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The Next Big Hotel Online Revenue Driver is Here: Google Hotel Price Ads (HPA)

Monday, April 22nd, 2013

By Sue Wiker and Sara O’Brien

There are a number of digital marketing initiatives that generate direct bookings, incremental revenues and high ROIs to the direct online channel such as SEO, SEM, email marketing and online media. Over the past few years several new revenue-generating digital marketing initiatives have emerged that, until recently, were only available to OTAs and major hotel brands. Requiring sophisticated CRS access, advertising middleware technology, and out-of-range minimum monthly spends, these initiatives have traditionally been inaccessible to independent properties, smaller and mid-size hotel and resort brands, and casinos. (more…)

Posted in Direct Online Channel, Online Travel Agencies (OTAs) | No Comments »

Case Study: Is TripAdvisor’s “Show Prices” CPC Program a Viable Direct Online Distribution Channel in Hospitality?

Friday, October 12th, 2012

By Sue Wiker and Tara Dyer

In an ever-increasing world of user reviews, TripAdvisor has become a mainstay in the research phase of travel purchases. With over 54 million monthly visitors and more than 75 million reviews, it is clear that TripAdvisor is a cornerstone in the travel industry.

Over the past few years, TripAdvisor’s “Show Prices” hotel rate shopping functionality has become an extremely important travel decision and travel purchasing tool. Last year alone, the “Show Prices” functionality generated over one billion clicks, making it a powerful distribution channel for all hoteliers. Until recently, only the OTAs and major hotel brands could afford the minimum monthly spend required for participation in the TripAdvisor “Show Prices” CPC Program.

How does the TripAdvisor CPC Program work for independent hotels, resorts and casinos? HeBS Digital has been involved with the TripAdvisor CPC Program for several years now with undeniable success. On average, our clients’ return on ad spend is between 1,000% and 1,500%, varying by location, brand equity, and rate parity.

By creating state-of-the-art “TripAdvisor CPC Program Single-Property Budget Management” technology, HeBS Digital has enabled independent hotels, resorts and casinos to participate in the TripAdvisor CPC Program at the same level as the major OTAs and hotel brands. Through HeBS Digital’s proprietary technology – any hotel or resort, casino or country inn, independent or branded hotel, small or large – can participate in TripAdvisor’s CPC program, including the “Show Prices” program, which traditionally has been open to big advertisers such as  OTAs and major brands.

HeBS Digital’s proprietary TripAdvisor CPC Program Single-Property Budget Management platform, coupled with our long-standing partnership with TripAdvisor, allows hotel clients to participate in the CPC Program with a minimum spend of just $500 per month. With HeBS Digital, participating hotels receive campaign set-up, participation in the “Show Prices” CPC program, monthly budget caps, and deep links to the property booking engine for direct bookings. In addition, any hotel can now participate in the AIM Links CPC Program, which features the properties’ official amenities and images and connects users directly to the property website. The end result is highly-qualified buyers landing on the property’s site instead of OTA sites that undermine the direct online channel.

Case Study: Is TripAdvisor’s “Show Prices” CPC Program a Viable Direct Online Distribution Channel?

In the case study below, we have reviewed the results for a selection of clients that have participated in the TripAdvisor CPC “Show Prices” Program. These clients were among the first to take advantage of our monthly cap abilities to keep monthly budget spend in check. For each hotel we detail spend, revenue, return on ad spend, their overall rating out of five, and what percentile they are in within their destination (e.g. “Ranked #4 out of 132 hotels in Chicago”).

Type of Hotel

ROAS

TripAdvisor Rank (Out of 5)

Top Percentile of Destination

Luxury Hotel Denver

1558%

4

28%

Resort Southern California

1174%

4

48%

Boutique Hotel Manhattan

1223%

4

46%

Spa Resort Arizona

900%

4

7%

Full-Service Hotel Miami

1511%

4

13%

Boutique Hotel Boston

1691%

4

37%

Luxury Hotel Manhattan

863%

4.5

12%

-HeBS Digital, Sept 2012

Year-to-date in 2012, participating hotels generated an average return on ad spend (ROAS) of 1131%.  Our analysis shows that revenues generated and ROAS from the TripAdvisor CPC Program are directly correlated to the property’s TripAdvisor rank and percentile rank in the respective destination, as well as level of brand recognition.

