IN-DEPTH: Interview with Ashwin Kamlani, president of Hotel Internet Help (HIH)

Published: 04 Jan 2011

IN-DEPTH: Interview with Ashwin Kamlani, president of Hotel Internet Help (HIH)

Both direct and indirect channels are consumer requisites and strategies for both should be aligned to maximise value.

The industry believes that all the five channels - hotel direct, voice / reservation center, 3rd party Internet, brand web and GDS / agency - still offer value. It really depends on where the customer chooses to book.

“Every hotel, regardless of how large or what type of hotel, should identify the cost of a reservation through each distribution channel. They should then minimise the volume of reservations that come through the most expensive channels, and maximise the volume of reservations that come through the most profitable, or least expensive channels,” says Ashwin Kamlani, president of Hotel Internet Help (HIH).

He added, “The hard part of course is determining exactly how much volume is needed from each channel in order to achieve the optimal mix of business in the hotel. Some hoteliers estimate this based on feeling, while others have sophisticated revenue management systems that use historical data as well as the current pace of reservations from each channel to make recommendations. Unfortunately, some hoteliers still don’t understand this concept at all, and make no effort to control the volume of reservations that come through each channel.”

While hotel marketing funds are limited, OTA have much more at their disposal. One has to drive a healthy balance and a long term strategy to deal with this anomaly and eventually come to a balance with both sources of business. In a market where there is a wide choice, the brand players have loyalty, but the retail customer may be driven by priorities other than brand..

When it comes to partnering with OTAs, it is always a dilemma for hotels to evaluate whether they should woo the OTA business or go direct. One has to drive a healthy balance and a long term strategy to deal with this anomaly and eventually come to a balance with both sources of business. In a market where there is a wide choice, the brand players have loyalty, but the retail customer may be driven by priorities other than brand.

EyeforTravel’s Ritesh Gupta spoke to HIH’s Kamlani about hotel distribution. Excerpts:

Quite often, it is highlighted that hotels must develop comprehensive Internet marketing strategy that includes search engine optimisation, pay-per-click, email marketing, and social media. Do you think this is really the case?

Ashwin Kamlani:

At a bare minimum, every hotel should at least have a website, preferably one that is built with search engine optimisation in mind. Beyond having a website, each hotel needs to determine how much, if anything, they need to invest into additional search engine optimisation activities, pay-per-click advertising, e-mail marketing and social media. Perhaps your hotel is off of a highway in some small town that nobody has heard of, and 99% of your business is from people that are driving by and need a place to stay at that particular moment. In that case, having a decent website is probably enough. You may want to consider making sure that the mobile version of your website is online and that customers can book using their phones. Maybe you want to experiment with location based mobile advertising. But I wouldn’t necessarily recommend an e-mail marketing or social media strategy in this case. Each hotel is different. If you are a destination resort, you probably need all of the above, but Facebook is probably a better social media tool for you then Twitter. If you have a design hotel with a popular bar in a trendy part of town, Twitter may be an extremely important tool for you. There is no perfect solution or combination of strategies that fits all hotels.

What do you recommend when it comes to hoteliers considering their costs and where possible, reallocate those funds to channels that drive more revenue to their hotels? How do you assess the approach for evaluating costs as of today?

Ashwin Kamlani:

Hotels get phone calls every day offering them all kinds of advertising and promotion opportunities. We all need to become much smarter about where we spend our money. Last week a client of mine in Hollywood, Florida was contacted by a magazine that was offering a 6 week placement in a magazine and on their website that they claimed reached the Canadian market which is a crucial market for Hollywood. When I contacted them, I asked them to send me a third party analytics report showing me how much traffic their website receives on a daily basis from French speaking areas in Canada. They had no idea what I was talking about. Their response was simply to tell me that the space that they were selling the hotel was such a great deal because they usually charge $1,200 and now it was only $500. I told them that even it costs 50 cents, I won’t recommend it to my client until I have proof that the French speaking Canadian market is actually going to see it. In this day and age, nobody should spend money on marketing and advertising without empirical data showing what the potential results of that investment could be. We even offered to give them a unique promotion code for the advertisement, and a commission on any booking that came in using that code. Of course they refused.

Hotels have a lot more power once they have the knowledge of how to use the Internet to sell and promote themselves. If the hotel doesn’t have that knowledge internally, they need to hire someone that does.

Do hotel really bother about determining their actual contribution to total occupancy from the OTAs, along with how much this contribution costs a hotel?

Ashwin Kamlani:

Every hotel, regardless of how large or what type of hotel, should identify the cost of a reservation through each distribution channel. They should then minimise the volume of reservations that come through the most expensive channels, and maximise the volume of reservations that come through the most profitable, or least expensive channels. The hard part of course is determining exactly how much volume is needed from each channel in order to achieve the optimal mix of business in the hotel. Some hoteliers estimate this based on feeling, while others have sophisticated revenue management systems that use historical data as well as the current pace of reservations from each channel to make recommendations. Unfortunately, some hoteliers still don’t understand this concept at all, and make no effort to control the volume of reservations that come through each channel. In this case the hotel typically leaves all channels open until the hotel is full which gives an advantage to the more expensive channels that may produce higher volumes of advance bookings. The OTAs thrive off of these hotels but at the end it is the hotel’s bottom line that suffers. Every hotel should ensure that the person in charge of controlling the flow of reservations through these channels is competent enough and incented to make decisions that will benefit the profitability of the hotel. Too many hotels reward these individuals based solely on occupancy which encourages them to fill as many rooms as possible as quickly as possible which is usually not the best approach to revenue management.

