“PEOPLE CHARACTERIZING IT AS A BOOKING WAR, I WOULDN'T AGREE WITH THAT. WE'RE ALL PART OF THE TRAVEL ECOSYSTEM, AND WE'LL CONTINUE TO COEXIST AND WORK TOGETHER.” — CHRIS SILCOCK, EXECUTIVE VICE PRESIDENT & CHIEF COMMERCIAL OFFICER, HILTON
Report OverviewIn the following report, we analyze distribution trends for the hotel industry by combining our own primary research and survey data from 375 hotel respondents with insights from leading hotels, online travel companies, and industry experts. These engaging interviews amount to a roundtable discussion from thought leaders in the hospitality industry. We discuss the ad campaigns launched by the mega brands and provide our estimates for implicit and explicit costs of customer acquisition across direct and indirect booking channels. We offer key findings from this data including current distribution mix and expected change in the next 24 months, profitability ranks of indirect and direct channels, ideal distribution mix, and predicted spending trends on Expedia, Booking.com, Ctrip, trivago, TripAdvisor, Kayak, Google AdWords, and Google Hotel Ads. At close to 60,000 words including survey data along with new interviews from executives at Marriott, Hilton, Wyndham, IHG, Choice Hotels, Best Western, Red Lion, citizenM, and NH Hotel Group on the hotel side and Expedia, TripAdvisor, Kayak, trivago, Google, and Facebook on the digital side, what follows is one of our most comprehensive reports to date.
What You'll Learn From This Report
- What should count as a direct booking
- The difference between paid and unpaid digital direct
- How hotels can and cannot compete effectively on metasearch
- How hotels are engaging OTA customers to build their loyalty base
- How CPC on metasearch can be riskier than CPA, but more cost-effective when done well
- How traditional travel agents can compete on domain expertise rather than inventory
- How much traditional travel agents charge per booking and how that number is under pressure from the large hotel groups
- Corporate travel trends and economics to the hotel
- Estimates for the share of bookings across non-digital direct (phone, email, walk-ins, group), unpaid digital direct, paid digital direct, OTAs, GDS, traditional travel agents, and managed corporate travel for both large brands and independent hotels
- Effective commission rates for the OTA, metasearch, metasearch Instant Booking model, GDS, traditional travel agent, and corporate travel manager
- Why OTAs have dominated metasearch bookings
- How the fee structure works for GDS bookings
- Implicit costs of digital and non-digital direct bookings
- The economic value of moving a booking from an OTA to direct including the impact of advertising and opportunity costs
- What issues impact the optimal distribution mix
- What Hilton, Marriott, IHG, Best Western, Wyndham, Choice Hotels, AccorHotels, and Hyatt are doing to drive direct bookings and what their booking distribution mix likely looks like
- How hotels can improve their chances of “winning” the OTA-booked guest to book direct the next time
- What leading independent hotels are doing to win booking share
- What share of Expedia’s and Priceline’s OTA bookings likely comes from the mega-chains and the potential financial impact from channel shifts
- Chris Silcock, Executive Vice President & Chief Commercial Officer, Hilton
- Drew Pinto, Senior Vice President Distribution, Marriott
- Barry Goldstein, Chief Marketing Officer, Wyndham
- Andrew Rubinacci, Senior Vice President Distribution & Revenue Management Strategy, IHG
- Jeannie Lin, Vice President, Marketing and Distribution, Choice Hotels
- Dorothy Dowling, Senior Vice President and Chief Marketing Officer, Best Western
- Lennert de Jong, Chief Commercial Officer, citizenM
- Bill Linehan, Executive Vice President and Chief Marketing Officer, Red Lion Hotels
- Otón Gomez Fernandez, Senior Vice President – Marketing Services, NH Hotel Group
- Sebastien Bazin, CEO, AccorHotels (excerpted from a previous Skift interview)
- Bill Walshe, CEO, Viceroy Hotel Group (excerpted from a previous Skift interview)
- Jimmy Suh, Chief Revenue Officer, Standard Hotels (excerpted from a previous Skift interview)
- Melissa Maher, Senior Vice President, Global Partner Group, Expedia
- Johannes Thomas, Managing Director & Chief Revenue Officer, trivago
- Brian Schmidt, Vice President of Global Sales, TripAdvisor
- Keith Melnick, President, Kayak
- Christine Warner, Travel Head of Industry, Facebook
- Oliver Heckmann, Vice President of Engineering, Travel, Google
- Erik Blachford, Former Expedia CEO, Current Venture Partner at TCV Partners
- Jean-Louis Boss, Co-Founder, Chief Marketing & Digital Services Officer, FastBooking (owned by AccorHotels)
- Kurt Weinsheimer, SVP Property Solutions, Sojern
- Mike Ford, Co-Founder and Managing Director, SiteMinder
- Martin Soler, Managing Partner, Martin Soler Consulting
- Tony Loeb, Co-Founder, Experience Hotel
List of Figures
- Current Booking Breakdown by Channel
- Direct Bookings from Paid Channels
- FastBooking Metasearch Market Share
- Effective Commission Rates
- Implied Costs for Direct Bookings
- Booking Valuation NPV Analysis
- Hotel's Current Distribution Mix
- Percentage of Guests who are Loyalty Members
- Hotel's perception of a fair OTA commission
- Hotel's satisfaction with OTA data sharing policies
- Projected changes in Distribution Mix
- Projected spending changes by Distribution Channels
Top brands like Marriott and Hilton have been successful launching direct booking advertising campaigns, but that does not mean that such campaigns would be economical or even work for smaller and independent brands. Regardless of size, we believe that hoteliers need to take a portfolio approach to distribution. The digital direct and online travel agency channels are most often in focus, and we certainly discuss these in great detail, but other channels like non-digital direct, global distribution system (GDS), managed travel, group travel, and traditional travel agencies remain an important part of the booking mix as well.
Our report analyzes not only the impact the direct booking ad campaigns are having on the hotels running them, but also on the online travel agencies. We show that successful channel shift for the large hotel brands has a negligible financial impact on the leading online travel agencies despite fears to the contrary.