In our view the TripAdvisor CPC Program offers a way for hoteliers to compete on even footing with the OTAs. With such high returns, budgeting for TripAdvisor CPC is a must for any 2013 hotel marketing budget– HeBS Digital recommends allocating five to ten percent of your 2013 budget to the “Show Prices” program. Not only does it bring highly-qualified online travel consumers directly to the property’s booking engine, but it also levels the playing field with the OTAs, providing a direct booking option to users.

Conclusion

TripAdvisor’s “Show Prices” CPC Program is a major distribution channel that provides high return on ad spend for hotels big and small, branded or independent. Used as a tool to lessen dependency on OTAs, this program can boost direct bookings, thereby increasing overall revenues and strengthening brand identity.  Contact HeBS Digital today at success@hebsdigital.com to see how you can get started with TripAdvisor’s “Show Prices” CPC Program.

About the Authors and HeBS Digital:

Sue Wiker is Manager, Copy + SEO Department and Tara Dyer is an online media planner at HeBS Digital, the hospitality industry’s leading full-service digital marketing, hotel website design and  online channel strategy firm, based in New York City (www.HeBSdigital.com).

HeBS Digital has pioneered many of the best practices in hotel Internet marketing, social and mobile marketing, and direct online channel distribution. The firm has won over 220 prestigious industry awards for its digital marketing and website design services, including numerous Adrian Awards, Davey Awards, W3 Awards, WebAwards, Magellan Awards, Summit International Awards, Interactive Media Awards, IAC Awards, etc.

A diverse client portfolio of top-tier major hotel brands, luxury and boutique hotel brands, resorts and casinos, hotel management companies, franchisees and independents, and CVBs are benefiting from HeBS Digital’s direct online channel strategy and digital marketing expertise. Contact HeBS Digital’s consultants at (212) 752-8186 or success@hebsdigital.com.

 

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Posted in Best Practices, Online Travel Agencies (OTAs), Search Engine Marketing | No Comments »

The OTA Billboard Effect or the Lazy Man’s Approach to Hotel Distribution

Monday, August 1st, 2011

The following article is Max Starkov’s latest contribution to the “Successful eMarketing” blog on HOTELS magazine’s website

The existence of the so-called billboard effect is not a new marketing phenomenon. It has existed long before the online channel became a reality. As confirmed by many studies, any marketing exposure by a hotel produces a billboard effect:  when you launch a banner advertising campaign; when you purchase a full-page ad in the New York Times travel section; when you launch a paid search campaign on Google, etc.

The OTA Billboard Effect

Lately Expedia reps have been aggressively using a new Cornell Hospitality Report, namely “Search, OTAs and Online Booking: An Expanded Analysis of the Billboard Effect” to convince hoteliers that they should use Expedia in order to generate more bookings from the hotel’s own website due to the so-called “Billboard Effect.”

The Cornell Report, based on data from Expedia and InterContinental Hotel Group (IHG) from 2008-2010, is a continuation of a previous report on the subject, heavily supported by Expedia. The report’s analysis determined that when an IHG property was listed on the first results page of Expedia, this created an increase of between 7.5% and 14.1% in bookings for the same property on IHG’s own brand website. In other words, this is a confirmation for Expedia’s billboard effect, which hoteliers should take into consideration when griping against the 25% plus merchant OTA commission. When these “billboard effect bookings” are taken into consideration, Expedia’s commission “would effectively be reduced to single digits,” states the Cornell Report.

Hoteliers, rejoice! We have found the perfect recipe for success: we do nothing as far as marketing the property website is concerned. Instead, we plaster Expedia with our sales promotions and wait for the travel consumers to come to our own website and book.

