Understanding OTA Logic

chart1For hotel and lodging owners, understanding OTA (online travel agency) logic, can be confusing and overwhelming. When it comes to choosing a position and strategic use of an OTA, you must first decide which customer segment you would like to reach. Understanding how OTAs work and what demographics each reach, will help you choose the OTA that will target the right demographic for your specific property. For instance, Booking.com guarantees upscale and global preference, while Expedia/Hotels.com focuses on affordable choices and are strongest in the US. Each can be the right choice depending on your lodging’s personality and target market.

The biggest mistake new hotel and lodging owners make, is assuming brokers will do everything to sell your property when in reality, your property is put into a sales pipeline and pretty much left on auto-pilot. OTA’s will tell you that they want to maximize income, but they won’t necessarily dedicate efforts to sell or position your hotel. Make sure to understand each specific OTA’s logic.

In general, the standard logic is this formula:

  • Expected Profit = (Number of Reservations x Average Selling Price x % of Commissions) – Acquisition Costs

But as a hotel or lodging owner, we see:

  • Number of Reservations = Number of Queries x Conversion Rate – Cancellations

With this formula, we can determine that the number of reservations depend on three factors,

  • How often the hotel is searched online
  • What the conversion rate is
  • How many reservations are realized (If a check-in does not occur, usually booking.com does not get paid)

Conversion Rate is the most important factor, as it can be linked to all other elements whether directly or indirectly. Conversion Rates depend on the following

  • The content
  • Comments
  • A better price
  • A larger inventory
  • Average selling price
  • Commission percentage

The OTA results also depend on brand positioning. The criteria for brand positioning usually depends on the following:

  • Comments
  • Photos
  • Cancellation policies
  • Increasing availability

Choosing an OTA can be confusing and what they say they are doing or going to do can always be depended upon. Waiting for your representative to respond and/or make changes can be exasperating. However, using multiple OTA’s will tend to give you the best outcome. chart2

*Further details on this topic can be found at “http://www.tnooz.com/article/crack-the-booking-com-algorithm/

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