With Online Travel Agents (OTAs) continuing to leverage their ever-growing market power, both rising costs and an increased loss of control over distribution are undoubtedly major concerns for many hoteliers. Normura Research estimate that within the European marketplace, OTAs could control over 60% of the online market for hotel rooms by the end of 2015, while recent figures released by TRI for the London hotel market show that commission levels are growing at nearly twice that of room rates. Looking solely at these percentages, it would seem that the poor old hotelier is increasing being exploited by the evil and increasingly dominant intermediaries, a theme that has been exploited vocally by many in the trade press.
But looking at these figures blindly in this way takes a pure accounting, rather than a marketing or strategy, perspective. What these figures fail to consider is the opportunity cost of not working with the OTAs, which given the latter’s current marketing power would effectively mean not selling the rooms in question, making the cost equal to the room revenue, or 100%! Of course hotels argue that they themselves could successfully win such business if their customers were not systematically being siphoned off by the OTAs. But what they often fail to realize is that, if they were to be successful, doing so would indeed decrease their troublesome commissions, but would at the same time massively increase their other marketing costs.
Not only would they have to invest in developing significantly better brand.com websites in order to be able to convert lookers into bookers, but they would also have to make increased use of a much more extensive portfolio of online marketing techniques to let customers know that they even existed. In effect they would be swapping one line of costs for another, and for the strategy to work, the latter would have to be substantially higher that what hotels currently pay in OTA commission, making any supposed savings mute. And of course OTA business is totally pay-for-performance ? no bookings delivered means no cost. In contrast struggling to drive business directly means increased investment with little guarantee (or in many cases, given the level of professionalism, or lack thereof, of current efforts, even likelihood) of success.
The issue of control is more sensitive. Hotels claim to wish to manage both their own inventory as well as the relationship with the customer, and claim that OTAs currently interfere with both processes. But in reality it is hotel properties that control inventory, with the ability to turn any particular channel on and off at will, provided of course they have taken the necessary preparations to fill their rooms in other ways. Unfortunately many hotels want their cake and to eat it too. They want to make use of the OTAs to drive business when times are bad, but keep all their inventory for themselves when times are good ? a scenario that gives little opportunity to their OTA partners to make money. Similarly in terms of owning the customer, short of giving loyalty points that can rarely be burned, few make any consistent and serious efforts to actively manage their relationship with the guest, in contrast to OTAs who are increasingly creating highly innovative frequency and loyalty schemes.
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