As discussed, the billboard effect is not strictly an OTA territory. In my view, the Cornell Hospitality Report is a one-sided research project, very proactively supported by Expedia, similar to the first report on the billboard effect published in 2009. Cornell, the finest hospitality institution in the U.S., should know better than to come up with this half-baked “scientific” research, which does not account for the complexities of hotel distribution as well as the “digital information cloud” we all live in and the resulting marketing and distribution channel convergence which directly affects the purchasing habits of today’s hyper-interactive travel consumers.

This report makes conclusions that do not take into account, among many other things, the following:

Complex Travel Planning Patterns in Hospitality

Many surveys show that people are shopping around on a number of hotel and travel websites before narrowing down their search. Typically in hospitality, these sites include a hotel search on a search engine e.g. Google (65% market share), an OTA website, TripAdvisor, the hotel’s own website, etc. Therefore jumping from an OTA website to a hotel branded website and vice versa is at least partially due to particular travel research patterns unique to the users and not due to the so-called billboard effect:

  • Step 1: “I always search on Google first where I identify a property I like”
  • Step 2: “I go to Expedia and see what the rate for this property is”
  • Step 3: “I visit TripAdvisor to read my peer reviews for this hotel”
  • Step 4: “I visit the hotel website and book if I like the location, rate and what I have read and seen about this hotel”

The Rate Parity Effect

Typically, and Internet users already know this well, Expedia places a hotel on the first search results page when it has a particularly good rate for this property e.g. a special rate, a 24-hour or a 72-hour sale. In this day and age of strict rate parity, particularly in the case of branded hotels as in the new Cornell study, the hotel has, due to mandated rate parity, the same special rate or the same 24-hour or 72-hour promotion on its own website. So the fact that there is a natural uptick in bookings on the hotel website during the exact same time the hotel is on Expedia’s first search results page is at least partially due to the rate promotion, and not due to the so-called billboard effect.

Let’s Examine Expedia’s Billboard Effect

So how big is the exposure for an average property on Expedia.com? In June 2011, Expedia.com had 19,066,141 unique visitors (Compete.com). In the same time, Expedia featured 135,000 hotels on its website, i.e. 141 unique visitors per hotel per month. In other words, on average, the customer engagements any hotel can get on Expedia.com is with 141 unique visitors.

Naturally, Expedia.com’s users are not evenly spread among the 135,000 hotels featured on the site. Some hotels get more visits based on property location, brand recognition, rate, or some users visit multiple property listings on the site.  Whatever the case is, even if you believe that your hotel gets double and triple and quadruple attention by Expedia users, this number pales in comparison to the potential customer engagements you could achieve via the direct online channel.

We believe the billboard effect from a property’s exposure on Expedia.com is limited in scope, and has a far smaller effect on the hotel revenues than the property’s paid and SEO initiatives on Google, email marketing, mobile marketing, website optimizations, etc.

Let’s Examine the Billboard Effect from the Direct Online Channel

By utilizing the direct online channel and multi-channel marketing initiatives, any 100- to 150-room independent or branded hotel on average:

  • Should have a minimum of 6,000-10,000 visitors to the hotel website/month
  • Should send out a monthly email marketing piece to the hotel opt-in list of min 5,000-10,000 email recipients
  • Should get an exposure via paid search:
    • min 1,500-2,000 visits from PPC ($1,250-$1,500 monthly budget)
    • over 100,000 -133,000 free impressions (people who have seen the PPC listing) at 1.5% CTR
  • Should get at least 500,000 impressions from its Google Re-Marketing/Re-Targeting campaign
  • Should communicate at least 3-4 times/week with its 1,000-1,500 Twitter followers
  • Should communicate at least 3-4 times a week with its 750-1,250 fans on Facebook
  • Should get at least 1000 mobile visitors and generate a significant amount of reservation calls from its mobile website

In other words, by unleashing a marketing promotional campaign simultaneously across all available marketing channels, thus producing a compounded effect and far greater returns than each individual marketing initiative, the hotel could realize over 650,000 customer engagements/per month. Many of these will be realized repeatedly with potential customers across different marketing channels, which is the best recipe for customer conversion.

