Hotel Profit Discovery

5 Sure Ways to Give Your Direct Bookings to the OTAs – if you are into that sort of thing.

A few months ago I had the opportunity to speak with a General Manager with over 20 years of experience who also happened to set the Revenue Management strategy for her multi-hotel company.  She began by dismissing the benefits of data analytics and revenue optimization algorithms as a fad that is only useful for hoteliers with little experience.  I was not surprised by her comments. I am already used to having the power of mathematics belittled by people who have never used it because they are intimidated by the subject.  She then went on to share with me the RM strategy that has fueled revenue growth for her company for the last five years. Never mind that every other hotel company in her market experienced similar success simply because the market rebounded.  I listened intently as she detailed her fail-proof distribution tactics and then I wondered – is she an undercover agent for Expedia? Every tactic that she listed seemed to guarantee only one thing – that the OTAs got a lot richer.  What’s scary is that her strategies were not particularly unique or innovative.  They are the same tactics used by thousands of properties every day. This conversation led me to this conclusion, if you want to hand your profits over to the OTAs here are five sure-fire ways to do it.

1. Don’t forecast by channel.  

Unconstrained forecasting is the mathematical process of estimating how many rooms you would have sold if your property had unlimited inventory.  Doing this type of forecasting by channel reveals two things. First, it reveals the number of rooms to commit to online sales and second, the number to sell via traditional channels.  Not forecasting will make you treat all of your channels the same. Therefore, you will probably leave them all open. This means that during high demand days, when the commissions you are paying are at their peak, you will offer your highly valuable inventory through less profitable channels when you don’t have to.  If you are not budgeting, forecasting and incentivizing your bookings by channel, then you are definitely leaving your money on the OTA’s table.

2. Show an inflated rate with a big discount.  

By doing this, you have just promoted the OTA as the place to get the best deals for your property.  This makes it highly unlikely that a potential guest will leave the OTA site in order to book directly through you.  Not to mention that there are now volumes of research proving that showing a discount makes your brand look “discount”.  This plays directly into the OTA’s business model where they promote the concept that hotels are a commodity to be traded solely on price.  They know that when a property is not perceived as a commodity, the guest is much more likely to book directly.

3. Keep rates high for brand perception, then sell through opaque websites for occupancy.  

Hotels that practice this strategy are the OTAs best customers.  Not only are they giving away more commission than they have to on each “transparent” booking, but they are then paying even higher commissions to the same OTAs for the “opaque” booking  From the hotel’s point of view, this illusory pricing strategy drives occupancy while preventing brand deterioration, which we all know can be catastrophic.  Yet, what the hotel has actually accomplished here is to create a highly profitable customer for the OTA and a highly unprofitable customer for themselves.   That is exactly the opposite of what branding is supposed to deliver.  What’s more, OTAs know that an opaque guest is highly unlikely to ever book directly.  Shouldn’t hotels factor the marketing expense of creating a new customer into the costs of selling through opaque sites in order to see if they are not better off just publishing their true optimal rate?

4. Sell everywhere and anywhere.

While many smaller brands seem to think that more is better, the top hotel brands do not sell through as many OTAs as possible.  They are not in the business of driving traffic and revenue away from their sites into the hands of the newest OTA-of-the-month.  They have figured out that their most profitable guests are highly unlikely to book through websites that start with the word “cheap”.

5. Sell cheaper on the OTAs.

According to RateGain’s Parity Report, 60-90% of hotels consistently sell their rooms cheaper on OTAs than they do on their own site.  This is “Reverse Rate Parity”.  Can anyone please share with me the logic of driving traffic and revenue away from your own website other than making sure that the OTA bullies don’t threaten to cut you off for parity issues?

Don’t worry though, if you encounter any issues implementing any of these tactics, there’s always an OTA market manager that is willing to make sure that you succeed.

By the way, that GM is no longer an employee of that hotel company.

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Robert Hernandez, Statistical Analysis and Data Mining for Revenue Growth Robert is an expert in the field of mathematical Hotel Optimization and Analytics. He has spent the last 17 years building data-driven forecasting and optimization models for companies in over 20 different industries, from tech to tourism. Robert possesses a very unique skill set including cross-disciplinary experience, advanced mathematical and analytics skills, data transformation, industry-specific knowledge and business-process improvement expertise. Robert began his career at the Walt Disney Company in Revenue Planning. Read More+