Are OTA bookings incremental?
A question that keeps Revenue Management, Business Development, Sales and Marketing wondering is is this: are OTA bookings incremental or is this displaced from other booking channels? If you closed out OTA channels, would your hotel be empty? Or could you instead get the same business with lower cost of sale?
And most likely there is no blank slate answer that is universally true. It will depend on a hotel’s location, brand, age, competitors, market conditions etc. But the question is there. If the booking didn’t come through e.g. Booking.com – would it have come through directly??
Is the OTA booking incremental or would the same booking come through via a different channel?
To explore the question further, we have to start with this:
Who books via OTA and why?
Generally speaking, OTA bookings tend to come in with a shorter lead time than non-OTA bookings. A study* shows OTA bookings with an average of 20 days shorter booking window than non OTA bookings (sample of 200,000 reservations across 13 destinations). So what does this mean for your hotel? OTA bookings short-term fill in the gaps that you have in your inventory. On the flipside it also means that there is an opportunity to fill the hotel with more profitable business further in advance.
Another interesting facet to look at is booking channel. OTA bookings tend to come in with a higher percentage of mobile users (mobile site, mobile app) vs desktop. In Q1 2016 40% of mobile bookings came via OTA vs 18% via hotel suppliers*. Many hotel chains were slow in adapting to mobile.
Leisure and Business travelers alike are relying on OTAs. As a research conducted by google states: One in three leisure travelers and one in two business travelers select an OTA for its superior site tools and options with ‘lower price/best deals’ being in the top three reasons for using an OTA.
The study* also shows that 84% of bookers go into planning without having a hotel brand preference with 65% of leisure travelers being unclear about the differences among brands. Even business travelers are less driven by loyalty schemes with 41% less likely to plan business travel based on loyalty programs or points in 2014 (a rise from 38% in 2013*).
Add on that OTA’s proactive methods of increasing bookings:
- Reassuring social proof via reviews
- Targeted first time buyer offers
- Paid Search ranking
- Giving customers a sense of getting a better deal (read more on OTA tactics and what you can do about it in our previous blog post here)
- marketing budgets
Would they come to you directly?
One thing is for sure: switching off your OTA channel and just waiting for those same consumers to find your website and make a direct booking instead is not going to work.
Instead you need to be proactive to convert some of those OTA bookers to direct bookers. But you need to actively encourage them. Add value-ons for direct bookings, encourage them during their stay for next time by giving them a great customer experience and offering benefits through your loyalty programs. Ensure they’re not incentivized by the OTA with a lower price.
Replace it with more profitable business
Of course OTAs are only one part of your distribution mix, so it makes sense to take a look at your distribution mix, segment and and pricing strategy again. Can you replace the highly transient OTA bookings with lower price and lower cost of sale bookings further out in advance? That would leave less inventory for shorter lead time OTA bookings and give you some confidence and security to be more risky with your pricing strategy closer in.
That way not only do you fill the available rooms with different business but you also give them less availability by the time the OTA business knocks on your door and wants to take up the empty seats.
Finding those other pockets of business might not be easy, it very much depends on the market you’re in. Just don’t stop pursuing it. There is opportunity for it.