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How can hotel brands, owners and operators counter the ‘dirty tricks’ deployed by some online travel companies? That was main question raised at the recent Revenue Strategy Forum hosted by Duetto. Justyn Barnes reports.
It’s taken a while, but open discussions are finally being had among hotel brands and technology providers to find innovative solutions that work in favour of hotels – and not simply the likes of Google or OTAs. About time too, as Cindy Estis Green, co-founder and chief executive of Kalibri Labs, explained in her keynote address at Ace Hotel, Shoreditch.
Drawing on her company’s forensic analysis of data of two billion annual transactions and 70-plus brands worldwide, Green highlighted the global challenges posed by large OTAs, Google, airbnb and others.
She noted that “stay brands” now face the double whammy of paying “booking brands” for access to aggregate demand and then paying to compete with each other, meaning customer acquisition is costing up to five times as much as 15 years ago.
Drawing on her company’s forensic analysis of data of two billion annual transactions and 70-plus brands worldwide, Green highlighted the global challenges posed by large OTAs, Google, airbnb and others.
She noted that “stay brands” now face the double whammy of paying “booking brands” for access to aggregate demand and then paying to compete with each other, meaning customer acquisition is costing up to five times as much as 15 years ago.
Green described this trend as the “rise of the gatekeepers” creating “a series of toll booths for hotels”.
In America, OTA market share continues to grow with the percentage of guest-paid room revenue rising from 1.5% in 2001 to 12.6% in 2014 and from 2009-2012, commission paid rose at twice the rate of revenue growth (39% compared to 20%).
Green believes it’s only going to get more competitive: “Airbnb has said it will never take hotel bookings, but so did Google. I think they are going to be the next major player; they are a next generation OTA.”
Across the whole US market, hotels are paying out 15-25% of the price paid by the guest before they walk in the door. Compare that with the 3-5% customer acquisition figure for airlines. However, noted Green, “airlines were paying 19% for customer acquisition 15, 20 years ago, so things can change”.
“Acquisition costs have to be managed as carefully as labour costs,” she said. “Increases in RevPAR can be misleading. You need to think more about optimising net revenue. A one percentage point improvement will save $2 billion a year for the US hotel industry.”
All the other forum panelists agreed with Green that an integrated revenue strategy, bringing together marketing, revenue management and IT, is critical in today’s complex distribution landscape. Simone Truscello, director of revenue management at Ace Hotels, talked about revenue managers “having the guts to be more exposed to the commercial aspects”.
This may also entail looking outside the hotel trade to hire suitable staff. “Half my team have not worked in hotels before,” said Jonathon Liu, vice-president, pricing and revenue management, Accor UK & Ireland. “We look for an aptitude to understand data and customer needs, and we can teach them the other skills.”
Cody Bradshaw, senior vice-president, Starwood Capital, described how the shortcomings of traditional hotel revenue management creates an “ocean of opportunity”, adding: “Some of our best investments have been in hotels where there has been poor revenue management.”
Driving more direct bookings is the key, but the relatively huge marketing budgets and sometimes dubious practices of the “gatekeepers” are a barrier.
Apurva Pratap, vice-president, distribution and commercial marketing Europe, IHG, said how closed-user group loyalty schemes had been “incredibly successful” for IHG. “But meta search is geared not to allow you to talk to consumers about these better rates.”
Pratap went on to reel off a list of “dirty tricks” used by intermediaries to mislead consumers. Green estimated that at least $1 billion per year is diverted to third parties from US hotels by such deceptive marketing practices – for example, third parties including the hotel name in their url, showing strikethrough rates (in which the original hotel room rate is crossed out and a sale price is shown) based on the most expensive possible room 30 days either side of the booking date. Hotel brands large and small are now uniting via organisations such as the AH&LA Consumer Innovation Forum and European Hotel Forum to pursue legal and political resolutions.
Summing up the morning’s debate, Duetto chief executive Patrick Bosworth emphasised two key themes: one, the importance of being flexible, innovative and data-driven in a way hotel companies historically haven’t been. Additionally, creating value for consumers in a seamless booking process, “serving up content that they need to make a smart decision, and so they feel like they are getting the best deal and staying in a property that meets their needs.”
