Hotel Industry Blog

Hotels Must Work Collectively To Champion Direct

By Des O'Mahony | On Fri, March 03, 2017

The industry saw a strong return to focus on direct-to-website online business from the big hotel chains in 2016, with campaigns from Marriott, Hilton, Hyatt and IHG attempting to push the customer from online travel agents (OTAs) to the direct hotel website route (see Skift). The chains are fighting back against OTA dominance to woo the customer directly, and are clearly prepared to pay to do it. Their action alone should be an example to independent hotels that there is a serious issue to be tackled here, and that they too must engage.

But the chains have very significant resources to take on the OTAs and counter their advertising. What can an independent hotel do against the OTA onslaught? They key is for hotels to work together and leverage the scale of the industry itself.

It’s not the product, it’s the route…

Before we address actions, let’s step back and look at context. The competitive issue for hotels is quite unusual versus other industries. With most industries, you live or die on how you shift product or gain customers versus your competitor. But where hotels suffer real competition is on the route to sale and the relative costs of those routes, not on the ability to sell.

routes
Hotels don’t have a product problem, they have route-to-sale problem. OTAs have optimised their route to sale while the lack of collective action by the hotel industry has blocked opportunity on the direct route.

Getting the right mix of routes to sale is the key to profit generation in hotels. Shifting more sales to the direct-to-hotel route means saving on OTA commissions. But successfully getting that shift means spending money elsewhere - on advertising, on web presence, on technology. This is where hotels are challenged, balancing what needs to be spent versus the gain.

Individual hotels rightly wonder if their digital marketing spend can have any meaningful influence on the rise of OTAs. The perception that OTAs have endless online advertising budgets compared to independent hotels is technically correct, but it’s not the whole story. Priceline, the parent of Booking.com, apparently spends over $3 billion ($3000 million) on online advertising annually. But remember that Booking.com lists over 1 million properties, so this equates to $3000 or so spend per property per year - a figure that individual hotels should easily top. So the total amount being spent by the OTAs is not necessarily the issue, it is how it is being spent - and how optimised, targeted and single-minded it is - compared to the highly fragmented approach of individual hoteliers. Think laser versus blunderbuss.

But the route is not always visible

What’s worse, OTAs are now leveraging their brand and customer tie-in position to move their customers onto mobile apps in the next phase of sales route dominance. In the mobile app, no amount of online budget will help hotels - the customer is locked into the route with no advertising distractions allowed. Customers of course like the app route and gain from it precisely because hotels give cheaper prices and special offers to the OTAs to use on those routes - hotels themselves are enabling the creation of a business model that will drive down their own pricing, ensure cost of acquisition rises, and against which they cannot hope to compete.

Obviously as OTAs build stronger and stronger usage of the app route rather than the web route, online advertising by hotels would have comparatively less and less effect. This is already happening. I would bet that most hotels have no idea if the OTA guest arriving has come from the web route or the app route - but it would be sensible if hotels asked and started to find out!

What to do?

OTAs do a great job at getting business, but should not be ceded business that hotels can readily service themselves. This is the hotels’ fault - you cannot blame OTAs for taking business that is easy to take. Hotels can only hope to compete if they genuinely work together to change the way the customer thinks. It can be done, but it takes hotels and hotel organisations to get fully behind it and start thinking in terms of their industry rather than in terms of their own individual business. That’s the tricky part - the hotel industry needs to act collectively.

1. Champion Direct

Hotel websites need to clearly show customers that booking direct gets them something better. There is no point encouraging a booker on your website with the same price and same features that an OTA guest will have. You will lose that sale. It must be better direct. Better.

What are you giving the direct booker that you are not giving the OTA booker? Access to spa or treatments at preferential rates, vouchers to use for f&b discounts at the hotel, guaranteed upgrades or superior rooms compared to non-direct customers, late checkout, early checkin, discounts on future stays?

Define that direct advantage and champion it on your website and on advertising within your hotel. Hotels must educate the booking public that direct brings real advantages compared to OTAs, but hotels need to make sure there really is a clear advantage first. This is not happening universally and hotel organisations need to be educating hotels and encouraging them.

2. Think Collectively

Every single customer that arrives at your front desk from an OTA should be told on check-in that by booking direct they would have gained more advantage - those you’ve already defined in point 1 above. Your staff should be required to do this based on the OTA arrivals list every single day.

But more importantly, ensure your staff speak for your industry and remind OTA customers to book direct every time they travel, not just at your hotel but at any hotel. Spread the word for your industry that direct is best. What comes around goes around, and if every hotel encourages direct then every hotel will benefit.

3. Recommend Direct Alternatives

Your booking process should be smooth and simple, and should recommend alternative dates and packages when a chosen date or package is not available. That’s a given. But again, thinking in terms of your industry, your system should offer alternative hotels nearby right within the booking process if you cannot service the guest - don’t let the guest leave and go to an OTA when they are already engaged on the direct route.

Bookassist’s booking engine allows hotels to offer their own selection of alternative accommodation right within the booking process if there is no availability for your hotel. With reciprocal arrangements, hotels in an area can pass business to each other in this way and recommend direct booking at other hotels. This helps keep the direct booker within the direct community, and it actually works. We see significant engagement with alternative accommodation advertising.

Bookassist hotels can offer their own selection of alternative hotels within the booking engine, encouraging customers to stay on the direct route even when your hotel has no availability.

Bottom Line

Only by genuinely working together as a collective can independent hotels hope to move the dial back towards direct business. The traveling customer must be made aware that booking direct will bring them advantages, and the onus is on hotels to educate their customers for the benefit of all hotels. OTAs will continue to capitalise on a lack of collective action by hotels. It’s time hotels and their associations and organisations moved their thinking towards the bigger picture and began speaking with one strong voice.

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Dr Des O’Mahony is CEO and Founder at Bookassist (http://www.bookassist.com), the multi-award-winning technology and digital strategy partner for hotels worldwide, and is a HSMAI “Top 20 Extraordinary Minds” recipient.


