The case for large hotel groups devising and supporting a direct booking strategy seems an obvious one, but what about smaller chains and independent and/or boutique hotels? Does it make sense for them to also devise a direct booking strategy? When you consider How to Develop a Direct Booking Strategy For Your Hotel and some of the key considerations involved, it seems like a lot of hard work and cost for smaller hotel chains and individual hotels.
An Individual Approach
The approach to direct booking is very much on an individual case by case basis, and will depend upon a whole range of factors, not least the cost of acquiring a new customer. A well weathered phrase, but one size certainly does not fit all. Here is a short-list of some factors that will impact your direct booking approach;
Hotel Chains
Hotel chains typically, though not always, will have single or multiple brand teams at corporate head office who are tasked with all aspects of brand management, from positioning to ensuring brand consistency, to promotion via the right channels, to key partnerships, and so much more. All these aspects of brand management contribute as essential factors in ensuring you can optimise revenue growth for each brand. Brand teams will have clarity on their customer personas and how to reach said customers for the lowest blended cost (assuming multiple channels are being utilised for customer acquisition). As we discovered in How to Develop a Direct Booking Strategy For Your Hotel, this is an evolving process due to the shifting habits, trends and preferences of customers.
At the corporate level, hotel chains will typically apply 'real-world budgets' to the effective management of all aspects of the brand, which enables a multi-pronged approach when it comes to customer acquisition. Big brands will value their channel partners but - ultimately - their goal will be to try and attract as much direct business as possible.
At the unit level, individual properties within hotel chains will have their own specific goals & objectives (sometimes with pressure from different owners and management companies) and thus frequently adopt individual strategies that could materially differ from brand led initiatives. This is especially true in the largest chains where individual properties often voice a desire to promote their individual story, entirely unique to them and sometimes at odds with brand teams trying to maintain consistent messaging and standards. It's not east satisfying everyone in the wonderful world of hotel ownership, management and operation. Although a constant challenge, it can be one that does allow an element of flex for some hotels who are part of a big chain, benefiting from the power laws of distribution whilst having some budget at the unit level to differentiate under the lager umbrella. Some would say these hotels have the best of both worlds, but there are clearly pros and cons. Ultimately, it is considered that a large chain / brand has a greater likelihood of success when it comes to increasing its share of direct bookings due to the power of scale.
Independent & Boutique Hotels
Whilst independent and boutique hotels often don't benefit from the power law of distribution, unless they are affiliated with a hotel representation organisation, such as Leading Hotels of the World, Great Hotels of The World, Associated Luxury Hotels International, or are affiliated with a large chain, such as Hyatt's Unbound Collection and Marriott's Autograph Collection, then achieving growth in direct bookings is more than likely going to take a greater degree of creativity and/or more of an entrepreneurial growth-hacking mindset. This may sound like a disadvantage, but we've already established there are both pros and cons to having scale and it's not always about budget. There's a reason small businesses succeed and grow into tomorrow's major global businesses. Mindset, approach and innovation are key aspects of their success. So, yes your adoption of a direct booking strategy as an independent or boutique operator may largely depend on your mindset.
What small independent and boutique hotels have that large chains often don't is the ability to be nimble, to try different approaches on a small-scale to see what works and then to double and triple down on the successes to achieve rapid growth. David and Goliath stories are not as uncommon as one may think.
Larger businesses are typically more risk averse and are slow to innovate. It's a perennial issue across industries and it's why we now see an increasing number of banks clamouring to understand how they can have a more innovation led culture and mindset because of the increasing number of challenger banks entering the market.
To illustrate how independent & boutique hotels have a distinct advantage in terms of this flexibility and innovation mindset, we can look at the Diffusion of innovations, which renowned professor of communication studies Everett Rogers popularised as a theory in his 1962 book Diffusion of Innovations. The theory explains how, why, and at what rate new ideas and technology spread. The below graph illustrates the theory, splitting the population into 5 segments; Innovators, Early Adopters, Early Majority, Late Majority, and Laggards.
