Encouraging more Direct Bookings and avoiding 3rd parties has been a “campaign” strategy for the larger hotel chains since 2016, but it’s certainly on the agenda for smaller chains and independent hotels & venues too.  But, just how successful is the strategy and should it apply to all hotels & venues?

Big Brands Leading The Charge

It’s somewhat understandable that brands with the size and scale of Hilton, Marriott, IHG, Accor, Hyatt, et al would lead the charge when it comes to Direct Booking Strategies.  They are trying hard to entice more customers to book directly and avoid doing-so through Online Travel Agencies (OTAs), such as Lastminute.com, Expedia, Booking.com. After all, the scale of their portfolios means they’ll be paying out a significant proportion of revenue in commission and referral fees, with many bemoaning that the commission levels demanded by OTAs has gotten out of control.  

Capturing customer attention online can be very expensive, as 2014-2016 figures from Expedia - second only to Priceline in terms of market share - illustrate, with total marketing spend as a percentage of revenue sat at around 40% ($2.26 billion in 2014, $2.72bn in 2015, and $3.35 bn in 2016).  In comparison, Hilton, who launched the most prominent direct booking campaign in 2016 - the largest marketing campaign in their history that generated $2.1bn in total revenue for the 1st Quarter of 2018 - spent between $90 - $150 million in media spend in 2017, according to estimates by international research company, Convergence ($90m estimate), and R3 ($150m estimate).  

Hilton CEO Chris Nassetta said that in 2017 alone, they added a record 11 million more Hilton Honors loyalty members, taking the total up to 71 million, and close to 95% of those members are now booking direct.  So, Direct bookings account for close to a third of all Hilton bookings, 10% of which - “and growing” - are via mobile.

At the February 2019 Direct Booking Summit in Singapore, TripTease co-founder Charlie Osmond declared “Hotels are now for the first time in five years, taking more direct bookings than via OTAs.”  So, it would seem, at least in the short-term, that the strategies have been successful.  However, the challenge for hoteliers is in sustaining that trend, which - given the marketing spend of the OTAs - won’t be easy.

Why has Direct Booking suddenly become a ‘thing’?

Like the 2018 Marriott & Hilton slash in commissions to 3rd parties in North America, ‘Direct Booking’ campaigns has been a response to a growing issue / industry trend.  There are mixed opinions amongst senior hotel executives when measuring the value of an OTA, with some seeing the OTAs’ commission structure as a barrier to profitability, whereas others believe such intermediaries bring a lot of value to the industry.

A 2016 hotel distribution report from Kalibri Labs indicated that OTAs had more recently gained a 40% share in hotel bookings, outlining that in 2011, there was one OTA booking for every 4.3 direct bookings, yet by 2015, it had increased to one OTA booking for every 2.7 direct bookings. In 2016, hotel ‘direct booking’ campaigns emerged in response to this growing trend and the associated increases in distribution costs.  If third party costs are escalating to a point that is seemingly beyond control and doesn’t correlate to value, then there’s always going to be a point at which the straw breaks the Camel's back, and then there is going to be a response. That response has been a move towards Direct Bookings.

This trend and growth in OTA bookings was identified as a business risk in Hilton’s 2016 annual report, specifically that the growth of internet reservation channels and intermediaries could adversely affect business and profitability.

“A significant percentage of hotel rooms for individual guests are booked through internet travel intermediaries, to whom we commit to pay various commissions and transaction fees for sales of our rooms through their systems... If these bookings increase, certain hospitality intermediaries may be able to obtain higher commissions, reduced room rates or other significant concessions from us or our franchisees. These hospitality intermediaries also may reduce these bookings by de-ranking our hotels in search results on their platforms, and other online providers may divert business away from our hotels.”

There are clear concerns identified in respect to the tactics of OTAs to adversely affect hotel groups’ business and ability to obtain bookings, which they may otherwise have secured.  This is certainly one key factor in the emergence of combative strategies to attract more direct bookings. Hilton’s 2016 annual report goes on to say;

“....hospitality intermediaries generally employ aggressive marketing strategies, including expanding significant resources for online and television advertising campaigns to drive consumers to their websites. As a result, consumers may develop brand loyalties to the intermediaries’ offered brands, websites and reservations systems rather than to the Hilton brands and systems. If this happens, our business and profitability may be significantly affected as shifting customer loyalties divert bookings away from our websites.”

