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Hotel Management - The Lie of Direct Bookings

Jon Sholter

 

Today, in less than 3 minutes, we are going to cover the following: If direct bookings are all they're cracked up to be.


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Disclaimer: Metrics used in this writing do not reflect every hotel and brand. However, most brands do have similar agreements with OTA's. Examples are for illustration purposes only. Illustrations are based on the franchise model of hotel ownership and not on independent properties.


We are constantly being told to encourage guests to book direct.


It is preached that direct booking are significantly cheaper to our bottom line. It is preached that direct bookings increase loyalty to our hotel. It is preached that OTA's are evil.

I agree with everything said above, but not as much as I used to.


Over the years, the gap between the cost of OTA and direct bookings has gotten smaller. We used to pay OTA's 20% plus for a reservation. Enough was enough, and we all started to fight back, but was it too late?


The OTA Monster
The OTA Monster

As OTA's market share soared, the brands played hardball. They got commission reductions, enforced rate parity in their portfolios and even offered guests discounts to book directly. These initiatives were all necessary and beneficial, but the OTA industry had already sprouted some unbeatable giants that consumers relied on.


Let's go in a time machine to 10 years ago and compare a direct booking with an OTA booking:

Traditional OTA booking at this time with a commissionable rate of 20% at $200.00:

$200.00 x 20% = $40.00

$200.00 - $40.00 = $160.00 Net Revenue


Now let's look at a direct booking at this time:

$200 - 0 = $200.00 Net Revenue

Right now, you're thinking, wow, you must be a rocket scientist with that math! Be patient!


Let's look at the present.

OTA Booking, 15%:

$200.00 x 15% =$30.00

$200.00 -$30.00 =$170.00 Net Revenue


Direct Booking:

$200.00 Net Revenue

But wait, what about the 5% discount offered to book direct online?

$190.00 Net Revenue

But wait, what about the 5% cost of rewards points to get that direct discounted rate?

$180.50 Net Revenue

But wait, what about the 2.5% ish fee charged by brands for direct booking marketing?

$175.75 Net Revenue


So now:

($175.75-$170.00)/175.75=3.4%

Looking at this example, the difference between an OTA reservation and a direct booking is not 15%, but rather 3.4%.


The savings of a direct booking in the example above are probably not as much as you thought. Going further, this calculation does not include factors such as additional spending on meta search or other initiatives. It also does not factor in higher loyalty reward fees for higher-tiered members. However, to be fair, it also does not include additional optional advertising spend on OTA platforms, which is becoming necessary to compete.


So, what am I trying to get at here?

The point is the benefits of direct vs non direct bookings are not as black and white as they used to be. Although, I do want to be quick to point out that these numbers do not tell the whole story. There are many benefits to direct bookings which are more challenging to quantify. These include, but are not limited to:


  1. Guest loyalty: When guests begin to search on your brand channels compared to other channels, you are more likely to win the booking as other competitors are not displayed.

  2. Guest Marketing: When guests sign up for a rewards program through a direct booking, they are indefinitely put into your hotel/brand marketing funnel.

  3. Guest Experience: With more data on the guest, hoteliers can offer more personalized experiences. Also, hoteliers have more flexibility to resolve the issue if things go wrong.


So, does it make sense to drive direct bookings? 100% it does, but the downsides are not as drastic as they once were. The truth is, guests use these platforms to find your hotel more than we ever want to admit.


Meaning, if you are still viewing OTA's as an evil monster playground you don't want to invest in, you might want to take a second look at your strategy. This isn't a black and white discussion as it once was. Having a solid strategy for both techniques is now necessary.


As always, thanks for reading.

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