IN-DEPTH: Interview with Peter Lee, director of North Asia, Expedia

Published: 30 May 2011

IN-DEPTH: Interview with Peter Lee, director of North Asia, Expedia

By Ritesh Gupta

Different distribution platforms cater to the need of different sets or groups of customers.

For instance, a GDS caters to the agency and the agents who have specific needs in terms of information and content. Similarly, direct to consumer platforms like brand websites represent content more catered to the needs and relevance of the end-customer.

A recent study in the US indicated that consumers have become more insular with a closely-knit sphere of influence, and this is affecting how they both arrive at and make purchase decisions.

The role of online travel agencies is a significant one when it comes to gathering pricing information and impartial comparisons, and also purchasing the best deal, according to Ypartnership/Harrison Group’s new study, 2011 Portrait of American Travelers. Importantly, when it comes to purchasing the best deal, the funnel narrows to two main options – booking through an online travel agency (41 percent) or directly via a travel supplier’s own website (38 percent). Less than one in four travellers uses traditional travel agents (23 percent) when booking, followed distantly by multi-brand websites (18 percent) and destination websites (17 percent).

The school of thought that subscribes to an aggressive direct to consumer focus will always substantiate the strategy by show-casing higher profitability, enhanced customer engagement and a more effective management of customer relationship strategies. However, this requires a great amount of investment.

Though the role of an OTA cannot be underestimated, it is often said that hotels should guard themselves against over-reliance.

If growing the direct channel is truly a hotel’s main objective, working with an OTA can actually help in that endeavour, providing free exposure, global reach and marketing support, Tokyo-based Peter Lee, director of North Asia, Expedia told EyeforTravel’s Ritesh Gupta.

Lee spoke in detail about the role of an OTA in today’s marketplace. Excerpts:

Changing a hotel’s market mix does not happen overnight. Therefore, like any business decision, it is important to understand the risks and rewards of taking such actions both now and in the future. Do you think suppliers who have been focusing on going direct to consumers have lost out on indirect channel partners?

Peter Lee:

Hotels don’t have to make a decision between growing their direct channel and working with other channels. They need to evaluate the costs and benefits associated with every channel they have the opportunity to distribute through.

The direct channel comes with higher costs in marketing and customer acquisition, while other channels, such as the OTAs, can help lower.

A recent study from the Cornell Center for Hospitality Research found that nearly 74 percent of consumers looking for a hotel will visit an OTA prior to making their booking decision, versus just 10 percent of consumers that go directly to a supplier’s website. This builds on an earlier study that found that hotels displayed on Expedia received between 7 percent to 26 percent more bookings than when they were not displayed. So if growing the direct channel is truly a hotel’s main objective, working with an OTA can actually help in that endeavour, providing free exposure, global reach and marketing support.

In the context of hotels, customers are purchasing more than just a convenience. Customer decision making is influenced by a mix of tangible and intangible benefits represented by the brand or the physical asset. However, price targeting has become increasingly difficult in this time of transparency. Some level of generalisation is necessary, combined with careful and discreet targeting of offers. How do you think OTAs have played their part in today’s environment?

Peter Lee:

Expedia customers are actually quite discerning and tend to make booking decisions based on much more than just the room rate.
Our booking data shows the importance of content like property photos, virtual tours, star ratings, and importantly, user reviews in influencing booking decisions. The more information that is available about a property, the more likely that a traveller will book the right property that best meets their needs, which in turn helps to ensure a happy customer, and may eventually lead to a positive online review for that property. OTAs have become an integral part of this cycle. Expedia sites today feature well over one million traveller reviews—just another example of the depth of information provided to consumers shopping our sites.
It is being said that many hotels have been forced to cut back on their marketing and advertising budgets and so have come to recognise the value of mere exposure on OTAs. How do you assess the situation?

Peter Lee:

More than 75 million consumers visit Expedia, Inc. sites worldwide each month, making Expedia an extremely efficient marketing and advertising channel for our supply partners to reach a global audience of travellers. The hotel industry throughout APAC and beyond has become much more sophisticated in their thinking with regards to distribution and online marketing, and understands the value OTAs like Expedia offer to hotel partners. The “Billboard Effect” has been quantified by the Cornell studies, which found that Expedia generates between 3 and 9 additional bookings to a hotel’s direct site, for every booking made on Expedia.

Hotels that play more aggressively with OTAs and drop rates in an effort to steal market share damage the market conditions for their entire destination and it will take them years to build the rate back up to normal levels. The role of OTAs (and wholesalers) should not change according to economic conditions. How have OTAs acted as valuable partners more than ever?

Peter Lee:

Expedia delivers value to hotels in all demand environments and through all economic cycles. We deliver the most value when we have the opportunity to develop a long-term, consistent relationship with a hotel.

That being said, negative economic changes in countries or regions can have a major impact on occupancy levels, leading to lower-than-normal rates in a given market. In these instances, Expedia gives hotel partners the ability to run need-based offers on their own to boost demand over specific dates, or to incite a specific type of demand, such as longer lengths of stay or weekday stays.

Additionally, Expedia has the local market knowledge necessary to coordinate with local tourism authorities and local supply partners to very quickly organise merchandising and promotional opportunities to drive demand at a destination or property level.

It is said that Rate Parity and Best Rate Guarantees have contributed to the commoditisation of the hotel product. In today’s environment, how do you think OTAs have contributed, positively and negatively, to a hotel’s distribution strategy?

Peter Lee:

Rate parity is becoming increasingly important for hotels in light of the Billboard Effect, which is the tendency of travellers to browse for hotels on OTA sites and then go directly to the supplier’s site to book.

Parity ensures that a customer will see the same price for a given room no matter which booking channel they use, and is one important way that any hotel or OTA can increase consumer confidence.

From distribution perspective, with online channels more responsive to discounting, how do you think online channels impact ROI and CPA?

Peter Lee:

It’s important to clarify that hotels are responsible for setting their own prices, and at the end of the day it is the consumer that ultimately decides whether the price is acceptable or not.

The fact is, online channels enable hotels to reach potential customers they would not otherwise be able to reach, and to quickly make adjustments to rate in accordance with their needs.

It is very clear that working with Expedia drives better CPAs than not working with Expedia. Overall, the traffic we drive is something a number of hotels could not effectively and efficiently afford to generate on their own.

Do you think it’s time to consider profit parity as opposed to price parity? What do you think are the main challenges in doing so?

Peter Lee:

This would be very difficult. That is like asking a consumer to pay the same price for a 2-star hotel as for a 5-star. Different OTAs provide different levels of value in terms of geographic reach, traffic volume, and the strategic and tactical programs offered to help hotels maximise demand and occupancy in accordance with their needs.

For example, Expedia offers hotels the ability to participate in the vacation package channel, through which they can secure bookings that typically have a longer length of stay, an extended booking window and a lower cancellation percentage – all very tangible, valuable benefits for hotels beyond the traditional marketing channel.