Compare this Direct Online Channel billboard effect with the one via Expedia!

Click here to read the entire blog article on HOTELSMag.com, and decide for yourself whether the OTA Billboard effect makes any sense for the hospitality industry.

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Posted in HeBS Articles & Publications, Online Travel Agencies (OTAs) | 1 Comment »

Can Hoteliers Take Back The Initiative From OTAs?

Monday, April 25th, 2011

The following is an excerpt from Max Starkov’s latest contribution to the “Successful eMarketing” blog on HOTELS magazine’s website.

Since 2008, OTAs have increased their market share in hotel distribution by nearly 45%. This is a serious setback for the hospitality industry and a return to the bad practices of the post 9/11 era. In the midst of improving economic climate and rising travel demand, can hoteliers reverse this negative trend and take back control of the online distribution channel?

There is no doubt that hotel distribution has changed dramatically over the past 16 years since the advent of the “commercial” Internet. Online distribution, social media and the mobile Web have all changed how we connect with, engage and ultimately convert customers. But the fundamental principles of hotel distribution have not changed that much. Hoteliers need to focus on distribution channels that “pass the litmus test” i.e.:

  • Are cost-effective
  • Generate the most bookings
  • Protect rate parity and price integrity
  • Reach the targeted customer segments

In other words, the main focus and priority for any hotelier should be to sell as much inventory via the most cost-effective distribution channels that can potentially generate the most bookings, while preserving rate parity and price erosion.

Based on the above fundamental principles, which of the following main distribution channels should be the main focus for hoteliers in 2011?

Distribution Channel Cost per Booking -

Major Hotel Brands

 Cost per Booking -

Independent Hotels & Resorts

Channel A

$40 – $120

$75-$150

Channel B

$24.50 – $66

$42.85 – $74.50

Channel C

$2 – $5

$8.50 – $12.50

Note: Major Hotel Brands: Based on LOS of two nights and ADRs ranging from $100 – $300/night. Independent Hotels & Resorts: $75 – $150 per booking. Based on LOS of 2 nights and ADRs ranging from $150 – $300/night.

It’s obvious, isn’t it?  Channel C is by far the most cost-effective distribution channel:  it is 10-15 times cheaper than Channel A and 4-10 times cheaper than Channel B.

Channel C is obviously the only main distribution channel in the above table that deserves to be the main focus in 2011, especially in this new and optimistic economic environment of growth in travel demand, occupancy rates, ADRs and RevPARs.

Are you curious which channel represents what in the above professional quiz? Here are the correct answers:

  • Channel A: Indirect Online Channel/OTAs
  • Channel B: GDS Travel Agent
  • Channel C: Direct Online Channel (Hotel Brand Website)

Having completed the above cost analysis, you would think that the direct online channel would be the main focus for hoteliers and they would be investing heavily in this channel and trying to shift market share from the OTAs and GDS Travel Agent channels. Wrong!

In just three short years since 2008, hoteliers’ direct online channel lost significant market share to the Online Travel Agencies (OTAs), who increased their booking contributions by a staggering 45%!

OTAs Enjoyed a Market Share Increase of 45% in 2010

Here are some disturbing stats from the Top 30 Hotel Brands:

  • In 2010, only 67.3% of the online bookings for the top 30 hotel brands came from the direct online channel (i.e. the major hotel brands own websites: Marriott.com, Hilton.com, etc.), while 32.7% came from the indirect online channel (the Online Travel Agencies—OTAs) (eTRAK Report).
  • In comparison, in 2008, 75.2% of all CRS online bookings came from the brand website, while 24.8% came from the OTAs (eTRAK).
  • In other words, OTA contribution increased from 11.80% of total CRS bookings in 2008 to 17.10% in 2010 i.e. OTAs saw an increase of nearly 45% (HeBS Digital Research).
  • This constitutes a significant increase of OTA contribution, compared to 2007, when 75.9% of all CRS online bookings came from the brand website and only 24.1% of the online bookings came from the indirect online channel (OTAs).