We dive into the booking distribution breakdown of hotels across the size spectrum. The results vary greatly between the mega-brands and the rest of the industry. Despite larger advertising campaigns by the top hotel chains, bookings derived from online travel agencies are actually already relatively low as a percentage of bookings. For independents and small hotel groups, online travel agencies typically drive a more meaningful share of business.
The largest hotels were already quite successful in getting people to book direct where we estimate that a typical large chain gets at least half of bookings directly via digital and non-digital channels. Meanwhile, on average, we believe that only 10 to 15 percent of bookings come through online travel agencies for the large brands, so the starting point to move share is already fairly low. Larger hotel brands also generally pay lower commission rates than independent ones, meaning that OTAs do not need to replace all lost bookings to come out economically neutral.
Independent hotels that lack the international brand recognition, advertising budgets, and technology of the mega-chains see an opposite scenario where online travel agencies may bring as much as 40 to 50 percent of bookings. While they prefer direct bookings, we emphasize that these hotels need to be realistic with their distribution mix. Having a strong website that is visually appealing and converts well combined with a unique value proposition for the guest stay itself creates brand affinity to help drive true loyalty and more direct bookings, but as a whole, the small hoteliers will not get anywhere near the direct booking numbers of the mega-chains that have vast inventory, meaningful ad budgets, apps for mobile, and teams of salespeople across the globe. This does not mean that profit per booking needs to be low. Small hotels will often have lower fixed operational costs where third party distribution helps act as an outsourced marketing and technology partner.
We walk through the current booking mix for the hotel industry and where things are likely headed in the coming years.
Skift’s 2017 Direct Booking Survey
Throughout the report we illustrate key findings from our 2017 Direct Booking Survey. The survey received a total of 370 responses from hotels worldwide both operating under a brand as well as independent hotels, we compare and contrast results by brand vs independent to identify the differences in practices and preferences they have when it comes to distribution.
This survey was powered by a partnership between trivago and the Skift Research Group. All opinions and views expressed therein belong solely to the hoteliers surveyed, and the forecasts based on the survey results have been generated by the Skift Research Group.
Survey powered by:
– Beyond the industry media headlines pitching OTAs against hotels chains lays a complex strategic landscape focused on optimizing the costs associated with hotel marketing and distribution. The term “direct booking” can include various paid and unpaid measures practiced by hotel operators to effectively drive cost efficiencies, but also direct customer relationships. In certain cases, and if executed well, going direct can be more economical than indirect. Managing a direct distribution program also involves risk and investments and can end up costing more than it’s worth. What works well for some may not work so well for others. Hotel operators ultimately need to figure out what works for them.
– Bookings originating from organic search, email marketing, content marketing, influencer marketing and social media marketing are all part of the unpaid-direct toolset. Here, costs typically remain in-house and fixed in the form of staffing, digital infrastructure, and SaaS fees. Paid direct channels including search engine marketing, in this case Google AdWords and Hotel Ads, can offer more regularity when it comes to return-on-marketing spend. CPC and CPA campaigns on travel meta marketplaces also fall into the paid-direct bucket. Arguably, all of these are effective channels; hotel operators ultimately need to balance expertise in digital marketing and distribution, with the unique value proposition of their properties (customer base, location, rate, etc.) to optimize the paid and unpaid mix.
– Other channels beyond OTA and digital-direct can amount to a significant portion of total bookings. Here we look at GDSs, managed travel agencies, traditional travel agencies, as well as non-digital direct bookings including group and conventions bookings, walk-ins and room reservations. Combined, these channels can account for 40 to 60 percent of total bookings.
– Metasearch channels can and should be part of an effective hotel marketing strategy. For bigger groups, metasearch advertising is a marketing team function. Those with high web conversions can use meta CPC campaigns as a source of cheap traffic compared to AdWords, for instance. Keeping communication channels with distribution teams is key to balancing meta spend with commission-based distribution costs. For smaller chains and individual properties, managing the myriad of meta channels can also become an investment in time and money. No single meta channel will drive more than five percent of total inventory regardless of total investment. Working with channel managers such as SiteMinder is an option to pool click cost efficiencies across the different sites. Those with smaller budgets and weaker website conversions should go for CPA options to limit ad burn.
– Experienced operators recognize the value of OTAs as an acquisition channel, particularly for new guest acquisition. The overall consensus when it comes to strategy is that OTAs get customers through the door and it’s up to the hotel to build the relationship with the guest once on-property. Here, loyalty programs are standard protocol for capturing guest data. For the bigger chains, loyalty program members can account for more than 50 percent of bookings. Adequately rewarding direct booking behavior is clearly part of it. For smaller chains and individual properties, loyalty programs make less sense. Strong branding and differentiation with unique guest experiences targeted toward a niche clientele base is the strategy.
– Recognized brands tend to convert better on metasearch because they are closer to the customer at time of search. Companies like Sojern specialize in performance marketing and help hotels reign in ad spend costs. Meta players like trivago also like to offer advice to hotel partners. Both would much prefer working with hotels that have their digital wheelhouse in order. This makes it easier to convert shoppers and ultimately leads to happier clients who spend more. Hotels of any size should prioritize efficiency, simplicity and flexibility in their technology stack to help convert lookers into bookers. CPA platforms like TripAdvisor should be integrated since there is no risk.
What counts as direct booking?
One would think that given all of the industry attention on direct booking, there would be a more uniform way of looking at what it actually is. The most obvious type of purchase that all hotels clearly count as direct is the booking that occurs on the brand.com website or app where there is no third party involved in facilitating the transaction.
PAID VERSUS UNPAID DIGITAL DIRECT
Things become complicated within digital direct because there are paid and unpaid components. By unpaid, we do not suggest that there are not costs associated with acquiring the guest. There are advertising, technology, operational, and other expenses associated with building a brand and winning a booking. The unpaid amount is referring to third-party distribution costs.
For paid digital direct bookings, hotels will have the guest book on the brand.com site or app, but pay another entity for bringing the web traffic or booking. An example would be a hotel using a traditional metasearch company like Kayak or trivago, where a consumer clicks on the meta site to then book on the brand.com site. The hotel will typically pay the meta site on a CPC (cost per click) basis for that click, though a commission model with CPA (cost per acquisition) is possible as well. It’s debatable whether this should count as direct with marketing costs or amount to another distribution platform comparable to an OTA. Our view is that the CPC model would be a marketing channel while the CPA model would be “OTA-like.” Regardless, the booking is owned by the hotel and pays a third party to lead to a booking.