Five Things Hotels Should Stop Doing In 2017

By Des O'Mahony | On Thu, December 22, 2016

This time of year is great for resolutions and lists of things that one should adopt for a new beginning. But developing good habits is hard work, and without some instant gratification it can quickly become a chore. However, making small changes to existing practices can sometimes be easier and can ultimately reap rewards. Specifically, stopping doing things can sometimes be easier to engage with. Here are existing hotel practices that really need to change, and 2017 is the opportunity to see if you can begin making it happen.

1. Stop treating your website as a hobby

We continue to see hotels relegate their online and mobile presence to an afterthought at worst, or a secondary fill-in strategy at best. Your hotel’s online and mobile presence needs to be front and centre of your entire strategy - not front and centre of your online strategy, but of your entire strategy.

Failure to consider your direct sales strategy first and distribution second automatically means that by design or (likely) by default, your organisation will favour sales via more costly distribution – because it seems easier. Worse, it causes your organisation to build a reliance on non-direct business and removes availability from the direct channel which causes further reductions in your capability.

In 2017, hotels need to stop thinking of their website/mobile sales as a bonus. Instead the attitude should be that anything not being sold on the website/mobile is a problem that needs to be solved. There must be strong and clear ownership of the online presence in every hotel and that strategy needs to take primacy. Accept that your website is no longer a hobby, it is a sales-generating machine, so allocate the financial and personnel resources it deserves or your business will be dictated by external parties if you do not. Can you make a change here in 2017?

2. Stop hiding third party commissions from your accounts

Understanding real cost of acquisition and developing practices to track it is crucial. The sad reality is that most hotels do not really know their cost of acquisition per distribution channel and specifically how it compares between direct business and indirect business. One of the strongest reasons for this lack of visibility is actually the accounting practices of hotels.

Two issues occur which obscure the real cost of your distribution.

The first issue is the “post sale” treatment whereby hotels do not budget in advance for how much they are willing to pay out in commissions to OTAs. They simply write the cheque for commissions once the guest has stayed. This creates a scenario where there are no restrictions on what you will allow OTAs to deliver to your hotel, even though every room sold via an OTA can be a lost opportunity to sell that room via your direct online presence at a higher profit. Worse, your accounts probably record all of those costs together as an innocuous-looking cost of sale line without breaking down each OTA as a specific cost line. The result is unchecked and often invisible expenditure on OTAs.

The second issue is where wholesale commissions are not recorded at all in the P&L. Take this example from Fáilte Ireland’s recent excellent report on Cost of Acquisition (http://bit.ly/2ieWJOS):

  • A guest books through a merchant model online travel agency and pays the OTA €200, plus VAT, including a contracted mark-up rate of 20% that was previously agreed upon by the hotel with that online travel agency.
  • Your hotel-collected revenue is recorded on your hotel’s profit and loss statement as €160 from the guest, but €218 is what the guest actually paid, (inclusive of VAT @9%) [the Guest Paid Revenue]
  • The OTA collects its €40 commission before the guest even enters your hotel
  • There is no place to record the €40 as a customer acquisition expense in the P&L.

The lack of visibility on real costs of distribution negatively influences strategic decisions. Hotels need to take steps to fix this issue and ensure that the data necessary to properly inform strategy is no longer hidden. Can you make a change here in 2017?

3. Stop putting barriers on your own marketing

Ironically, while OTA commissions are often paid “post-sale” with no real constraint (or visibility) on their true magnitude, hotels’ accounting practices will begin the year by trying to restrictively budget on what they are prepared to spend on their own online marketing and online presence. In other words, hotels view their own marketing on a “pre-sale” basis - asking what am I prepared to spend to get direct bookings – which often restricts spend.

In contrast to the post-sale approach, this often leads to immediate barriers on a hotel’s own success. Take this simple illustration of why a simplistic approach to budgeting for online marketing can result in lost opportunity:

Your hotel has a bar. You sell Guinness. If you run out of Guinness half way through the month, you don’t say to customers: “Sorry, we’ve exhausted our Guinness budget for this month, we have no more Guinness, go next door if you want some”. Instead, you buy more Guinness, and you will keep buying more Guinness as long as there is an opportunity to sell it.

Spending on online marketing also needs to be viewed this way – you keep buying more advertising as long as you have opportunity to convert at profit. Yet we continually find hotels capping their spends because of pre-defined budgets even when we demonstrate that there is still opportunity to get a return on online investment. You are sending customers elsewhere by not engaging with the opportunity.

Hotels need to think hard about why they continue to apply an outmoded budgeting/restriction approach to a new more dynamic marketplace where opportunity needs to be seized and where returns on investment can be measured quickly. Can you make a change here in 2017?

4. Stop incentivising staff on revenue

The consequences of some of the foregoing, particularly the lack of visibility that many hotels have on the real cost of acquisition, means that many staff responsible for business acquisition continue to be incentivised on revenue. This practice needs to stop, since incentivising revenue alone actually encourages more sales via the easier OTA path at the expense of direct sales.

In today’s marketplace, getting revenue is relatively easy. The battle is getting revenue at the lowest acquisition cost. Since profit is the aim, so that capital is made available for business development, hotels need to focus on NetRevPAR and eliminate old metrics. NetRevPAR is calculated as the Guest Paid Revenue (as defined in the example above) less total acquisition costs, divided by number of available rooms. It focuses on what you as a hotel are left with from what the guest was prepared to pay.

Put simply, incentivising staff to maximise NetRevPAR means that there is a required emphasis on lower-cost distribution such as direct-to web. Can you make a change here in 2017?

5. Stop believing that you can’t compete

Recent reports show Expedia spends about 28% of its revenue on online advertising. Booking.com spends more now on metasearch marketing than on Google advertising, and both figures are in the gazillions. Hotels often feel that the game is up and they can’t compete. But the wildcard here is the customer, who is increasingly savvy. And that means they shop around and they do seek validation by visiting hotel websites.

