Customer retention is the single biggest challenge for OTAs today and it is time they took this seriously

Traditionally the business model of online travel agents has had a strong focus on driving transactions. But with the emergence of the traffic-trading model, there have been some striking developments. One example, are the strategic alliances that have sprung up between OTAs and meta-search engines.

But what happens next?

EyeforTravel’s Ritesh Gupta talks to Philipp Brinkmann, CEO, tripsta.com about where he thinks the world of travel is headed in 2014.

EFT: In your view, what is the next big frontier for online travel agencies?

PB: The biggest challenge that OTAs are facing in 2014 is moving from the transactional-oriented ecommerce era to the ‘retail’ e-commerce side of the business.OTAs have focused too long on being travel businesses instead of focusing on being data driven e-commerce businesses.

With the rise of meta-search, customer loyalty and customer lifetime value becomes more and more important. Furthermore the customer acquisition and advertising models will be more and more integrated in the booking process, providing a seamless experience for the consumer.

The biggest frontier in my opinion is data management and business intelligence though. Like many other e-commerce businesses, OTAs have a lot of big data challenges. Having a good strategy around data and business intelligence is crucial for success.

EFT: Looking at the OTA segment today, are there opportunities that you’d like to highlight?

PB: The core value proposition of most OTAs today is the fact that they offer aggregated content from hundreds of suppliers on an e-commerce platform. However, most OTAs focus on transaction acquisition and conversion instead of customer acquisition and retention. This facilitated the growth of intermediaries. Obviously it is easy for most OTAs to get transactions from meta-search channels. However, the risk is that the OTAs are becoming fulfillment companies instead of e-commerce businesses.

OTAs should invest in sophisticated intelligence, information and profiling technology to build a strong customer acquisition strategy and brand.

An integrated multi channel strategy can definitely provide new revenue generation avenues for OTAs. Compared to the number of medium to large OTAs there are very few big brands in the OTA industry in Europe currently. I am therefore convinced that we will see consolidation within the next years and more investment into the brands especially in emerging countries.

EFT: Are there any signs of OTAs retaining their customers better?

PB: I’m not sure we are seeing such a sign yet! The rapid growth of some meta-search companies shows clearly that customers are neither retained, nor acquired early in the acquisition funnel by OTAs.

Customer lifetime value and retention are the major frontiers for OTAs. Understanding the customer it key to be able to create and distribute personalised products and services before, during and after the trip allowing customers to keep one source of information to complete all of his interactions. OTAs still have plenty of room for improvement to establish a relationship with their customers directly. Mobile devices could play an important role in this strategy since they allow the OTA to interact with the customer through location-based services and monetisation strategies during the trip as well. 

EFT: OTAs have experience in dealing with rapid change in technology and keeping up with new devices, social networks, apps and so on. So do you think OTAs are still better placed than other intermediaries?

PB: When it comes to hotel distribution OTAs definitely are the leaders. They have grown fast and effectively and have positioned themselves successfully both on the product and brand front.

Many OTAs are deeply integrated into the property management systems, allowing the hotels to sell unsold rooms in an efficient way. However, being successful at selling hotels requires a much larger investment compared to flights. Especially in Europe, 80% of all hotels are not chains, and many are family businesses. Cooperating with all of them requires a huge investment in terms of sales and technology. This is one of the main reasons why there are very few big OTAs which are strong in hotels and why they were able to create strong brands.

EFT: There has been a lot of talk about going further to inspire customers to plan their next journey. What progress are OTAs making?

PB: The ability to inspire requires business and demand knowledge, together with customer intimacy. This again shows how important data management, profiling and business intelligence is.

Another challenge when it comes to flights are the airlines’ legacy IT systems. These make it difficult to build applications which inspire the customer. Currently it is not even possible to offer the customer the ability to change his flight online. It is very hard to understand that in 2014 something as simple as this is not possible because of the way the airline IT systems are built. At tripsta, we recently built Price Radar which  promises to find the lowest available flight price over a six-month period. So far this offering is still in beta mode but the plan is to use it earlier in the customer acquisition cycle and to be able to provide the customer a seamless booking experience. It will generate another perspective for the traveller with more options that suit his budget. Hopefully this will help us to gain a loyal audience.