Another type of booking includes the TripAdvisor Instant Booking model, a bit of a hybrid approach where the booking seems to be done on TripAdvisor, but is really through the hotel. There will be a commission in the 10 to 15 percent range for the booking. While this is comparable to an OTA fee, the hotel does own the guest and all of the data on the booking.
Google offers both the traditional AdWords platform and the Hotel Ads metasearch product. Under AdWords, hotels tend to focus most of their bidding on branded search and very narrow key terms rather than generic ones. An example would be Hilton bidding on “Hilton in NYC” for branded or “luxury hotel on 51st street” for narrow. Hotels tend to avoid bidding on a term like “Hotels in NYC” as the OTAs have massive ad budgets and inventory to win that click. On Google’s Hotel Ads platform, larger hotels bid to be present on their own properties. For example, if we search for “Hotels in NYC,” we return Expedia, trivago, Kayak, and Hotels.com for the four paid AdWords links.
Under this, we will see a map and the metasearch results. While the listing here is organic and unpaid, once we click into the property, the hotel has to pay to compete with OTAs for the booking as it would on traditional metasearch.
In the listing below, the NYLO did in fact bid to be in the menu, but often, the results exclude the brand. If a user books the NYLO here, the hotel will pay Google for either the click itself or a commission depending on the specific commercial arrangement. In either case, the booking is not “free.”
There are also Facebook Dynamic Travel Ads, which we discussed at great length in our Deep Dive into Facebook’s Impact on Travel report. These types of ads are click-based like meta. Again, not truly an unpaid booking.
The next source of direct bookings would be offline purchases including phone reservations, walk-ins, and emails. These can actually be a comparable size to digital direct bookings. Some of the drivers here would be large groups like conventions or weddings, business travelers who know that a given location has plenty of lodging and prefer to book when they arrive, and leisure travelers who may book during a road trip or simply like to call the hotel directly for a personal touch. We refer to this as non-digital direct.
So… What should count as direct?
We agree with hotels counting all forms of bookings done on a brand.com site or mobile app as direct for the purposes of public disclosure. However, hotels should internally look at paid and unpaid channels differently, and we believe that many hotels, especially the larger chains, do so.
While hotels often complain the commission that OTAs charge is too high, the cost of metasearch or Google under CPC can wind up being higher due to the fact that CPC does not guarantee a booking for the cost, whereas OTA commissions are only paid on success. The better a hotel is at branding and conversion, the more likely CPC rates will be below OTA rates, but that is a difficult task. OTAs use meta to increase their own bookings as well and can do so with effective CPC rates that are much lower than hotels could achieve due to higher conversion and more advanced optimization technology for the ad campaigns themselves.
Holding cost and volume equal, the main reason that hotels often like meta- and search engine-driven bookings more than OTA-driven bookings is that the hotels own the customer and data in the former case. This makes it easier to convert that customer to the type of guest who will return to the brand and book truly direct in the future. This is also a reason that OTA commissions sometimes are viewed as lost revenue versus meta or Google being akin to advertising on television. We will explore this in greater detail later in the report, but it’s worth noting that even if meta is “cheaper,” it would not be if hotels aggressively grow the channel and outbid the OTAs.
What Else is in the Non-Direct
Traditional Travel Agencies
As online travel agencies flourish, the traditional travel agent has to adjust his approach. Travel agents with domain expertise are especially valuable to both the consumer and the hotel brand. An example of this would be authorized vacation planners at Disney. These specialized travel agents are usually extremely passionate about Disney and have met specific sales goals and criteria established by Disney. These agents receive sales and marketing training from Disney. The customer does not typically pay for these services. Instead, Disney pays a commission, likely in the 10 percent range, for the booking.
Other agents may be extremely knowledgeable about a given country or region and offer personalized guidance to build custom trips. Some fee would come from the client, but most would be from the hotel.
We do not see the traditional travel agency business as a growing industry as there continues to be a move toward OTAs. However, within the traditional model, the best agents with unique perspectives, inventory, and personalized services can take meaningful share from agents who compete mainly on price.
Global Distribution System
GDSs include companies like Sabre, Galileo, Amadeus, Pegasus and Worldspan.
GDSs provide reservation capabilities to both airlines and hotels using centralized data with factors like pricing and real time availability. Simplistically, GDSs act as a pipeline passing along hotel or airline information from the suppliers to the online or offline distributors. Airlines are much larger participants than hotels in the GDS space.
Managed Corporate Travel
According to the GBTA, corporate travel spend in the U.S. is close to $3 billion, though is growing quite slowly in the flat to low-single-digit percent range. The global market is estimated at over $1.3 trillion in spend with more than two-thirds from the U.S., Western Europe, and China.
The dominant corporate travel managers are Carlson Wagonlit Travel, BCD Travel, American Express Global Business Travel, and HRG North America. Client retention for the four market leaders has remained at over 90 percent, but growth has been flat.
New players, like Expedia’s Egencia, are growing nicely by targeting non-managed corporate travel accounts. Its strategy is reminiscent of how Expedia disrupted the leisure travel industry. The booking platform leverages Expedia’s technology and has access to around 200,000 hotels and 400 airline carriers. Clients can book their trips themselves or use Egencia’s consultants to help them. The platform also has powerful analytics to help monitor and optimize travel spend. Egencia also offers companies consulting services to improve their company travel programs. Egencia grew 17 percent in 2016 versus the flat trends at the large traditional players.
Priceline is taking a different approach for Booking.com for Business. It essentially modifies the traditional platform, where it found that 20 percent of bookings were from corporate travel. It’s more about targeting unmanaged corporate travel.
We see modest growth here as the large brands have a high retention rate and are not really growing much, but companies like Expedia’s Egencia are helping to bring small unmanaged corporate travel accounts into the space.
Current booking breakdown
As part of the research process, we surveyed 370 hotels from around the world. This survey was powered by a partnership between trivago and the Skift Research Group. All opinions and views expressed therein belong solely to the hoteliers surveyed, and the forecasts based on the survey results have been generated by the Skift Research Group.