Therein lies your opportunity to convince and sell, to demonstrate that booking direct gets them something they don’t get on OTAs. Showing the same prices, features and conditions on your website as on an OTA means you will lose. You must demonstrate that direct customers are different and are something you want to encourage, and that requires clearly answering the online guest’s question of “What’s in it for me?”. If you understand how to do that, you actually can compete and you can redress the imbalance with OTA sales in your favour. It’s not rocket science but it does require effort and focus, and spend.

Can you make a change here in 2017?
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Dr Des O’Mahony is CEO and Founder at Bookassist (http://www.bookassist.com), the multi-award-winning technology and digital strategy partner for hotels worldwide, and is a HSMAI “Top 20 Extraordinary Minds” recipient.


Pay or Pass - The New Reality of Customer Acquisition Online

By Ciaran Rowe | On Tue, October 04, 2016

The last year has seen significant changes in the way hotels can attract and convert guests through their direct website channel. Some of this change has been driven by updates from big players such as Google, while other aspects have been brought about by changes in user behaviour. Either way, the effect is the same: it is costing more to generate direct traffic and organic traffic is being increasingly replaced by paid traffic. If you’re not paying, you’re less and less in the game.

Changes in Google search

While Google is still the undisputed leader of traffic generation, recent changes in their search results page layout have changed the balance between paid and non paid real estate on the page, which means a reliance on Google for website traffic has now become more expensive than ever.

Some sample changes include (see Figure 1):

  • Expanded ads and sitelinks - bigger ads mean more of the page is dominated by ads and less by organic
  • More ads at the top of the page - up to 4 ads at the top compared to 2 or 3 in the past is pushing organic results further down the page
  • Increased number of ad extensions - these are the text additions below the main ad body which include everything from sitelinks to a list of facilities and unique selling points (USPs).
Figure 1 - SERP October 2016
Figure 1 - SERP October 2016

The combined effect of all these changes is that less users are finding your hotel organically and more and more are using paid clicks to reach your site. A typical scenario would be that for a brand name search, where someone directly searches for your hotel name, your own pay-per-click (PPC) ad is now joined by up to 3 other ads from review sites and competing online travel agents (OTAs). This leads to your organic listing being pushed further down the page and an increase in the likelihood that a user will click on an ad rather than the organic result.

This picture is even more dramatic on the smaller mobile screen, with users needing to scroll through up to 3 screens to reach the organic result, as shown in Figure 2.

This situation is likely to become the norm and indications are that it could soon become even harder to reach the organic result, with the latest test from Google moving the company’s own hotel ads booking widget from its previous position in the right of the page to pole position at the top, above the PPC ads. This makes paid channels even more prominent at the expense of organic.

Figure 2 - Mobile SERP October 2016
Figure 2 - Mobie SERP October 2016

Changes in user behaviour

While searching for a suitable hotel to book, users are bombarded by messages from every quarter, all promising the best deals and options. So it is no wonder that the customer journey is getting longer, with multiple touch-points along the way.

Users choose to research on multiple platforms, using multiple devices, at various times of the day as they gather information and move towards decisions. This dramatically increases the potential cost to an advertiser of reaching their potential customer along this complex journey. In addition to this, many users are now on ‘closed networks’ that cannot be accessed by advertisers. Such closed networks include users using a downloaded OTA app for example, rather than a search on Google, or someone who bases their decisions on information gathered from social media networks. The move to mobile has accelerated this behaviour, making it even more urgent to develop a coherent strategy for improving direct business.

The choice is clear - engage more strongly with these users through paid channels or risking passing them to competitors or third parties. However, just throwing money at the problem is not the solution. You need to make the most of the various paid channels by using all the tools at your disposal correctly and strategically.

Use your data

Given the changes highlighted above, it is more important than ever to maximise the conversion of existing users and this is where advertising networks come to our aid. As usual Google is at the forefront, with a variety of options to help leverage your existing data.

  • Remarketing - presenting a recurring message to users who have previously visited your site - is achieved by creating an audience of visitors either through Google analytics or by adding remarketing code to your website. Once a user visits your site they are added to this audience and you can then present them with a tailored message while they browse other sites on the web to encourage them to return to your site and complete their booking.
  • RLSA - remarketing lists for search are similar to remarketing but they work directly in Google search rather than on Google’s display network of websites. This allows you to customise bids for searchers on Google who have previously visited your website, while they are actively searching on Google, so you can decide to pay a premium to capture a click from a user who is already familiar with your brand but may be tempted to go elsewhere.
  • Customer match - again this works by creating an audience, but instead of users who have visited your website, it allows you to harness the power of your email database by presenting a message to users who have an existing relationship with your hotel while they browse the web.

Other options include remarketing through Facebook which works on the same principle as Google and allows you to target users who have visited your website, but this time while they are browsing on Facebook, or consider using cart abandonment tools (see Figure 3) to present a message to users when they leave your site.

Figure 3 - Cart abandonment pop-up example

Meta search or free listings?

Most hotels are already present on the major meta search players such as Trivago, TripAdvisor, and Google Hotel ads, but these listings are effectively useless for generating direct bookings unless you are willing to pay. The major OTAs dominated this area until recently but more and more hotels are now consolidating their position online by bidding to appear in these searches. It makes sense that if a user is actively searching for your property, and your ad will appear only if you have availability for their chosen dates, that you should try and wrestle that user away from third parties and towards your own site.

In addition to giving hotels the opportunity to compete directly with OTAs for their customers, participating in metasearch platforms encourages the use of stringent rate management and allows for additional insights into customer behaviour.

Get smart

With the increased costs involved in customer acquisition, we need to use budgets in a clever way to maximise returns at the lowest costs. The old mindset of spending X to generate Y is obsolete and needs to be updated to reflect the current reality. Instead of looking at individual budgets on each platform we need a more holistic approach, with the use of a bundled budget. This requires a leap of faith and assumes a competent digital marketing provider, but the objective is to maximise revenue across all platforms rather than focussing on them individually.

