OTAs are challenging your brand value
Well we all know what damaging effect OTAs have on the bottom line with all the commission that is lost. It’s an expensive cost of sale. But looking at it long-term, OTA’s damage reaches much further as they are also questioning your brand value, the very core of your business.
How are OTAs tearing away parts of your brand value to consumers?
On the smallest entity – the hotel level – what is the value of the brand? The value of the brand is to make consumers take a purchasing decision in your favor. That’s the power of the brand. Consumers who don’t even look at other phone alternatives and make objective comparisons based on the specifications and instead are already excited for the new iPhone to come out. Consumers who are willing to pay 10% more for a Fuji camera and who keep raving about it to their friends proud about the purchasing decision they made.
Now let’s take a sample hotel in a new or competitive market, whatever brand is written on top of the building. Likely a small percentage of those bookings is coming direct. And likely a high percentage, especially for transient on weekends, is coming through OTAs. Maybe they booked you this time as you had a seasonal offer going on, or you paid for preferential listing with the OTA. Or maybe you’re in the best location in town. But what if next year a brand new hotel opens next door? Will you keep the flow you are getting from OTA or will they divert into the new shiny building next door with an even better view and a new opening discount?
These are hard questions to ask. The truth is that OTA bookers aren’t loyal to your brand. Instead they make booking decisions based on a combination of value for money, location and rating. In crowded markets it also counts who are listed on the top two pages as frankly very little consumers will click through all of 15 pages of hotel listings to make comparisons.
This makes you dependent on the OTA and this also makes you fight for new bookings each and every time. And these new bookings come at a high cost of sale and low rate. Of course I already hear brand teams scream that brand image and consistency are part of the decision making process. And it’s true. But the question is whether this can trump value, location, rating and positioning.
Brand value for investors
What investors are looking for is ROI. So sure, having a lower cost of sale will be on their radar. But there’s also a whole different string of questions: “Why would I go with you instead of another hotel chain?” and another hotel owners’ favorite: “Why do I have to pay you all these brand fees, what do I get from it? What is the brand doing for me to fill my hotel?” And this is the very point where OTA dependency makes it harder to argue.
To take this to the extreme: Why wouldn’t an investor just bank on business coming through OTAs and go with a lesser known or no-name brand saving a lot of money in marketing fees and brand fees that in the every day don’t make a visible difference to him/her? In the end they’re in the business to make money. The hotel is an investment and they’re looking for the best option to maximize the investment. And at this point it looks like he is paying a high price for bookings and on top of that an additional price (to the brand) that isn’t doing its job of pulling in reservations.
You don’t have hotel investors and owners on board, you stagnate or slow down growth, you bring down the value of your company, you lose brand strength. It’s all connected.
What’s the way out of this circle? Well, start with what the hotel brand and the owner have in common: Both parties would prefer to shift bookings to direct brand channels. They come at a much lower cost of sale meaning more profit on the bottom line.
We talked about methods on decreasing OTA depencency in a previous blog post and the key is to visibly show progress and to show marketing funds being used to address this.
It’s a long-term effort and the conversation will continue over a long period. But you got to start somewhere. OTAs are working on further building out their brand and this only means taking chunks away from you.