The Diffusion of Innovations
The Chasm illustrated in the graph is a stage (often a barrier) between early adopters and the early majority. This was introduced as a specific feature of the Diffusion of Innovation Model after a pattern was noticed during the study of technology adoption that showed a growing frequency of innovations that were getting stuck between the early adoption stage and broader use. Innovators and early adopters tend to use their gut instinct and/or reasons other than pure economic ones when embracing new technologies. Businesses that are characterised as innovators and/or early adopters may often have a specific budget set aside for embracing new innovations and technologies with no real expectation of returns. They're willing to embrace and trial different solutions knowing that the returns they may get on an innovation will likely dwarf the returns they would otherwise get once such solutions have reached mass market adoption. First mover advantage can and will help those businesses achieve such significant gains that they're willing to take the risks and set aside budget to try something new, something that will give them an edge. This is where David will undoubtedly chink the armour of Goliath, or score a short-term win that has an exponential impact on the smaller business. The "chasm", in this case, often acts as a advantage for these types of businesses because they benefit from the gains associated with the uniqueness of the solutions for longer whilst the masses continue to weigh up the pros and cons of the new innovation.
Independent & boutique hotels willing and able to do their research into new innovations, and able to embrace/trial new innovations can benefit from exponential gains in a seemingly unbalanced market where 'Might' is assumed to guarantee market share. Finding new, creative and innovative ways to capture customers can be exciting and galvanising for your teams and it can also ensure you capture some of the brightest and best talent in the market, as a job with such scope, freedom, and autonomy can be very attractive for the brightest minds. Once you've gained an advantage, you have an undefined period of time - the chasm - where you can ride the crest of the wave before everyone else joins the party. Where you need to ficus during this time is at how you sustain those benefits once the masses jump on board. Clue: working in partnership with key providers who understand your business challenges & objectives can be a key strategy, as is embedding, fostering and nurturing an innovation & growth mindset within your business.
However, whilst some of the best and most creative ideas often come from the bottom of the pyramid as a response to the scarcity of resources, in practical terms, not every venue can take such an innovation mindset. So, does this mean that a direct booking strategy can be counter-productive and too resource intensive for some venues? The simple answer is yes. Let's take a look at the role of Online Travel Agencies (OTAs), who have become an easy target for dissent amongst many hoteliers.
How Do Online Travel Agencies (OTAs) Impact Your Approach?
One of the big factors in assessing your ability to acquire more direct bookings will depend upon how much business you currently acquire directly versus through OTAs.
If your hotel(s) are overly reliant on the OTA as a channel, then this could prove problematic, as you’re at the mercy of OTAs when it comes to the commissions charged. It’s important to understand your customer acquisition costs per customer and how this compares with the average commission cost per transaction through an OTA. Some other important measures include, Customer LifeTime Value (CLTV), and the cost of converting customers to direct, as OTA costs are not a simple analysis of value. Once you have a handle on a range of these key metrics, you are better placed to assess the value of an OTA and - ultimately - where the sweet spot lies in terms of the commission you can afford to pay. Making these calculations will enable you to monitor third party costs and know where your tipping point is between fair value and an investment into doing it yourself and attracting more direct business. Some small independent hotels, for example, don’t have the ability to invest in the type of technical infrastructure and expertise discussed earlier, and so OTAs represent a useful and necessary channel to market. Whereas, other independent hotels do have the luxury of being able to invest in their own tools and to attract business direct. Like many things in life, finding your individual balance is key.
Many hoteliers will report that channel partners, such as OTAs, offer them immense value and savings because they don't have the hassle of continually generating and harvesting leads, even more so for those hotels operating in a global market with competition that transcends national borders. Lead generation is typically the most time consuming and expensive part of your sales & marketing process (funnel), so carefully selecting partners who will help you drive relevant, qualified, high-quality leads with a high chance of converting into definite business can be worth their weight in gold. The secret is to find the right balance and ensuring you don't put all your eggs in one basket, thus weakening your negotiating position and leaving you open to being strong armed into accepting higher rates of commission through those key channels. Having a channel expert in-house or as a consultant to your business can prove useful in understanding the options, assisting in the management of channel relationships and ensuring you are paying fair distribution costs that ensure your customer acquisition costs are in line with your expectations.