Direct is still best: two hotels on what to avoid in online distribution

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IN-DEPTH: Hotel companies always have to keep a beady eye on developments that may reduce their yield from online distribution channels. Here EyeforTravel’s Ritesh Gupta talks to two senior hotel executives from Asia about what hotel companies need to be wary of when it comes to OTAs increasing their clout in the distribution mix.

The travel industry is among the most efficient e-commerce categories, known for its expertise in securing conversions across several booking windows. When various stakeholders, including hotel companies and OTAs, plan to cater to the booking preferences of their customer, they need to prepare for a range of booking patterns. Bookings may be made in less than 24-72 hours, 10-20 days out, 30 or more days out and even a year in advance. Many companies deal with these varying patterns very well. In particular, credit must be given to online travel agencies. From their ability to target brand agnostic consumers to increasing off-peak demand and understanding how different channels deliver different demand profiles, OTAs are considered to be a vital cog in the whole distribution chain.

Although hotel companies acknowledge the role of OTAs, they are well aware that there are ongoing challenges when it comes to doing business with them.

Disruption and discounts

In Kuala Lumpur, Ricky Ang, VP sales and marketing at the Hotel Equatorial Group, believes there are

two potentially disruptive developments for hotels:

1.       OTAs moving into or evolving a wholesale business model unit.

2. OTAs creating multiple ‘closed user groups’, which is loosely used to  describe a consumer grouping that is given access to an offer that non-  affiliated general consumers won’t be made.

These initiatives, he says, will result in higher discount levels for hotels and will invariably erode yield from online distribution channels.

“It may herald a shift in the online distribution landscape from being that of ‘retail with pricing parity’ to a very opaque environment where the best price is far from being transparent to all parties,” explains Ang. Furthermore, apart from a dilution of yield (eg. closed user groups naturally require better rates than regular retail prices), there is a very real danger of OTAs infringing into previously sacrosanct hotel territories like corporate of commercial accounts and “potentially cannibalising the business there”.

Muddled thinking?

Meanwhile Chetan Patel, VP - strategic marketing and e-commerce at Onyx Hospitality Group, says the move of OTAs into the wholesale business model is less disruptive if the pricing is still dynamic. “I think OTAs making hotels bid on commission and margins was more disruptive than them moving in to B2B arena,” he says. “With many hotels bidding high on margins to get preferred rankings, the rate differential is blurred anyway. If online channels contribute a bulk of a property’s business, it will be inclined not to make the distinction as they simplify distribution for them to an extent.”

Patel believes that if the OTAs go with flat rates for their wholesale business, it is worse for the hotels. “That is moving backwards,” he says, explaining that the whole idea of online distribution is the dynamic nature of rates and yield opportunities. “If you take this away, the channel is not being used to its full potential.”  In his view, many OTAs are trying to do everything at once with this model by trying to compete with traditional/online wholesale, with flash/ deal sites as well as last-minute booking apps and so on. “It is a very muddled strategy. If there is really a gap in this area, the model might work. But we are approaching such proposals with extreme caution and I can tell you that initial trials have not been too encouraging.”

Worrying trends

Talking of closed user groups, Ang cites the example of an OTA approaching hotels to offer special prices to their ‘members’ with the condition that the offers must be a certain percentage below prices displayed to regular consumers. The proposition is that the offer is given only to a ‘fenced’ audience and that general consumers don't get access to these offers.

“The trouble with this is that one can simply create any grouping of consumers into a so-called ‘closed user group’. Without even going that far, just think of how large the ‘closed user group’ would be if the ‘members’ are derived from the database of previous bookers of an OTA. Left unchecked , the impact will be quite massive for hotels. That is a worrying trend,” says Ang.

Patel says this is more of a concern at least in the short term. “The rise of apps and deal sites (and social media) have created these closed groups,” he says, explaining that the OTAs are compromising rate parity and other terms that they expect the hotels to abide by. He continues: “Some hotels willingly give them specials for such groups. If they fit into your distribution mix, that is great but to us it appears like a race to the bottom.”

According to Patel, if they do work they might work to their own detriment. “If everyone has such closed groups and everyone is doing similar offers, they won’t be special anymore. Users may get fed up having to follow many channels to get the best deals. And rate shopping tools may improvise and start keeping an eye of these.” 

Although hotel companies cannot claim to know what OTAs are doing with their properties in such closed groups, this is something to avoid. They certainly do not want to send a message out that direct is not the best way to book.

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