Recently, TravelClick pointed out that owning the customer is where the real value lies. And the OTAs know this. That’s why they don’t share customer email addresses with hotels. They retain customer ownership, which allows them to remarket to customers over and over and over. Are hotels really looking at lowering their OTA contribution, and instead allocating some of that savings toward Internet marketing to drive new customers to their own website?

Ashwin Kamlani:

Yes, hotels want to lower their OTA contribution and to increase direct bookings. Sadly not many really know how to do it and feel that they do not have any options. Some have been burned by companies that falsely claimed to be able to help them achieve this goal, and so they are afraid to trust anyone else with such an important aspect of their business. Others underestimate the importance and complexity of achieving this goal and mistakenly believe that they have the necessary experience and knowledge internally. In very few cases this may be true, but in most cases it is not.

In the recent past, there has been discussion about the future of OTA Merchant Model. It is being said that it will be transformed into a “Commission Override Model” where OTA commissions will be tied to booking volumes in the form of commission overrides above the standard travel agency commission that exists at the time. Also, travel agency commissions will eventually disappear. This will result in downward pressure on the current OTA merchant commissions, which are by default tied to the standard travel agency commission. OTAs will be able to earn override commissions above the standard travel agency commission only if they commit to concrete booking volumes. Naturally these commission overrides will be at a fraction of today’s levels. How do you assess the situation going forward?

Ashwin Kamlani:

The OTA Merchant Model in many cases has already been transformed into a Commission Override Model. I don’t think it is any secret that the major hotel chains have complex agreements with the OTAs which include lower margins than what an independent hotel is able to negotiate on their own, not to mention built in marketing funds based on production, and yes, commission overrides based on production goals. I do not think that we will see the entire model shift this way anytime soon. The power struggle between hotels and OTAs will continue and the hotel chains that have more leverage will be able to negotiate better conditions while independent hotels will have to rely on smart online marketing strategies and revenue management to drive as much direct business as possible.

I disagree that traditional travel agency commissions will disappear, and I do not think that OTA margins are affected by traditional travel agency commission levels. I do agree though that OTA margins in the United States are going to come under pressure. I don’t think that we will see everybody negotiating overrides based on production, but new OTA models coming into the market in 2011 will start to put pressure on the OTAs to compete.

What is the likelihood of OTAs being asked to commit to certain booking volume or booking revenue, tied to certain commission levels, unlike the current situation where typically the OTAs make no commitment to booking volumes, yet they receive OTA Merchant Commissions of 20%-30%?

Ashwin Kamlani:

Tying OTA margin levels to booking volume will continue between larger hotel chains and groups and the OTAs, but I do not foresee the OTAs opening the door for all hotels to negotiate these types of clauses into their contracts. Of course, what each hotel does in practice should always be based on the cost of each reservation from each channel in combination with the volume of bookings from each channel.

Few months ago, you mentioned that the industry will start to see some changes here in the US as a result of what has happened in other markets. How do you expect all this shape up in 2011 considering initiatives such as AllHotels.com and booking.com trying to establish itself in the US?

Ashwin Kamlani:

We will start to see some interesting changes in 2011 that I believe will shape the online travel industry (particularly for hotels) at least for the next five years. In January, Hotel Internet Help is releasing a new system called Regatta. It is a patent pending solution which allows any organization or company to instantly become an OTA using cloud based OTA Software. Our goal is to make every hotel association, tourism board and CVB the most important OTA for their own destination. Previously, these organizations only had two options if they wanted to help drive business to their hotel members; either they could tie up with an OTA like Expedia or Travelocity (which is expensive for their hotel members and lacks flexibility) or they could develop their own technology from scratch (which is cost prohibitive). With Regatta, consumers will have a third option to book hotels besides going directly to the hotel website or through an OTA. They will start to look for “city”hotelassociation.com to find the best information and deals on hotels. Hotels also have a third option to receive bookings besides through their own website or an OTA, and at a much lower commission level. Hotel associations, tourism boards and CVBs finally have a way to deliver significant value and revenue back to their hotel members..

An OTA of Expedia’s stature is focusing heavily on mobile. Also, the buzz continues to build around group coupon/social buying phenomenon. How do you expect concepts like social buying and mobile-related developments to shape up in 2011?

Ashwin Kamlani:

If a company turns down a multi-billion dollar buyout offer from Google, they are either gambling addicts, or they know something we don’t. I’m putting my money on the latter. I don’t see companies like Jetsetter and Groupon becoming a major threat to the OTAs but I do think that consumers like the concept and that we will continue to see these companies grow in 2011. The real story will be the development of mobile as more and more consumers get their hands on the mobile web either through their phones or handheld computers. The OTAs are smart to focus on this area and it will certainly be the main topic of many conferences over the next few years as everyone struggles to keep up with the pace of the evolution of technology.