The basic premise is to analyse performance across multiple platforms regularly and to shift budgets according to performance to achieve an agreed overall target. So for example if PPC on Google is not performing well, but hotel ads are, then budget should be moved away from PPC towards hotel ads, until such a time as performance changes and budgets need to be adjusted again. It’s a continually iterative process.

Bottom Line

The landscape has changed but with a little effort and some additional costs, good results can and will be achieved. We recommend you consult with the experts on these fast-moving issues, and you will find the Bookassist Digital Marketing team always ready to give you up to the minute advice.

  • Examine all the available platforms and see what will work best for your property. You don’t need to appear at every possible touch-point, but you should decide which ones are key and invest in them.
  • Forget about return on investment per platform and look at the overall growth in traffic and business through your paid digital marketing initiatives.
  • Keep on top of the latest trends and examine how users are responding to your message so that you can constantly update and refine it.
  • Remember, although there is a definite push towards paid platforms, organic traffic is still an important part of the mix, so don’t neglect your SEO and social media engagement.

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Ciarán Rowe is Senior Search Specialist at Bookassist (www.bookassist.com), the multi-award-winning technology and digital strategy partner for hotels worldwide.


Towards A Smarter Distribution Strategy

By Des O'Mahony | On Fri, June 10, 2016

Has profit growth in the accommodation sector kept track with ADR or revenue growth? Doesn’t look like it. Undoubtedly costs are rising and eating into profit, but some of these costs may be more under your control as a hotelier than you might think. Finding the time to actually think critically about this is the key, because there are no quick and easy (sustainable) solutions to improving profit and it takes time to analyse your position and consider alternatives to your current mode of operation.

Focusing on improving your distribution costs in particular, or making those costs produce better (or work harder) for you, is something you cannot afford not to do. Many of your distributors may be far better at getting a cut of the upturn than you are. A buoyant market is an opportunity to capitalise, and lowering distribution cost rather than jacking up rates is the sustainable way to do that.

Making A Start – 3 Steps

I have a simple (simplistic in fact) 3-step approach for any hotelier starting to really analyse their distribution and rate strategy, namely:

1. Recognise that anyone selling rooms in your hotel is your competitor

The idea here is to assume that your best position is to be selling every single room at an optimum rate yourself (directly on your website) and that any other approach is going to cost you profit, i.e. someone else is benefitting from the service you are providing. This of course assumes that you know what an optimum rate is (which you should be actively managing), but for now let’s focus on the distribution end.

2. Only release rooms to distributors (competitors) if you cannot find a way to sell those same rooms directly on your website at a lower cost of acquisition and

3. Prioritise distribution channels based on profit retention, not revenue.

We know we can’t sell everything only on our website. But giving anyone a share of your business should not be done lightly. The three steps above raise further issues that can help you shape your distribution strategy.

Who’s In Control?

Online Travel Agents (OTAs) do a very good job indeed in bringing you bookings and revenue. They do a very necessary job of allowing you to tap into markets you cannot otherwise reach. In fact they are so good at their online business that they are quite likely also to be taking a significant chunk of business that you could have taken for yourself at significantly lower cost.

Given their branding and advertising budgets, the question I am asked often is “How can I possibly compete with them?”. That’s the wrong question. That passive question needs to be replaced with the more assertive “Why do I let them compete with me?”. After all, you give them the rates and the rooms to do so.

Two critical areas where OTAs are growing rapidly and hotels seem to have turned a blind eye are on rate and on lead-in time.

Firstly, while the parity rules are finally changing across Europe, the real issue in rate is that hotels are funding the growth of private sale and loyalty clubs on OTAs by effectively giving them sub-parity rates so the OTAs can lock in more customers. If you are discounting so-called “private” rates on OTAs on the basis that it brings you extra business, have you analysed if it is indeed extra business or just replacement of full price business? If you are doing so, why are you not offering similar rates on your own website, using newsletter signup or promo codes to make them more “private” if necessary? Hotels need to seriously look at the consequences of helping OTAs to build their own private rate programs at the expense of their own profit.

Secondly, the danger in a high occupancy market is that hotels are so content with the here and now that they fail to see pick-up on OTAs in the very long tail until it’s too late. OTAs, largely saturating the short lead-in time market, have started aggressively pushing the long tail market 6, 9 even 12 months out, where hotels without active rate management have probably just loaded low rates and unchecked availability and look no further. Worse, if hotels are using most of the market leading channel managers to control distribution, those tools are probably putting open inventory on OTAs in the long tail with no checks at all! Without adequate rate and distribution planning, hotels are losing significant yielding capability from which the OTAs can profit. Hotels should shut down long tail availability on distribution channels until they are ready to manage it properly. Bookassist’s Distribution Management System allows this channel-by-channel control necessary for an effective strategy.

To counter these issues and regain control, you need to be confident you can build your direct business.

Is my direct-online strategy good enough to reduce distribution dependence?

Reducing dependence means improving independence. Enhancing your direct-to-web strategy so that you can stand on your own is a must. And it must be a real strategy, backed with facts and planned with deliverables, not just a secondary notion.

A direct-to-web strategy needs real coherence across website, branding, customer communication, digital marketing, rate strategy and distribution strategy. It needs priority and investment. Unfortunately, few hotels fully recognise this and the consequence is that the result of the effort is often poor.

A poorly managed direct strategy will always cost you more than you need to be spending, with poor results. Easy to see why some hotels just give up and give in to the demands of the OTAs. On the other hand a well executed and thought out direct strategy will pay dividends and not just in the short term. Direct strategy benefits are sustainable enabling you to reinvest in your direct brand rather than supporting someone else’s

Far too many times I’ve heard hotels remark that driving direct business is “too expensive” and maybe OTAs are worth it after all. Yet direct business is actually growing in the industry so somebody is doing it right and customers are clearly prepared to go direct!