Overview of respondents
The respondents to the survey were mainly independent properties accounting for 71% of respondents compared to branded chain hotels which made up the remaining 29%.
Looking at the job roles of the respondents, 55% of respondents were in an executive/management position and a further 25% involved with either Digital Marketing or Distribution/Channel Management.
Almost half of responses came from mid-tier hotels, one third from high-end hotels and the remaining response were from luxury and economy hotels.
Independent hotels had a higher share of business clientèle compared to branded hotels, with independent hotels seeing 64% of guests staying for business compared to 50% at branded hotels.
From a geographical perspective, the clear majority of independent hotels came from Europe, 82%. Responses from Branded Chain hotels also came mostly from Europe, 37%, followed by the U.S., 31%. Branded chain hotels which responded to the survey had a vaster geographical reach, with independent hotels mostly concentrated in Europe and the U.S..
The current distribution mix of respondents varied significantly when comparing independent hotels to hotels part of branded chains. Branded chain hotels were much more reliant on group bookings and bookings coming through GDS, on the other hand independent hotels had a higher share coming from OTAs and overall also stated a higher digital direct booking rate.
Current booking breakdown by channel
In the chart below we show our estimates for current distribution channels. The Mega Brand.com example is meant to portray the likely distribution of a typical large chain with international operations. The Indendent.com example would be the distribution pattern for an independent hotel. For a pure U.S. independent hotel, the OTA number could be a bit lower while a European counterpart could see OTA business around 50 percent.
Source: Skift Research Estimates
Branded hotels had a higher percentage of loyalty members, with a total of 27% of guests being part of the hotel chain’s loyalty program. Yet independent hotels weren’t too far behind with 21%.
In the chart below, we show our estimates for effective commission rates across key distribution channels.
Source: Skift Research Estimates
The largest hotels have more bargaining power against the OTAs than independent hoteliers do. As a result, mega brands likely pay 10 to 15 percent commissions versus independents at 15 to 25 percent. As a reminder, OTA fees are commission-based where the payment only occurs on a successful booking. That cost certainty differs from metasearch where the fees are click-based.
There was a strong agreement between branded and independent hotels when it came to what the hotels perceived as a fair OTA commission, with 51% of both groups claiming the 6-10% to be a fair range.
Metasearch, which we discussed at great length in our 2017 Outlook on Metasearch report, is predominantly CPC, though CPA is available. Under CPC, the hotel pays for website traffic, not a booking. There are two key benefits. The first is that the hotel booking happens with the hotel, not the meta. Second, if the hotel is strong enough in advertising and conversion, the costs could be much lower than through the OTA channel. The key risk is that a hotel can have low conversion and wind up with much higher effective rates than the OTA.
Though CPC is not paid for on a commission basis, but rather on a dollar-per-click basis, we estimate that the effective commission is five to 15 percent for large chains and 10 to 30 percent for independents. For mega brands, five percent would be comparable to what a top OTA likely pays on meta. This is incredibly difficult to achieve in competitive markets like New York, London, or Paris, but possible in smaller international markets with lower competition.
Meta winds up being comparable to the OTA fee or slightly lower in most cases. This begs the question: Why don’t hotels push meta more aggressively? The answer is that the OTAs dominate the results on meta, so to increase share, the hotels would need to compete more aggressively, which in turn will increase CPC and make meta less attractive. Hotels should definitely use both OTAs and meta to diversify distribution, but must be careful about trying to outspend the OTAs.
For independent brands, meta can be lower than an OTA cost or wind up being much higher. There are many travelers who will click through multiple independent brands and compare those to larger chains before making a decision. The large brands already have name recognition whereas the independent often does not. Paying CPC means that the independent has to win the booking based on the impression of its listing. This is definitely achievable, but difficult. We suggest independents use CPA on meta rather than CPC or outsource the campaign to a third party.
Metasearch – Instant Booking
TripAdvisor is pushing this model the most, but it’s also available on Google as well as traditional meta players like Kayak and trivago. Here, we have an OTA-meta hybrid where the transaction is OTA-style commission-based, but the booking is meta-style and done on the brand.com site. The difference between this and CPA under normal meta is that the consumer never clicks off to brand.com, but instead books on TripAdvisor, with brand.com being the merchant of record and having all the data.
We see a seven to 12 percent range for effective commissions on large chains and 10 to 15 percent for independents. On the low end, we suspect that large chains privately negotiate fees with TripAdvisor.
Global Distribution System
GDSs are much more focused on airlines with Amadeus and Sabre having close to 90 percent of bookings on airlines versus hotels. Hotels are still useful to them as those bookings get higher fees, likely in the seven to 10 percent range, whereas airline bookings wind up being one to two percent at best. For hotels, they get access to a wide range of distributors through one channel.
For the hotel, there are commissionable bookings that have a travel agent fee on top of the GDS fee and non-commissionable bookings that do not. Non-commissionable ones may still go through an agent, but part of a package where a suitable room is not available under the agent fee model. This is why we have a large range at seven to 20 percent for the costs.
We spoke to Mike Ford at SiteMinder on a wide range of topics on distribution, including GDS. We include that conversation below. One key takeaway is that because GDS fees are per booking rather than commission-based (the fee is the same on a $1,000 booking and a $100 one), the higher the per-night hotel cost and the longer the stay, the cheaper GDS bookings become.
MIKE FORD, CO-FOUNDER AND MANAGING DIRECTOR, SITEMINDER
SiteMinder is a leading cloud platform that empowers hotels to attract, reach, and convert guests across the globe. SiteMinder’s products include The Channel Manager, the industry’s leading online distribution platform; TheBookingButton, a wholly-branded booking engine for direct bookings via web, mobile or social; Canvas, the intelligent website creator for independent hoteliers; Prophet, a real-time market intelligence solution that takes the guesswork out of pricing rooms; and GDS by SiteMinder, a single point-of-entry to a six-figure network of travel agents and the world’s major GDSs.
SiteMinder has more than 24,000 hotel customers and 550 of the industry’s top connectivity providers as partners with a presence in more than 160 countries on six continents.