Here are the reservation sources for Major Hotel Brands in 2010 vs. 2008 (eTRAK Report)

Top Hotel Brands’ CRS Hotel BookingsShare of CRS Reservations – 2010Share of CRS Reservations -2008
Internet (Online Channel)

52.3%

47.6%

Including:

Direct: Brand Website

67.3%

75.2%

Indirect: OTAs

32.7%

24.8%

GDS Travel Agent

22.1%

27.3%

Voice

25.6%

25.1%

Total for CRSs

100%

100%

Overall for the industry, in 2010 the indirect online channel (OTA) contribution to hotel online bookings was 40% (PhoCusWright).

As a result of this market share gain by the OTAs, revenue leaked from hotels to the OTAs in the form of abnormally high merchant commissions reached $5.4 billion in 2010 alone (HeBS Research).

Why Aren’t Hoteliers Investing More in the Direct Online Channel?

In addition to the obvious reason that selling your hotel via the OTAs is the “lazy man’s approach” to distribution, there are a few more reasons for that, including the assumption that selling through the OTAs is “free.”

  • Many hotel companies (including a number of major hotel brands) exhibited a typical “knee-jerk” reaction to the deteriorating economic environment in 2008-2010, and “succumbed to the devil” by embracing the indirect online channel (OTAs) to compensate for decreased business.
  • Many hotels had been accommodating the OTAs with bigger discounts, unique promotions (e.g. 24-hour sales) etc., thus jeopardizing their direct online channel and destroying years worth of achievements such as rate parity, best rate guarantees, and travel consumer perceptions that it is better to deal with the supplier directly.
  • Independent hotels are overwhelmed by this rapid shift from offline to online distribution and often fail to compete for their fair share of the market. The main reason is the lack of understanding that Internet marketing is not an expense, but an investment with immediate returns at very high ROIs.  Another reason is the perception that cutting-edge Internet marketing services and technologies are out of reach and accessible only to large hotel chains.
  • Franchised properties believe that the major hotel brands “take care of the Internet” for them, thus they miss serious local revenue-generating opportunities.

Naturally, we do not envision a scenario where 100% of Internet bookings are made via the direct online channel. The OTAs and other intermediaries in the indirect online channel do play a needed role in certain areas of the travel planning and purchasing process e.g. dynamic packaging (air+hotel, air+hotel+car, etc.) for leisure destinations. Even in pre-Internet years, approximately 25% of all hotel bookings in the U.S. came via the indirect channel (travel agents, tour operators, and wholesalers).

So what should the OTA fair share be? Now, 16 years after the advent of the Internet distribution channel, the most cost-efficient distribution and marketing channel ever, the OTA contribution should not be higher than 25% from all Internet bookings. What we should not be seeing is the current industry average of 40% OTA contribution.

On the contrary, due to dramatic changes in travel consumer behavior, and the inherent demand to deal with the “manufacturer” of hotel and travel products (i.e. travel suppliers like hotels, airlines, car rental companies, etc.), we should be witnessing a decline in the indirect channel contribution.

Just imagine the cost savings if 5%, 10%, 15%, 20% or more bookings are shifted from the indirect to the direct online channel!

Here are some additional findings by HeBS Digital, based on the latest eTRAK benchmark report, surveys and industry data from PhoCusWright, ARC and HeBS Digital’s own research.

The Shift from Offline/Traditional Channel to Online Channel is Permanent:

  • 52.3% of overall CRS bookings for the top 30 hotel brands come from the online channel, which is an increase of nearly 10% compared to 2008 when online channel contribution was 47.6%.
  • As a reminder, in 2006 the online channel share was 37.6% (eTRAK Report).
  • For the industry as a whole, over 45% of all hotel bookings in 2011 (leisure, unmanaged and managed corporate travel) will be via the Internet (direct + indirect online channels) (HeBS Digital Research).

