OTA Revenue Management Advice can be Tricky for Hotels
Reading an online hotel industry news publication this month, I came across a statement that kind of threw me off. An industry veteran I greatly admire was suggesting hotels should consult with OTA for revenue management advice. Of course I probed as to what he really meant by this, as it seemed to me a tip that may lead hoteliers down the wrong path.
Before I get started, let me make a statement first. I love OTA. They are great distribution platforms, which can help you drive business. It is up to the hotel to use them according to your strategic needs.
Now let me share with you my concerns on Revenue Management advice by OTA’s to hotels.
Qualification of the OTA Market Manager
There are some questions that pop up in my mind …
- What would make an OTA market manager qualified to give you revenue management advice?
- Does he/she have solid ‘hotel’ revenue management experience?
- How long have they been around in the industry?
- Are they objective to the needs of your hotel?
- Do they know how their tips will impact your hotels results and market segmentation, cost of distribution, etc ?
(disclaimer: naturally there are exceptions that confirm my generalization … )
Of course you can get information from your market manager in terms of how demand is developing for your destination and what the outlook is for the next few months. Moreover if you are in a distressed situation or need some more base occupancy points, they might be able to get you some more exposure to drive incremental occupancy points.
Business Objective of the OTA
We have to ask ourselves what the objective of the OTA is and place their advice in this perspective to filter it well. It’s quite simple, they are after growth and market share. They want to increase the number of reservations, room nights and revenue they sell in each market. They want to book more rooms in your hotel than their competitor OTA’s.
This in my point of view would make them somewhat jaded, or less qualified to give me advice on how to best run my business.
In my experience many of the OTA market managers are merely following the instructions they have gotten on what drives business for hotels. These instructions are developed by the OTA management team in order to achieve the business goals.
Now let’s get practical to demonstrate my point.
Once upon a time there was a hotel, which was not doing so well. So we took on the revenue management of this property with Xotels to turn around its results.
We analyzed the hotels booking patterns, segmentation, market performance, competitive pricing strategies, online positioning, and performance.
One of the most challenging points was that the market had suffered a substantial decline in demand and there was an oversupply of hotel rooms, and the construction pipeline continued at steady pace.
Not really your most ideal environment of course …
So we developed a strategy to be more competitive, and slightly outsmart the competition. We noticed along the way that everyone was closely monitoring each other’s BAR (best available rate). And any price changes we made were rapidly followed by the competition. It was a competitive deathtrap for a downward spiraling price war.
So definitely not the way to go for the hotel …
So we decided to start playing a bit of poker with the market. I really wanted to see how switched on they were and if we could outsmart them, with some guerilla tactics.
We had noticed that all the hotels lowest available price categories were non-refundable. I guessed everyone would be sound asleep and would not check the conditions of their competition. We decided to start competing with the non-refundable rates of the other hotels with fully flexible conditions, allowing cancelation up till 24 hours prior to arrival.
For us it seemed logical if we were to gain extra occupancy, we needed to gain a competitive edge over the competition, and this would be an easy way. We basically changed our ‘Play Book’ overnight so no one would notice.
Within 24 hours we had the OTA market manager on the phone, informing us that our strategy would backfire as we would move down in their positioning, and loose demand. Because of our more flexible policies, we would receive more cancelations, and their ranking algorithm would penalize us we were explained.
But we held our ground ... (thank god the stubborn genes from my mom were passed on to me)
The OTA market manager reached out to the general manager of the hotel as well. He got nervous of course, not being comfortable in taking (calculated) risks. We held strong, and continued the course. Not without an unpleasant amount of discussions unfortunately. But we held our ground …
Within a matter of a week, we saw improvements. The flexible conditions vs. the non-refundable conditions at the same price level in the market, were logically perceived as more attractive to consumers. The OTA algorithm recognized this and started moving us up.
Within a matter of a few weeks we came from page 3, to be featured on the middle of page 1 of the OTA (without bidding a higher commission margins). And most importantly occupancy was on the rise.
For this particular hotel we went from a number 13 position in RGI (competitive revenue score) to number 2 within a year. And we are still up there as a market leader when it comes to REVPAR results.
Other Risk Factors
Other elements you should take into consideration when working with the OTA is the risk factor of having too many promotions overlapping. For instance you could have a stay 4 pay 3 discount to try to attract longer stays. And at the same time you have a non/refundable rate to offer a discount for people who are willing to pay in advance, helping your cash flow. Additionally to push people to book further out you have an early bird discount.
Now all of these promotions can certainly be helping your hotel’s commercial strategy. But be careful as very often these kind of promotions are combined but the OTA. Which means a consumer that would be booking far out for 4 night stay and is willing to pay directly might be getting a lower price than you had foreseen.
Let’s put some numbers on paper to demonstrate:
- The BAR rates is 100
- LOS stay promotion = Stay 4 pay 3
- Early Bird Discount = 10%
- Pay Now Pay Less discount = 10%
If you combine all of these promotion the guest would end up paying 60.75.
Then on top some OTA also have discounts for packages (10%), which would bring the rate to 54.66. This is quite far from the 100 BAR rate.
So make sure that your promotional structure is set-up well, and you keep the overview. We also tend to not have too many promotions at the same time, and make sure they are not combinable. This will avoid low rates slipping through without you even noticing it.
Summing it up
The cookie-cutter or one size fits all approach by OTA in advising the hotels is not really my cup of tea as you can understand.
You need to analyze well how your market is working and use an OTA as a tool to achieve your own objectives.
And to compete you need to differentiate yourself, not just with your product and service, but as well with your strategy.
Hotels should follow their own strategy!
I hope this blog article has given you some more perspective on how we think as revenue managers.
Patrick Landman @ Xotels