SiteMinder is owned and operated by Online Ventures Pty Ltd.
As organizations continue to speak of innovation and efficiency as tired catchphrases, few can boast leadership in speed-to-market quite like Mike Ford. Born and raised in South Africa, the seasoned IT executive found himself calling Sydney home in 2001 after arriving there at the tail end of a yearlong backpacking adventure. Ford established the SiteMinder business just five years later while digitizing health claims as a delivery program manager at ICS Global, and concurrently serving as founder and director of Australian Leisure Operators, which operated a backpacker hostel accommodation business in Sydney. Since founding SiteMinder from his home, Ford has pushed the business to the forefront of global hotel distribution technology.
Skift: What’s your take on the whole kind of direct booking controversy so to speak or all the media attention that’s been happening?
Ford: Well we looked at it as every single property is very, very different. So, when we look at regional, independent versus a city chain hotel for example, they’ve got different dynamics.
We can see some very interesting data because we see everything from the independent hotel who’s trying to do everything themselves to chains to more sophisticated independents that are using marketing agencies.
Obviously, your direct bookings are going to go up proportionally as you get bigger in size and you’ve got to high demand occupancy level in the city. If you’re using professional marketing agencies and paying a lot of attention to your website and conversions on your website and booking engine and you’re really paying attention to your promotional offers and that sort of thing, which a lot of independents don’t have that capability to do just because they’re too busy running the property. So that’s why there’s such a big variance.
We don’t really try to paint anything with a particular brush as regards OTAs versus direct. We provide connectivity making sure the property is getting bookings. What we try to do is guide the property to use the technology and the connectivity and the channels that are the best mix for that property. So for some people it might just be, hey it’s just OTAs in your own booking engine, for other properties it might be different.
Skift: Maybe we could just back up a little bit and discuss the activities that you do to help hotels gain direct bookings.
Ford: So there’s a couple of things. We operate across different segments right. So we’ve got obviously your independent segments and you’ve got your chain segment and we have tailored technology offerings depending on where the hotel sits in terms of what their structure is and if they’re chain versus independent. But for any independent hotel we have website technology in the form of canvas product and we have an integrated booking engine into that website technology, which is the Booking Button, which provides the direct bookings and that booking engine can sit on any website.
So the hotel can choose to take our website or they can build their own, but basically, we have a customizable website content management system, which is mobile optimized. It’s being built specifically with that hotel in mind. Then, there’s a Google analytics framework, which allows tracking of the path of the booker.
We also have the distribution of rates and availability, which we can send up to the meta sites and then we can fulfill the meta bookings through our booking engine. So ultimately, the hotel can use our technology to drive bookings from meta. They don’t need additional technology.
Skift: There’s been quite a bit of change in Google and how they place paid versus organic search. Have you seen the change in terms of costs of acquisition on Google for hotels over the last year?
Ford: We provide the meta infrastructure, but don’t really measure the cost of acquisition as a whole in terms of what hotels are doing on Google. Generally, with our independents, what we find is that they’ll be on more of the CPA model, because they don’t really have the power and inclination to manage against Google, against Booking.com or Expedia. Managing your CPC, you’ve either got to use an agency or really know what you’re doing. So generally, for independents the CPA is easier on Google and would be 12 or 15 percent.
But for your chains, they have their own dashboards to manage their CPC quite closely, but again, we provide the technology as opposed to providing the service which optimizes their ROI. So, I can’t answer that directly, but what I would say is that Google charges 12 to 15 percent and when they do that on CPA, they’re actually still throwing their inventory into the auction if that makes sense.
What I mean is that Booking.com is doing CPC and Expedia is doing CPC and Google charges the independent 12-15 percent on CPA, Google still has to put their hotel almost like they will bid on behalf of the hotel to put it into that bidding scenario, even though the hotel only pays a cost of acquisition, a commission. In other words, that 12-15 percent still has to stand up against the business that Booking.com and Expedia’s do on CPC.
You’ve got to remember that Google, it’s not just a plug and off you go. The guideline is to provide the piping and the technology to get onto Google, that’s the booking engine and the availability and rate into Google, we have to handle all the payments, etc. on behalf of the independents and and even the small chains, because Google doesn’t deal directly with the end hotel. So, there’s still costs over and above the bidding costs that we and other technology providers have to charge the hotel on top of what Google does in order to handle all the payments and the technology.
It is tough to say I’m going to get these bookings much cheaper than the OTAs. You’ve got to outbid Booking.com and Expedia. They have multi-language, so if you want guests from different countries, you’ve got to make sure you’re translating all of the content on your booking engine, otherwise you can only do it from English speaking countries. You’re then paying your technology provider to handle the payments to Google and the technology provider has to click the monies and remit the commission back to you. It’s a complex environment and depending on how well the booking engine converts, that’s the key.
Ultimately Booking.com and Expedia are conversion experts. So you’re up against that as well. I wouldn’t say it’s dramatically cheaper than the OTAs, but the cost of acquisition model is cheaper and you could probably make the CPC more cost effective if you are very good at converting traffic.
I think the most important thing about Google and TripAdvisor meta is not necessarily the cost of acquisition, even though I think you can make it more cost effective if you’re very good at what you do, but it’s also about making sure that hotels are looking after the future and that they’re engaging with multiple channels and not just getting all their reservations through one channel.
The other really important aspect is that it is more difficult for the hotel to have a relationship with that guest for bookings coming from the OTAs. Booking.com, for example, will mask the email of the guest, because they like to keep that relationship with the guest. So there’s some benefits of meta, which are it diversifies the distribution and the source of bookings and it also allows a closer relationship with a guest for the hotel.
Skift: What about the costs for GDS?
Ford: With GDS, you can do commissionable rates or non-commissionable rates. When a travel agent’s searching the GDS they can see, if I book this rate then it doesn’t have commission on it, I won’t earn commission as an agent. Generally, agents would prefer to book commissionable rates, which is where the hotel says hey, we’ll give you 10 percent if you book this. There’s normally a flat fee like a transaction pass-through that the GDS charges that would be anywhere from 10 and $14 right plus 10 percent going to the travel agent.