GDS Channel Share is in Steady Decline:

  • GDS Travel Agent contribution to the total CRS bookings of the top 30 hotel brands declined to 22.1% in 2010 from 27.3% in 2008 (eTRAK).
  • In retrospect, back in 2006, GDS CRS reservations constituted 31.3% of total CRS bookings for the top 30 brands (eTRAK, industry data).
  • Travel Agency Share from Total Travel Market in the U.S. dropped from 41% in 2006 to less than 33% in 2010 (PhoCusWright).
  • U.S. Travel Agency Locations have been decreasing at an average rate of 4% every year and their number has declined from over 35,000 in 1995 to less than 14,603 in March 2011 (ARC, HeBS Digital).

The Voice Channel Contribution is Flat at Best:

  • In 2010, voice channel contribution to the total CRS reservations of the top 30 hotel brands amounted to 25.6% of total brand CRS bookings (eTRAK).
  • A significant portion of the voice channel bookings are actually bookings directly referred to from the direct online channel and the mobile channel.
  • Despite this boost from the direct online and mobile channels, the Voice Channel has been in relative decline for 7th consecutive year (HeBS). Back in 2006, the voice reservations constituted 31.3% of total CRS bookings for the top 30 brands (eTRAK).

The Mobile Channel is a Reality!

Over the past two years, the mobile channel has become an important travel planning and transaction channel in the U.S. and worldwide. Hotel guests and travel consumers in general are already mobile-ready, and hoteliers and travel suppliers have to respond adequately to this growing demand for mobile travel services.

HeBS’ own research and other industry sources show that in 2010 between 1.5% – 2.5% of visitors to hotel websites came from consumers accessing the hotel site via mobile devices. Last year travel suppliers and OTAs reported a 3-5 times increase in mobile bookings and Google reported 3,000% increase in hotel mobile searches compared to 2009.

By 2014, mobile Internet users will surpass the number of desktop Internet users. The most important statistic though is the number of smartphone users. Smartphones are changing how we do business in hospitality, how we market, how we service customers. There are nearly 75 million smartphone users in the U.S. alone; their number will exceed 100 million by 2014.

In 2011, independent or franchised hotels and resorts, as well as small and mid-size hotel chains and multi-property hotel companies, should focus on building and enhancing their mobile websites. The main focus should be:

  • Creating mobile-friendly textual and visual content that presents the hotel product well.
  • Enhancing the mobile user-experience via well-developed mobile site navigation, a mobile booking engine widget, mobile calendar of events, etc.
  • Increasing website “discoverability” via mobile SEO and mobile SEM (e.g. Google mobile AdWords) and online media initiatives.
  • Making the mobile website more interactive via mobile-social media initiatives, interactive sweepstakes and contests.
  • Soliciting sign-ups to the mobile opt-in list via the traditional hotel website and the mobile website, via hotel email marketing campaigns and various sweepstakes and contests, such as interactive scavenger hunts, QR Code promotions, etc.
  • Tracking conversions and user behavior via mobile analytics (e.g. Omniture) and special tracking phone functionality.

The Bottom Line for Hoteliers:  Focus on the Direct Online Channel

Hoteliers do not have many options when considering other non-OTA distribution channels. As mentioned above, the GDS Travel Agent and Voice Channels are in steady decline over the past years. In our view, the only viable option to drastically reduce reliance on the OTA channel is for the industry to embrace the Direct Online Channel.

There is no doubt that hoteliers need to invest in the direct online channel. Hoteliers need a robust direct online channel strategy accompanied by adequate marketing funds to be able to take advantage of the steady growth in the Internet channel and the shift from offline to online bookings in hospitality due to declining GDS and voice channels. Hoteliers must carefully employ ROI-centric initiatives including website redesign, website optimization and SEO, SEM, email marketing, online media and sponsorships, mobile marketing and proven social media initiatives.

Furthermore, due to the fact that today’s travel consumers live in a perpetual “digital information cloud,” hoteliers need to employ multi-channel marketing and distribution strategies. Multi-channel marketing has already become the norm and is the foundation for a smart direct online channel strategy. In this environment, the hotel website, SEM campaigns, email marketing, social media presence, mobile, etc. have a symbiotic relationship. Unleashing a marketing promotional campaign simultaneously across all available marketing channels produces a compounded effect and far greater returns than each individual marketing format.