Like nurturing a tree, it takes patience and investment, care and protection, to bring it to fruition. But the harvest is dependent on the work put in. If direct business to your website looks like it is costing too much in return-on-investment terms, then the solution is not to reduce spending, but to analyse why it is not as effective as it should be and take corrective action so you can reach industry standards. Companies like Bookassist play a critical role in the industry, empowering hotels to compete with the heavy weights and gain sustainable advantage. Taking the easy route and relying on everyone else to sell your rooms is not where you want to be going. The only way is down in that situation.

Time for relationship change?

What’s clear is that OTAs run a two-tier service level, where the big brand accommodation providers have less stringent contract terms and more favourable rates, while the independent hotels must fend for themselves in a one-size-fits-all world. Clearly hotels need OTAs, but hotels should ideally be able to change or select alternate service levels that suit both sides. It is perfectly reasonable to pay an OTA an increased commission if they have truly brought business you could not get elsewhere. But it should likewise be reasonable to be charged a far lower commission if they have used your preferential rates in special offers to deliver bookings.

Bidding by OTAs on hotel brand names is a key problem that the big brands have managed to severely limit. Why don’t independent properties have the option to limit bidding on their brand name? Seriously, independent hotels need to square up a bit more. At the very least hotels need to review their contracts with OTAs and attempt to regain control of the inventory that they know full well they could sell themselves. Likewise, OTAs need to review the relationship they have with hotels - isn’t it time they recognise that not all hotels have the same needs and so differentiate their service offerings to them just as they do for the big hotel brands? Independent hotels are easy pickings and unless hotels take an assertive position with regard to their inventory just as the big brands did, OTAs will just keep on getting stronger to the ultimate demise of profit and sustainability.

Bottom Line

The fact is that hotels are now much more tech-savvy than before, and can reach customers far more effectively online than was the case some years ago. The tools and technology available to hotels today can help level the playing field, if they are seized upon and used properly. But a passive approach to distribution will lose out to the professional and very active OTAs every time. You can’t blame OTAs for optimising their business, but you certainly make it easier for them to do so if you do not optimise yours.

Starting with the approach of “Anyone selling rooms in your hotel is your competitor” might be overly simplistic, but scrutinising your business from that protective position will certainly do you no harm at all.

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Dr Des O’Mahony is CEO and Founder at Bookassist (http://www.bookassist.com), the multi-award-winning technology and digital strategy partner for hotels worldwide, and is a HSMAI “Top 20 Extraordinary Minds” recipient.


You Need Smarter Rate/Profit Management

By Des O'Mahony | On Tue, April 19, 2016

In revenue management we have seen significant changes in approach in the last decade, from a relatively rigid set of yield management rules to a much more dynamic approach to rate and distribution in the longer tail. In parallel we have seen the development of systems and technology that can help with the management of rate strategy.

It’s rapid-upskill time for hoteliers. But unfortunately, many hotels have not really made the key transition from a shorter-term tactical approach to this longer-term more strategic view of their rates that is necessary today. In our experience in Bookassist, hotels are still not focusing on the essence of the problem – how to sell the right-priced product to the right person on the right channel at exactly the right time. If they are doing so, then they are typically focused on one or at most two months ahead. Discuss what’s happening to rate or yielding with many hotels for 6 months’ time and it is often a relative unknown. Just keep the rate high and worry about it later is often the tactical approach.

OTAs And The Long Tail

What is clear is that online travel agents (OTA) are now shifting their battle for business to the long tail, and therein lies very real danger for unprepared hotels. With the short booking window already dominated online by the OTAs, there is little room for their growth on a per hotel basis unless OTAs push their effective booking window out even further. But when they do, there are rich pickings for OTAs because many hotels are relatively blind to the long tail of their own business.

With hotels largely concerned with the red herrings of “rate parity” and “last available room” in the short term, their long term bookings are increasingly being swallowed up before they even see it happening.

OTAs are now actively encouraging hotels to give them more availability for the future months. At the Irish Hotels’ Federation AGM in February of this year, I shared the stage for a discussion panel with a Booking.com representative whose parting advice for hotels was to load more and more availability for 6 to 12 months out so that Booking.com could “help hotels to sell more”. (My advice was exactly the opposite – don’t load onto OTAs that far out unless you have to!). While hotels will of course get more bookings because of this strategy, the hotels’ opportunity to maximise profit and reduce dependence on OTA will be rapidly eroded just as it was in the short tail.

As we all know, there is nothing glorious about discovering you are fully booked for 6 months out. That’s just a wasted opportunity to yield appropriately and generate higher profit per room. But this is precisely what OTAs are now manoeuvring to achieve to their advantage. Don’t say you haven’t been warned.

Drivers For Revenue Planning

Hotels have to move from tactical short term views to an overall strategic approach. The real strategic view is to look at rate in the context of cost of acquisition so that you are really in a position to develop more of a long-term profit strategy than just a rate strategy for your hotel. In the ideal case, an optimum rate should be determined for every channel for every day of the year.

The ability to maximise rate and simultaneously yield appropriately to distribution channels is the new challenge. This can be quite a difficult to get right, but it pays very real dividends.

In working out a plan, the primary factors that should strongly influence your rate strategy on any given date are

  • Occupancy
  • Length of stay
  • Lead time
  • Day of the week
  • Season
  • Sales channel

Most of us would be familiar with the above, but in typical RM approaches the Sales channel would not have been considered a primary influencer. But it’s important to realise that revenue management is not just about getting the highest price on the day. The price elasticity curve is more complex than that these days since the customer has access to multiple sales channels for the same product (or more accurately, the hotel through its distribution policy has given the customer access to multiple sales channels for the same product).