I would say it’s probably an effective cost of somewhere between 12 and 17% on average, but if you’re a hotel and just as an example, have $100 room and an $12 fee on top of the commission that you pay and only book one night, then its 22%.
But on GDS you’re going to get higher rates and longer bookings. The higher the value of the booking and the more nights, the cheaper the GDS booking becomes.
Skift: And is that because the GDSs tend to serve the travel management companies and business travelers?
Ford: Yeah, so generally a hotel room these days, our average hotel room night is $200–300, so your $11 or $12 actually becomes 5% on that night and then if you book two nights it’s more like three or four percent. And the higher the rate, the more that transaction fee gets diluted as a percentage.
Yeah, but if you’re a budget hotel that gets a lot of nights, it’s okay. But I guess what I’m saying is the higher the room rate and/or the longer the stay, the cheaper it becomes because that pass-through fee gets diluted. But ultimately, I think we’re seeing effective GDS rates that are still up and more economical than say the 18-30% you’re paying on OTAs.
Skift: For GDS connectivity, our sense is that the relationship is: Hotel>>Siteminder>>GDS>>Travel Agent>>Customer.
Is this accurate? If so, how does the billing work in this case? Does SiteMinder invoice? Do you purchase inventory wholesale?
Ford: Your flow is correct. However, SiteMinder doesn’t purchase any inventory. SiteMinder simply connects the hotel system to the GDS so that rates, availability, and reservations can flow seamlessly between the two. GDS charges SiteMinder a pass-through fee for each reservation by the GDS (e.g. $8) and then SiteMinder charges a fee to the hotel for providing all the technology.
These numbers are not real as they vary by volume, etc., but an example might be that the GDS charges SiteMinder $8 and then the SiteMinder charges the hotel $12 (so its $12 per booking total for the GDS services and the services connecting the GDS to the PMS).
On top of that you add the travel agent’s commissions. This could be 0% for non- commissionable bookings and 10% for commissionable bookings. The hotel chooses the commission they want to pay on each rate.
On a $600 booking it would be $12 +10%. This is an effective 12% cost of booking to the hotel. On a $300 booking its 14%. In terms of monthly fees, these vary by tech provider but for SiteMinder its virtually non-existent in terms of a monthly GDS cost to the hotel that is not booking related. Some tech providers however do charge a monthly fee for GDS in addition to the booking transaction fee.
Skift: What’s your take on TripAdvisor? Are you seeing stronger adoption of TripAdvisor Instant Booking yet?
Ford: I think it’s going slower than expected. We probably have several thousand of our hotels on it, so it’s being adopted. It takes effort to get the awareness of the connectivity of the hotel because not every hotel, especially in the independent market, are tuned into it. But I think most of the groups would be on Instant Booking. The good thing about Instant Booking is it is another channel that sort of caps your cost of acquisition. If you want to go on the commission model with Instant Booking it’s between 12-15%. So again, it’s cheaper than OTAs, so why wouldn’t you is the point I guess.
Skift: Can hotels without a channel manager connect with TripAdvisor?
Ford: You can’t really get onto Trip and Instant Booking without a company like SiteMinder, because we pipe the rates and availability into Trip Instant Booking and you can’t do that manually. They don’t have an interface with the hotel to go in and type in their rates and availability.
Skift: Are there a lot of hotels out there that are not running with a channel manager?
Ford: That’s a good question. We’re seeing very different results in different countries. In Australia/New Zealand, it is probably the most penetrated, because that’s where we started. When we first got to Europe in 2010, it was probably only 30 percent of the hotels we came across were using a tech provider. There is much more now since there’s more players.
Skift: For those hotels that are not using a channel management platform, can they still connect to the OTAs?
Ford: They can connect to the OTAs and type in their rates and availability manually. It’s a huge pain, because they’ve got to keep that up to date every time they get a booking or want to change their rates. They can do that on OTAs and many of them still do.
What they cannot do is get onto GDS, meta, or Google without travel manager tech or at least some sort of tech feeding them rates and availability like the booking engine or a channel manager. You’re cut out of the meta market completely, you’re cut out of GDS, unless you have some sort of tech provider, but yes, you can manually get onto the OTAs.
Skift: As Trip Advisor aims to compete or at least improve their product offering by building their inventory via instant book as well as meta, do you see a lack of technology adoption as a challenge for Trip Advisor?
Ford: TripAdvisor, if it’s challenged right now, it is about is getting the people that have technology to adopt Instant Booking. I do not think they’re worried about the people who don’t have technology. For example, there’s a huge number of SiteMinder customers that have not yet signed up. And so the issue there is that Booking.com and Expedia have feet on the ground, going around to the hotels and saying sign up, sign up. TripAdvisor has not invested with feet on the ground to go in and talk to the hotels. So they’re just waiting for it to happen organically, and that’s part of the problem.
TripAdvisor’s big opportunity is to actually get the technology providers that are really connected, to get their hotels actually on Trip Instant Booking. That’s their big opportunity. It is not about trying to get the hotels that aren’t using tech.
Skift: And when you’re saying, using Instant Booking, that’s just a matter of getting them to connect once.
Ford: Yeah. In SiteMinder, they literally click, connect to Trip Instant Booking, type in a few things, and they’re live. So it’s really a very simple process. It’s just that, like anything, people get busy and you’ve actually got to get them to do it. I think it’s a very compelling offering for hotels. There’s nothing to lose. You’re getting the benefits of many, many millions of people looking at TripAdvisor every day, so why wouldn’t you do it?
I mean you might only get a small proportion of bookings compared to the OTAs who are filling up big and focused on conversion. But bookings you wouldn’t get otherwise, so there’s absolutely no fixed costs.
Traditional Travel Agent
Despite the move to a digital world, travel agents still account for close to 10 percent of industry bookings. We have seen some pressure in rates with Hilton reported to be pushing to cut from 10 percent to five to eight percent. We believe the range for large chains would be five to 10 percent versus 10 to 15 percent for independent hotels.
Corporate Travel Manager
Managed corporate travel is one of the least attractive bookings based on effective commissions where the agent would get a typical commission fee and then the room rate would be roughly 10 percent below published rates. The benefit is that hotels get a large number of business travelers in the door to fill occupancy. This means that while the effective commission would be high including the price concession, other spending like marketing would be much lower to get companies to stay.