Indeed, as identified earlier, the OTA’s are tough to compete against when it comes to marketing budget, so hoteliers need to get creative and ensure their smaller marketing budgets can extend further.  This is no easy feat, but it’s possible. OTAs want to own the guest, which means OTAs will often make a loss on the first purchase to secure customer loyalty, and as a result, they are beginning to strengthen their own loyalty programmes, which is a big concern for hoteliers.  A race to the bottom should be avoided by hoteliers at all costs, as something eventually has to give in terms of customer service and guest experience if it becomes all about rate.

Change in Mindset

Hoteliers own the product and experience, and are responsible for the fulfilment aspect but intermediaries have existed in one form or another for a long, long time.  What hoteliers need to establish is greater control over their booking channels to control cost and - ultimately - the customer experience.

The role and value of OTAs and thus the rationale and implementation of a Direct Booking Strategy can often be lost and misunderstood in the debate, often resorting to a ‘Hotels versus OTA’ style discussion.  This was what I witnessed in the industry debate on the topic at the 2019 Direct Booking Summit in Singapore, which is a dangerously narrow way of assessing the situation.  Jeff Crowe, Executive Assistant Manager, Sales & Marketing at The Fullerton Hotel & The Fullerton Bay Hotel Singapore speaking at the 2019 Direct Booking Summit in Singapore, recognised that there are many companies competing against direct and “better funded companies” too.  

So, does that mean it’s a losing battle for hoteliers?  Certainly not, but the conversation needs to migrate away from this narrow ‘us versus them’ mindset and establish a firm understanding of where the OTAs add value and - ultimately - how far that value stretches before the lines start to become blurred. Although there isn’t a simple answer to this question, the approach of Hilton CEO Christopher Nassetta, speaking to Skift at the Americas Lodging Investment Summit, is a sensible view, that being they both “jointly own the customer.”

“We’re on the fulfillment side... We’re the hearts and souls that make that stay different, and we make sure that product is right, along with the amenities, and the service delivery.”

When a customer books a hotel, it is one of the most important aspects of the travel itinerary, but not the only aspect of the travel itinerary.  Travelers still need to book travel and - dependent upon the reason for travel - experiences in the destination. This is an area a hotel website can’t (yet) assist travelers with (because it’s incredibly complex) and is a big factor in the usage of ‘one stop shop’ OTAs.  For many travelers, booking via an OTA rather than direct with a hotel is often down to convenience and time saving, rather than price. Travelers also find themselves booking their whole itinerary through airline websites, who have increasingly also offered a ‘one stop shop’ solution.  Travelers like to be able to compare and contrast available options before making a purchasing decision, which is a major factor that favours OTAs. Former Booking.com CEO, Darren Huston, speaking at ITB Berlin in 2016 - post the launch of Hilton’s ‘Stop Clicking Around’ campaign - outlined that acquiring travel customers is a costly business, indicating Booking.com spent $2.8 billion in marketing in 2015.  Arguing that this benefits the hotels and delivers new customers, Huston outlined that only 2% of Booking.com customers stay at the same hotel twice.  He may have a point but there was little context given to whether customers remain loyal to a master brand and, despite moving hotels, whether customers continue to book stays with another brand within the Marriott or Hilton portfolio, for example.  

Hotels, therefore, need to distinguish between new and repeat customers.  Speaking with an ex-senior Regional Vice President of Sales & Marketing for a top 3 global hotel chain, he agreed with me that hotels should be more prepared to pay a commission to OTAs for first-time bookers because of the sheer cost involved in acquiring new customers, but from that point on, it’s critical that the hotelier pulls out all the stops to convert that customer into a loyal one that books directly next time.  Let’s look at a simple example of how this may break down;

1st time booking via OTA

1 Guest x 1 night at $200

Commission on this booking at 18% is $36

If the hotel converts that customer into a loyal customer that books direct, and the customer is a frequent traveler who makes 9 subsequent bookings in a year, and let’s say for ease, that each booking is worth $200, then the hotel has achieved:

10 guest nights x $200 = $2,000

Commission is only payable on bookings that were made via the OTA, which - in this case - is the first booking, so that 18% commission when evaluated across 10 bookings, in essence becomes a 1.8% referral fee ($2,000/$36 = 1.8%).  

Whilst a crude example, it demonstrates the importance of converting new customers into loyal customers and encouraging them to have a direct relationship with you.  Doing so also reframes how you, the hotelier, thinks about OTAs, and will more likely mean you value that relationship and see them as partners, rather than adversaries.