In the drive towards maximising profit, which is the ultimate aim, there is often much more to be gained by reducing your effective cost of sale than by raising your rate. Redirecting your business away from costly online travel agencies and towards direct sale on your website can net you more profit even when accompanied by a rate reduction. Which is why, at Bookassist, we consider the sales channel as a primary factor in rate strategy. Concurrently, the direct sale gives you the best customer data of course, which you can leverage for pre-stay monetisation and post-stay marketing.

What’s interesting about these primary factors is that it is quite practical to automate a rate strategy around these parameters as most can be measured or assessed in software on a continual basis. Making decisions based on facts and figures is the aim here, as intuition is not always reliable in the long tail. We’ve seen a number of tools in the market in recent years which aim to help the hotel get a handle on this data that already sits in their PMS and is updated daily.

Secondary factors that moderate a rate strategy include (among others)

  • Events
  • Hotel historical performance
  • Cancelations
  • Competitive set
  • Pickup pace
  • Weather
  • Political issues
  • Segment specifics

In the case of these factors, they are much more hotel-specific and location-specific, and are not always entirely practical to automate. Their relative influence also can change very rapidly. Clear data on these should be used to influence the overall strategy that is determined by the primary factors in the first place, and the local knowledge of staff is a big advantage here. Think of these as manual tweaks to the overall plan which present more opportunities to maximise profit.

Putting A Plan In Place

Here are some steps you can take to ensure you are moving to strategic management of your profit.

  • Accept that rate and profit planning should be a scientific data-led discipline and is not best served by intuition.
  • Ensure you have the right person to lead rate strategy, trained in the discipline, up to date with the fast-moving distribution space, focused on improving direct business and capable of communicating the strategy to your organisation.
  • Adopt technology interfaced to your PMS to help you plan rate adjustments systematically based on the Primary factors, but retain manual override so that local knowledge can use Secondary factors to optimise your outcome on key dates. Systems that spit out rates without telling you the why and how are ultimately not going to help you understand and develop your strategy.
  • The focus should more strictly be on profit planning rather than rate planning alone, so rate per distribution channel must be considered.
  • Work to identify total cost of acquisition on a channel basis. Without real cost of acquisition knowledge, you cannot determine if a rate you set per channel is ultimately profit-optimised or not.
  • Remember that redirecting when possible your business away from costly online travel agencies and towards direct sale on your website can net you more profit even when accompanied by a rate reduction. Proper profit planning should push for redistribution towards direct where possible.
  • Aim to know what your ideal rate should be for every day of the coming year on each distribution channel, and why. Build a combination of short and long term strategies into your plan and review on an ongoing basis to ensure you always have a well-planned year-long window ahead of you.

Most of all, ensure you communicate the entire rate strategy to everyone in the organisation so that the reasons behind channel choice and rate are well known and are supported. If your plan requires changes in distribution strategy, such as shifting more towards direct, it is critical that everyone in the organisation is aligned with that aim and knows that the strategy will ultimately benefit the entire organisation through higher profit and more working capital.

This is particularly important if other individuals in your organisation are responsible for distribution channels that your new strategy intends to reduce – rather than seeing such moves as a threat to “their area”, clear communication of the overall strategy picture should help justify the changes and get people on board with the change. Indeed, incentivising those managing other distribution areas so that they can work with you to find ways to reduce their business and switch it to direct should be a stated (and incentivised) aim of your organisation.

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Dr Des O’Mahony is CEO and Founder at Bookassist (http://www.bookassist.com), the multi-award-winning technology and digital strategy partner for hotels worldwide, and is a HSMAI “Top 20 Extraordinary Minds” recipient.


Hotels Must Act To Avoid Profit Erosion

By Des O'Mahony | On Mon, February 22, 2016

Ireland’s Hotels Are Doing Well, But Rate Recovery Isn’t Everything

The recovery in Irish tourism continues into 2016 on the back of record numbers of visitors in 2015. Most sectors are reporting a strong opening to the year.

At Bookassist, our hotel data for the first 6 weeks of 2016 shows online booking numbers up almost 14% year on year, with associated revenue up by more than double that figure. This indicates a welcome rise in direct online business coupled with a continued rise in average daily rate (ADR). Additionally, occupancy has reached strong levels in Ireland, with in excess of 82% being recorded in many Dublin hotels and healthy RevPAR.

Rate has largely recovered to 2006 levels, and caution is being urged to not let rate get out of control. But the reality is that hotel costs have risen significantly in the interim, so hotels are not nearly reaching 2006 margin levels despite the rate recovery. All the more reason that hotels need to be extremely careful to focus on where their room profit is really going and how they can take their fair share of it and put it to good use.

You Need That Profit

At the risk of stating the obvious, the hotel sector needs its profit. Working capital is the only way to prepare the sector for the future.

As a whole, the sector needs to deliver more capacity into the country, in Dublin in particular, to cope with and capitalise on the growing opportunity. To not accelerate development of new properties is to risk supply-demand problems that will ultimately make the market uncompetitive in the coming years and potentially reverse the recent recovery or drive more and more incoming guests from the hotel sector and into the sharing community exemplified by Airbnb.

However, property developers see much more profit per square foot from developing office space than low-margin accommodation right now. Unless the margin on hotel rooms can increase, this is likely to remain the case and constrain capacity. We all know this - but driving up rate is not the only solution to delivering that better margin.

On an individual hotel basis, stock needs to be continually improved. Maintaining rate requires renovation, modernisation of properties. Even more critically, maintaining your business for the long haul means continually improving service levels and holding reputation, a key driver of modern online business. This means real and ongoing investment in property quality, staff training and management. All of which are increasingly costly outlays today – but driving up rate is not the only solution to generating the required cash.

Your Fair Share

A buoyant market with higher occupancy should be generating greater margin. Yet what Bookassist has seen in other recovering markets in Europe in which we operate is that hotels themselves have been the slower ones to capitalise on the renewed buoyancy, with a disproportionate share being ceded too quickly to online travel agents (OTA).

