail ids to hotels.Now, this move prevents hotels from communicating with their guests post-stay.In a guest service industry, it’s a must for hotels to know and understandtheir guests to serve them better.
When a hotel draws maximum direct bookings,this issue is automatically resolved. With every booking, a guest has tofurnish personal details like phone number, mail id etc. With such gold mines of information at hand, you can communicatedirectly with your past guests. Send them targeted communications/promotions. Tell them how you keep trying to make their nextstay memorable. They like it all and more likely, they would keep coming backdirectly to you. Higher brand recall If impressed with your services, guests coming to your property viadirect booking will remember your brand.
They would say ‘the bar is amazing inHotel B, it has all the single malts in it’, or they might say ‘rooms are tastefullydecorated in Hotel B’. They are more likely to book with you directly. But, it would not be same with guests coming via OTAs. They keep lookingfor multiple cost-effective options and OTAs offer them what they want.
Thus itprompts them to book with another brand resulting in a loss for your hotel. In the next blog, we will discuss about various way to improve directbooking capabilities for hotels.