Next, we examine the implicit costs on three types of direct bookings.
Source: Skift Research Estimates, Kalibri Labs, FastBooking
Digital Direct Bookings
Next, we attempt to calculate the implicit costs of digital direct bookings. We include pure ad costs, but not meta, which was previously estimated as its own type of booking. For the large chains, we take Kalibri Labs’ estimate that OTA fees cost 2.5x direct booking costs and apply that ratio to our OTA commission rate estimates. This gets us to a four to six percent cost.
For context, Kalibri Labs is widely used by the hotel industry and the data is based on 25,000 U.S. hotels and 300 brands. Kalibri Labs is a next-generation benchmarking platform that helps hotels improve profit contribution by evaluating and predicting revenue performance net of acquisition costs. Kalibri’s benchmarking apps enable owners and operators to determine a hotel’s optimal business mix and manage resources to achieve it.
For our independent group, we turned to FastBooking, which estimates a six to eight percent cost in their European and Asia hotel base. We broaden the range to 10 percent given other primary checks and use Kalibri’s 2.5x ratio getting to six to 10 percent.
Group bookings may use a third party or an internal team. In either case, we assume a six to ten percent cost reflecting commissions and wages associated with the booking.
One of our industry experts referred to the walk-in as the “holy grail” of booking with very little costs involved. We assume zero to two percent costs for reservation systems and other similar back-end costs; zero percent would be if everything is done in-house.
Booking Valuation Analysis
To help quantify the longer-term financial impact of channel shift from OTA to direct, we ran a Net Present Value (NPV) analysis. The goal is to show how much value is gained by converting an indirect booking to a direct one. This would not be for any booking, but rather someone who fits the direct profile, i.e. neither brand agnostic nor price sensitive.
We assume a period of ten years and a 15 percent commission rate with an OTA used for each booking. To keep the math simple, we use a $100 booking rate and a 10 percent discount rate as this would be the opportunity cost of not booking direct (commission minus digital direct fees). The net present value differential between direct and indirect is 12 percent. What this means is that the value of future revenue from direct versus indirect would be 12 percent higher without an OTA; this is the value lost by using an OTA, all other factors being constant.
The booking example below compares ten years through an OTA versus spending a typical commission rate on advertising for two years and spending five percent for a digital direct booking after. Again, this is a simple example, but shows that if a hotel can push a booking for a repeat guest to direct, each $100 of bookings would be worth eight percent more than through the OTA model.
Next, we explore how the speed of converting an OTA booking to a direct one changes the NPV.
The years to convert line measures how many years it takes to turn that booking into a direct client.
The Gained Revenue Value is the difference in NPV from digital direct versus through the OTA based on converting at that year.
The Y/Y Saving is how much the NPV gain is reduced each year that a booking does not become direct.
The main takeaway is that the quicker the OTA booking can convert to a direct one, the higher the long-term value for a hotel. This would be magnified to the extent the hotel successfully reinvests those savings to generate similar booking changes.
Key Takeaways from NPV analysis
There are an infinite number of scenarios, but we think a simple example illustrates the value of booking direct for hotels. The key is that the ad spend to push the channel shift must be targeted at the right person rather than trying to spend aggressively attempting to push the brand agnostic, price sensitive, leisure traveler to book direct.
If a hotel pushes too much, both digital and television ad costs could make the direct booking much less valuable than an OTA booking. At the same time, not trying to push any share would leave a lot of value on the table.
The optimal mix would vary considerably by type of hotel, location, and a myriad of other factors, and is beyond the scope of our report. We are advocating that hotels need to balance costs in generating a direct booking and what the likely success rate is versus the cost certainty of an OTA booking.
Diversification of Distribution
Driving the most direct bookings possible is a valid strategy when holding all else equal. That being said, there are very different levels that make sense for an independent hotel versus a mega chain. Within those buckets, there are company specific variables that make broad generalizations impossible. Rather than providing advice on what those levels should be, we provide a list of topics that hotels should consider when analyzing their booking mix. These are not exhaustive by any means, but rather meant as an illustration of the types of questions that should be asked.
What is the current occupancy rate and how will that change by pulling back on third party distribution? For a large chain like Marriott or Hilton, this could be negligible, but for an independent brand without a large advertising budget or niche offering, cutting OTA bookings could lead to higher profit per room, but much lower total profits.
Fixed versus variable costs
If a hotel has operations in a given region and pays fixed costs on infrastructure, personnel, and other items, a booking from an OTA can be viewed as lost revenue (the commission), but if an independent Italian hotel gets a booking from a Japanese traveler via Booking.com and that hotel did nothing to generate bookings in Japan, the hotel should gladly pay a commission that will be lower than the cost of generating a direct one.
Diversification of channels helps defend against cyclicality
When the economy is doing well and occupancy rates are high, hotels tend to be more opposed to paying OTA commissions. However, during times of economic weakness and lower occupancy rates, hotels are generally happy to fill rooms via the OTA channel.
If a hotel company, especially an independent, has zero OTA business, it’s difficult to jump in and optimize listings and win share on an OTA if it tried to do so during a downturn. At the same time, if the hotel has too much OTA business, it increases the risk that the OTAs can raise commission rates to offset their own lower bookings during a downturn.
Direct does not mean free
As we previously mentioned, there are costs involved with most types of direct bookings. These costs need to be considered when looking at the opportunity costs of direct versus indirect.
CPC meta model has a wide outcome set
If done well, the effective commission paid under CPC can be much lower than the commission rate from an OTA. However, if the ad campaign is not successful, a hotel can waste money on low converting clicks and see the effective commission balloon much higher than an OTA commission.
Third-Party digital optimizers
We use this term loosely to describe third party vendors that run ad campaigns creatively, use analytics to determine where and when the ads are run, manage technology for booking channels, and optimize the booking channels themselves. Companies like Sojern and SiteMinder would be included here. These companies, and others, are very good at what they do. A hotel can partner with these sites, or a Kalibri Labs, to create a more optimal distribution mix. The hotels must balance the costs to do this, which can be comparable to an OTA, versus attempting to do this in-house. In some ways, this is comparable to CPC versus CPA, where the third-party costs are more predictable, whereas going at it alone can either be much more or much less profitable.