The result of this is that while occupancy levels and ADR have risen, the associated profit generated is increasingly moving out of the hotels and into the pockets of distributors. In Ireland this is already happening and is in danger of accelerating as capacity is squeezed in 2016 and onwards.

This is particularly apparent in the “red herring” debate around rate parity, ostensibly one where OTAs do not want hotels to be selling lower on their own websites. In reality however, the OTAs are the ones merrily breaking parity by requiring discounted rates in their “private clubs”, clubs which are anything but, since anyone can sign up. These discounted rates are the fastest growing area of business for many OTAs, not surprisingly. Viewing OTA costs in commission rather than hard euro terms can often disguise what is really happening to your profit figure - remember that discounting €10 on a €100 room rate in order to make a private club sale means -€10 straight to your bottom line but a reduction of just €2 or less in the commission paid to the OTA on the €90 sale (assuming commission rates of 20% or less). That’s €10-€2=€8 more in cost of sale to you on a €100 room.

Put simply, getting your distribution strategy wrong can still fill your hotel at a reasonable room rate, but it will bleed your profit line in cost of sale terms. The same occupancy and rate skewed towards direct online business to your website will result in a significantly lower cost of sale and therefore real and substantial profit gains – profits needed to build your business for the future, profits generated without driving your rate to unsustainable levels.

Creating versus Servicing Demand

OTAs do an excellent job and are a critical part of your distribution mix. But as a hotel, you must realise that OTAs should be a secondary part of your strategy, not a primary one. OTAs are excellent at helping you to reach that customer that you could never reach on your own, and can justify high fees to do so. But OTAs should not be used to service existing demand, at least not at the rates they currently charge. In situations where occupancy is breaching 80% levels, it is an absolute no-brainer to be channelling that demand towards your lower cost direct-to-web channel online and adjusting distribution strategy generally to redistribute towards lower cost channels.

In the booming market that Irish hotels are experiencing, hotels would do well to note that OTAs do not create demand. The tourism influx is happening anyway, driven by the excellent strategies of Tourism Ireland, the value for money available in the tourism sector nationally and many other positive contributors to Ireland’s image abroad.

Hotels need to be tapping into that influx directly with proper online marketing strategies, quality websites, high conversion booking capability and strategic customer relationship management. These people are coming regardless, why aren’t you reaching out to them directly?

Long Term Strategy

Hotels need to act now to appreciate the danger of what this movement of profit out of the sector means for them long-term. Continuing to focus your hotel KPIs on occupancy and rate only and being oblivious to real cost of sale and profit blinds hotels to the reality of what is happening in a fast-moving marketplace and will result in hotels sleepwalking their way into a permanent low-margin business through OTA reliance.

It is a fact that some hotels are currently losing money on the channels they use, possibly without even knowing it. F&B may not be able to make up the difference, particularly in city hotels where guests want to be out and about and may spend little or nothing more in the property itself.

As we have long advocated at Bookassist, cost of sale needs to be looked at forensically by hotel FCs to see where real margin potential lies and where the bleed is really occurring. Investment in the direct channel is a clear win, but takes effort to kick-start.

Hotels of course “appreciate the ease” of doing business via OTAs and often view the effort in growing direct business as onerous. But OTA costs per booking do not fall with volume, while a successful direct strategy will result in an ongoing reduction in acquisition cost per direct booking and a consequent profit growth per room.

Remember, if Irish hotels get it right and improve their retention of profit, they can develop the sector for a sustainable future where rate can be justified and held. But if they allow the profit to bleed out disproportionately to distributors, then the inevitable rising rates to counter lower margins over the longer term will hit the sector hard while the distributors can just move on to other cities and countries.

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Dr Des O’Mahony is CEO and Founder at Bookassist (http://www.bookassist.com), the multi-award-winning technology and digital strategy partner for hotels worldwide, and is a HSMAI “Top 20 Extraordinary Minds” recipient.


For Ireland, It’s Never Looked Better For Direct Booking

By Des O'Mahony | On Tue, January 05, 2016

Positive Outlook

As 2016 opens, it is true to say that there has never been a better time for Irish hotels in particular to leverage their direct-to-website booking channel. 2015 was a boom year in Irish tourism. Recent Tourism Barometer reports from Fáilte Ireland have shown that accommodation providers displayed their most positive sentiment since the pre-boom era, with 70% of providers overall indicating that business is up. This figure rises to 79% among hotels alone.

Most providers benefitted from an increase in tourism numbers and a particularly strong influx from GB and USA. Overall spend is also up, and exchange rates have certainly helped Ireland to be more attractive. Repeat business has shown improvement, the domestic market is yet again on the rise, overall occupancy has risen. The Average Daily Rate (ADR) in all segments has also risen fast, which is generally good news for the hotel industry (but a worry if allowed to progress unchecked).

Sustainability of this growth is another question. But so far things remain positive, with Tourism Ireland aiming for another record year for Irish tourism in 2016 with a target of 4% growth to 8.2 million visitors.

But even without further growth in visitors, a strong opportunity exists to see further and continued growth in profitability if the existing numbers alone can be focused more on direct booking at the hotel rather than through more expensive distribution channels. It’s really time for hotels to rethink what this means and seize the opportunity.

Your Opportunity

According to Phocuswright (see Figure 1), online bookings in Europe will grow from 36% of overall bookings in 2015 to 39% in 2017. That same report shows that online travel agencies (OTAs) are taking 71% of the online booking value in Europe, versus a more balanced 52% in the US. (Peter O’Connor, the lead author on that report, is among the lineup for the Bookassist Distribution & Revenue Management Seminar on January 19th in Dublin.)

Figure 1: Data and figure adapted from Phocuswright’s recent report on the Independent Lodging Market in Europe

The challenge therefore for European hotels is to simultaneously seize the online growth opportunity in the coming years while reducing their reliance on OTAs to help shift the balance more towards what is already achieved in the US. Tapping in to this could make a massive change to your business. The stars are aligning for this, with considerable legal pressure in the EU on OTAs through 2015 to desist with anti-competitive practices and provide a more level playing field for online competition. OTAs of course retain a critical and necessary role for distribution, but their use should increasingly be strategic and if possible secondary, not a primary focus. The high rates charged for OTA business are often justifiable for that first booking you could not otherwise attract, but there are many segments where their excessive use is simply not necessary.