Click here to read the blog article on HOTELS Magazine website.

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Posted in HeBS Articles & Publications, Online Travel Agencies (OTAs) | 6 Comments »

The End of the OTA Merchant Model – This Time For Real

Wednesday, December 1st, 2010

The following is an excerpt from Max Starkov’s latest contribution to the “Successful eMarketing” blog on HOTELS magazine’s website.

Back in March of 2005 I published an article “The End of the Merchant Model as We Know it”, co-written with Jason Price. In this article we argued that the Internet was all about transparency, efficient distribution of information, and inexpensive e-commerce transactions and was by far the most efficient marketing and distribution medium ever invented. In this sense the abnormally high merchant commissions (20%-30%) levied by online travel agencies (OTAs) constituted a temporary anomaly, not the rule. We further explained that there was a direct correlation between the traditional travel agency commission of 10% and the OTA merchant commissions, and that as the travel agency commissions would inevitably go down and one day disappear, so would the OTA merchant commissions, same as it happened in the airline and car rental sectors.

Now, more than five years later, we are revisiting the same topic and trying to ascertain the future of the OTA Merchant Model.

Over the next five years the OTA Merchant Model as we know it will disappear. It will be transformed into a “Commission Override Model” where OTA commissions will be tied to booking volumes in the form of commission overrides above the standard travel agency commission that exists at the time.

In the same time, travel agency commissions will shrink from the current 10% level to 8% then 5% and then disappear for good in the same manner as it happened in the airline and car rental sectors. This will result in downward pressure on the current OTA merchant commissions, which are by default tied to the standard travel agency commission. OTAs will be able to earn override commissions above the standard travel agency commission only if they commit to concrete booking volumes. Naturally these commission overrides will be at a fraction of today’s levels.

As market conditions and industry indicators improve, and as major hotel brands and other smart hoteliers increase pressure on the OTAs to lower merchant commissions and tie higher commissions to higher OTA “booking productivity” and bigger share of the OTA bookings, the OTA Merchant Model will be transformed:

• From a net merchant rate model (net rate at 20%-30% below best available rate) and no commitment to room allotments and booking volume

• Into a “Commission Override Model” where higher booking volume production will earn the OTAs better commissions or “overrides” above the existing traditional travel agency commission levels.

The good news is that these commission override levels will be at a fraction of today’s abnormally high OTA merchant commissions of 20%-30%.

Naturally, the first decisive step to move the industry from the OTA Merchant Model to the more industry-friendly OTA Commission Override Model should be undertaken by the major hotel brands that have tremendous negotiation power with the OTAs. All it takes to open the floodgates is one “brave” major hotel brand to negotiate a commission override agreement with one OTA during the next round of contract negotiations.

What Are the Immediate Benefits to the Industry from Adopting the Commission Override Model?

Here are two important benefits the industry will receive from the adoption of the Commission Override Model:

• OTAs will be asked to commit to certain booking volume or booking revenue, tied to certain commission levels, unlike the current situation where typically the OTAs make no commitment to booking volumes, yet they receive abnormally high OTA Merchant Commissions of 20%-30%. In this way the hotel company can better project all major industry indicators such as occupancy, ADRs and RevPARs as well as cash flows based on the expected hotel website revenue+OTA booking volume commitments, etc.

• The issue with the Internet Booking Tax controversy will simply disappear since OTAs will not operate with net rates, rather with gross retail rates thus calculating the tax on the gross (retail) rate.

Click here to read the entire blog article on HOTELS Magazine website, which includes new research, industry stats, case studies and outlines the latest industry developments and trends that will lead to the disappearance of the OTA Merchant Model as we know it and its transformation into a Commission Override Model.

(Free registration required to access the Hotels Magazine Blog)

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Posted in Online Travel Agencies (OTAs) | 1 Comment »

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