Who is Winning the Pricing War?
The battle on pricing between hoteliers and OTAs is a touchy subject in the hospitality industry. Millions of hotels and lodges are found on Online Travel Agencies, where advertising and company exposure are created for potential customers all over the world. For customers the question comes down to, where am I going to book my stay at a certain hotel and where can I get the best value? This blog is the first in a series discussing direct hotel bookings vs. OTA booked stays and will dig a little deeper looking at where the customer can get the best value and how this impacts hoteliers large and small.
What is an OTA?
Simply put, an OTA, or Online Travel Agency, is an online platform where customers can go to book hotels, flights, and other vacation packages. OTA’s can include Expedia, Priceline, and Orbitz, just to name a few. These powerhouse travel resources on average generate nearly $19 billion in the hospitality industry in the United States alone, according to a study published by Phocuswright. OTAs have gained popularity for consumers because of the ease that is involved in checking and comparing prices. Many of the OTA websites allow the user to compare real time pricing from competitors side-by-side instead of checking individual websites for pricing and promotions. So what makes an OTA so special? According to Cloudbeds, hotels generally spend an average of 6-9% of their revenue on marketing and promotions. OTAs spend over 35% of their revenue on marketing and sales, which allows incredible worldwide exposure for the hotels and lodges represented on the OTA websites.
Who is Winning the Pricing War?
For customers, value and cost are two key factors that influence where and how they will book stays at hotels. What a lot of people don’t know is that OTAs are paid a commission to advertise hotels on their websites. What does this mean for the consumer? Clem Bason, CEO of goSeek, a hotel booking site, shares how these commission rates influence how OTAs conduct their pricing. Bason discusses how the higher the rate of the room, the more money the OTA will earn from the commission off of the booking. For example, if an OTA can sell a room for $120 a night versus $108 a night they will make more revenue. This means that OTAs could possibly be charging anywhere from 10-30% more on their websites than a direct booking will charge on a hotel’s website. Does this mean that hotels are winning the pricing war? Not necessarily.
Hotels, when booked domestically, are now often offering cheaper rates when customers book directly through their websites. The commission rates that are paid to OTAs for advertising and listing the hotels are saved when the customer books through a hotel’s direct website, allowing the hotel more profit. This is commonly seen when booking stays domestically versus internationally. Though OTAs are able to run promotions, provide discounts and reward incentives, direct bookings can often provide easier bookings for cheaper rates. Booking directly with the hotel or resort also often provides the guest with more personalized service and even some extra amenities. You might be asking why would hotels use OTAs instead of just utilizing direct bookings?
There are a few pillars that make OTAs incredibly beneficial for hoteliers. As mentioned above, the exposure and the amount of advertising and marketing that OTAs provide for hoteliers simply could not be matched by the hotel marketing team. This alone provides a strong reason for hoteliers to partner with OTAs. The more exposure that OTAs provide hotels allow more bookings to be made. OTAs also offer a great stage for customer reviews. Customers are more faithful in reviews that are posted on sites that are not directly linked to hotels. If there is a review about a hotel posted on Expedia, it is perceived as more objective and thus has more value and merit versus reviews found directly on a hotel’s website.
And the Winner is…
At the end of the day, hotels and OTAs both benefit during the booking transaction and their mutually beneficial partnership. It is necessary for the hotel or lodge to have exposure in order to continually increase bookings. The OTAs cannot survive without a steady stream of available rooms. So who is the winner? That is up to you to decide!