Repeat business and domestic business in particular is something that no hotel should be ceding to OTAs. These are customers who undoubtedly already know your hotel name and are likely searching online for your hotel. Targeted advertising on your hotel name is needed to ensure they engage directly with you rather than OTAs when searching online, and every one of them should see better value on your website and a well-presented offering online to ensure they book direct. Repeat business should additionally be encouraged through the proper use of Customer Relationship Management systems for targeted and relevant email communication.

Avoid Silo Thinking

Part of the issue with effecting change for the better in a hotel’s distribution pattern is that elements of distribution may be handled by different people who do not fully coordinate or who are not incentivised to do so. The approach to each channel or segment may be looked at in isolation, as a “silo” distinct from others. FIT business, Corporate segments, OTAs and “the website” may all be viewed in isolation rather than as a strategic whole. Even if the people responsible are the same, the thought process itself may be siloed. Optimising each within its own confines is not the same as optimising your total business.

You need to look across the business as a whole to ensure that redistribution towards direct becomes the priority of all involved. One could argue for example that the remit of anyone looking after FIT business should be to ensure as little business as possible goes that way and that as much of it as possible is shifted towards direct online channel! Accordingly, you can easily see how incentives based on targets for each silo may actually be counterproductive and encourage a status quo in your distribution strategy that is difficult to shake. Where all your key business managers are working together however toward a common goal of more direct business and therefore higher profitability, a more dynamic approach to redistribution will occur naturally.

Invest Now To Reap Rewards

The intention to push more to direct business and higher profitability must be met with real actions or it will fail. In particular, it is critical to invest in digital marketing and in web presence to ensure that the traffic is captured and is then converted. It is unfortuante that many hotels are still not prepared to make this leap and put the money behind their aspirations. This shows a lack of foresight that will trap a hotel in the distribution patterns of old.

The beauty of building your online strategy and customer engagement is that it is a bootstrapped process that gets cheaper over time with success. Initially, it may cost to fund online campaigns, a professional and dynamic web presence, proper analysis of your customer base, segmented targeting etc. But as the direct booking numbers grow and savings are made on each booking versus other distribution channels, the cost per booking of the ongoing investment actually diminishes.

This is because many of the necessary outlays, like website costs and software such as CRM or revenue management tools, are largely fixed or annual costs and as direct bookings grow those costs are not increasing. Conversely, the cost per booking of FIT or OTA bookings continues to grow linearly with volume and will never give you a cumulative advantage.

Technology

Technology in the travel space continues to develop apace and brings real advantages to the modern hotel. Profitability is driven by a capability to deliver, and delivery is driven by being forewarned and forearmed. Never has their been more opportunity for hotels to analyse and understand their business in order to improve their strategies for growing profitability.

Analysis is difficult, and interpretation even harder. Technology can take the pain out of this and many tools can provide real actions that generate business improvement and more than justify their costs. Three technology areas that are blossoming are in revenue management, customer relationship management, and data analytics.

Revenue Management: Revenue management as a skill is of course invaluable in your hotel’s team and further insight can be gained through the use of many tools now on the market. Understanding the dynamics of price flexing and its drivers is not necessarily simple and good tools can take the donkeywork out of the process, helping you see your real competitive set more clearly and patterns in their behaviour that you might otherwise miss.

CRM: Real analysis of your customer data is also critical and something that OTAs do exceedingly well. There are many tools on the market that can now help hotels to really optimise what is already their greatest but perhaps most underexploited asset. Many hotels are not capturing sufficient data to make their customer lists truly useful, and structuring your approach through the use of a specific tool or service can help turn lost customers into won customers, and turn your existing data into repeat business and improved profit. The area is worth looking at.

Analytics: True analytics and the promise of “big data” for the masses is finally coming to hotels also, combining revenue and customer views and taking a macroscopic view of the market. What use to be within the reach of large hotels only is becoming more and more affordable at independent hotel level. Watch the space carefully for developments in 2016. (One such offering comes from SnapShot, and VP Strategy Brendan May joins the Bookassist Distribution & Revenue Management Seminar on January 19th in Dublin.)

Take These Five Steps

So make it a resolution at your hotel strategy meetings to focus on what can grow your profitability and not just take complacent views of growing your ADR and occupancy. With the current positive sentiment, hotels are throwing away considerable opportunity to drive margin and generate the cash needed to invest in their property and thus secure sustainable rate levels through improved offerings and higher ratings. Adopt these five simple steps to improving your hotel’s profitability:

1: Make sure your team is thinking more broadly about your distribution mix as a whole and is resisting the trap of “silo” thinking. Ask of every booking, how could I have made that occur directly?

2: Focus more on redistribution away from other other online channels and FIT and towards direct. What does it take to achieve that? Set yourself goals.

4: Put digital strategy front and centre of your hotel’s entire strategy. Other routes may fill the gaps but direct to web must be the primary aim.

3: Be ready to capitalise by investing now, and indeed continually, in your web presence. You need to spend more to make more so beware of a budgeted approach that may place artificial limits on your ability to realise profit when it is there for the taking.

5: Embrace technologies that can help you analyse your position and give you the correct key performance indicators (KPIs). Are the KPIs you’re using now really helping to monitor your drive towards profitability or are they just affirming the status quo?

Above all ensure that you, and not just your distributors, are tapping into your fair share of the profitability that your industry is already delivering.

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Dr Des O’Mahony is CEO and Founder at Bookassist (http://www.bookassist.com), the multi-award-winning technology and digital strategy partner for hotels worldwide, and is a HSMAI “Top 20 Extraordinary Minds” recipient.


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