Hotels are often frustrated by the increasing fees charged for bookings by OTAs, and they try to encourage more direct bookings in order to circumvent the OTA system completely. The fact is, however, that billions of dollars of room revenue are generated by OTAs every year. And it’s in a hotel owner’s best interests to collaborate successfully with OTAs. While most hoteliers don’t have the bargaining power of a Marriott, with the right systems in place, hotels can use their own data and analytics to optimize their contract negotiations with OTAs.
Use Your RMS to Negotiate with OTAs
OTA commissions are a percentage of room revenue, so the amount you pay rises with any increases in room rates. OTAs can eat up your profits by taking 15 to 30 percent bites out of your guest-paid revenue. The forecasting and historical reporting functions of an advanced revenue management system (RMS) can help you distinguish between the incremental revenue OTAs bring during need periods versus the revenue-diluting effect they create during peak periods. You can compare this data to OTA production reports to analyze how well each OTA is contributing to your business goals. For example, if your group and in-house business is strong, you may not actually need some of the more expensive OTAs.
Closely monitor your booking pace, and use demand forecasting to optimize your pricing by understanding who will be staying at your hotel and when. During forecasted periods of high demand, arrange to place limited inventory on intermediary sites when possible, taking advantage of OTA marketing power at a reasonable ROI. By understanding the market factors that are affecting your hotel demand, alongside your booking patterns, position in the market, and future events, you will create a more effective revenue management strategy that optimizes your performance on OTA channels as well as through your direct channels.
More Direct Business Improves Your Bottom Line, But…
In general, direct channels, such as your proprietary website, mobile apps, and voice deliver a 10 to 25 percent premium over revenues booked through OTAs and GDSs. And with direct distribution you own the customer, or at least their data. You can collect and analyze relevant data to create detailed customer profiles and use those profiles to target your highest value guests with one-to-one marketing messages that speak to their personal preferences, generate upsell opportunities, and increase incremental revenue. But it’s often difficult to attribute the marketing costs that drive direct business, so those costs sometimes get overlooked – making the margin differences between direct and OTAs harder to evaluate.
For the majority of hotels, it’s not realistic to think you can rely solely on direct bookings to bring in business, any more than you should rely solely on OTAs. You can watch, wait, and hope that the result of Marriott and Expedia Group’s negotiations will lead to decreasing commissions for hotels everywhere. Or you can use an RMS to focus on ways to optimize all your distribution channels. To regain better profit margins, gain a better understanding of how you should be working with OTAs, and focus on boosting direct business when you can. By investing in the right technology and digital marketing techniques, you’ll better utilize OTAs to achieve your business goals.