Given the difficulty to compete on OTAs, on meta, on Google, and for branding, we see great value for small, independent brands using third-party providers. For large chains, the use would be for specific aspects of the business or a specific ad campaign versus outsourcing large portions of the process.
Location, Location, Location
Filling rooms in a nice hotel with strong reviews in a first-tier city is much easier to do than in lower-tier locations. Hotels in the former position would be better served advertising to push direct while the latter would be better off competing on metasearch.
Business Vs. Leisure
The business traveler may be a very brand-loyal road warrior, but books through the company’s managed travel agent. She may not have a corporate travel group and go through an OTA to get the best hotel in her pre-determined budget. She could also not have a group, but book direct with a hotel to generate points for leisure travel. The hotel needs to figure out which guests fall into which bucket and advertise accordingly. While OTAs do not necessarily share all the data that hotels want, the hotel can get data during the stay.
Hilton and Marriott ad campaigns
Broadly speaking, large chain hotel direct booking ad campaigns have been successful. In general, one to two percent channel shift seems to be a reasonable impact thus far. This is somewhat offset by price concessions on the room rate.
While some portray the ad campaigns as a war with the OTAs, this is not really the case. Large chains that are running the ads are far less reliant on OTAs than smaller ones and independents. The hotels are educating the consumer to capture some share from all other third-party channels, including OTAs, GDSs, and travel agents. Additionally, offline direct leisure bookings are likely stable at best to slowly declining and the hotels seek to make sure those bookings move to digital direct versus non-digital direct. Finally, part of the campaigns is also brand awareness, which helps win occupancy share rather than booking share.
Hilton launched its “Stop Clicking Around” campaign back in February 2016. This is the largest campaign in the company’s history. The company started with a spot at the Grammy’s and has been aggressive in pushing this message across television and digital channels.
The company emphasizes that direct has the following benefits:
Exclusive discount: Members of the Hilton HHonors loyalty program can now take advantage of an exclusive discount that can’t be found anywhere else, as long as they book directly through Hilton, at more than 4,500 hotels around the world.
Instant benefits: Hilton HHonors is free to join and offers instant benefits to all members, such as free Wi-Fi, popular digital tools like digital check-in with room selection and Digital Key, and the ability to earn and redeem Points for free nights.
Unforgettable, exclusive experiences: Booking direct opens the door to exclusive events, like Live Nation concerts or private dining experiences.
Loyalty rewarded with more personalized service: HHonors members who book direct can better share their preferences with the hotel for a stay tailored to their requests.
Hilton has added nine million members to its Hilton Honors program since launching its Stop Clicking Around Campaign, which now has more than 60 million members in total. Loyalty members also drove 56 percent of the company’s system-wide occupancy, which was 400 basis points higher than in 2015. Web-direct and mobile bookings were also up by 200 basis points over 2015, and in the fourth quarter, nearly 30 percent of all bookings were web-direct.
CEO Christopher Nassetta quantified the impact in a recent Skift article.
“So we’re about a year, not quite a year from the anniversary, from the beginning of that [Stop Clicking Around] campaign…I think most important statistic is over 200 basis points in channel shift, I would say, leading to our direct low-cost online channels either web-direct or mobile.”
He did address how lower rates could upset hotel owners.
“In the end, what our job is, is to drive profitability for owners and that means top line, but also bottom line and distribution cost is not an insignificant component of their cost structure…so if I look at the channel shift that that has occurred and we look at, what’s happening from a net rate point of view across all our channels, I think in the end, our owners – I can’t say every single owner in every single circumstance that it’s worked perfectly, but I would say across the system, it has worked really well. We have shifted, we’ve obviously maintained growth and market share and shifted by a couple hundred plus basis points business to channels that drive better net revenue for our owners.”
We interviewed Chief Commercial Officer Chris Silcock for the report (full interview below) and he noted, that
“Last year, part of the drive of that was to join the Hilton Honors club. We had nine million new members last year, which was up by over 100% year on year (the growth rate). We’re now to about 61 million members. We had four million downloads of our Hilton Honors app, which was another big part of the push, again up almost 100% year on year. Awareness of the honors program increased seven points, and conviction to join increased five points, and we’ve got to a place now where honors app is downloaded every eight seconds, and one of our digital keys is unlocking a door every three seconds. We saw a huge swing in those numbers year on year after launching the campaign, and we saw the growth of our digital direct mix and our business jump two points last year, which was double what we’ve seen historically.
On the ad spend, I can say that we didn’t necessarily spend more. We just spent it in a different way. We were more impactful in our spend. We consolidated behind one message that we launched globally in all parts of the world at the same time, and had significant activation on property in all our hotels around the same singular message.”
We can make some assumptions using disclosed data to gauge what is direct versus through OTAs.
- Hilton is likely comparable to Marriott, which has been successful in diversifying its distribution with low reliance on OTAs. At Marriott’s investor day, it disclosed that only 10 percent of business is through OTAs. Hilton may have been a bit higher, but after the 200bps of channel shift, it’s likely that OTAs are as little as 10 percent now.
- Hilton disclosed that 30 percent of bookings are digital direct.
- Loyalty members comprised around 60 percent of bookings.
- We believe that Hilton attracts more business than leisure travelers by bookings and revenue. This would make unmanaged corporate travel strong for them. The brand recognition and vast supply would power leisure and business group bookings. Combined, we expect digital non-direct is in the 30 percent range.
- Direct bookings in total are likely around 60 percent, which would be comparable to large peers that we estimate is in the high 50s to low 60s.
CHRIS SILCOCK, EVP & CHIEF COMMERCIAL OFFICER, HILTON
Chris Silcock is executive vice president and chief commercial officer for Hilton and leads the company’s global commercial team, including sales, revenue management, regional marketing and e-commerce, and Hilton reservations and customer care.
Silcock has nearly 20 years of experience with Hilton, most recently serving as head of sales and revenue management. In this role, Silcock led global sales and revenue management and drove performance by building a world-class team, and deploying market-leading sales and revenue management capabilities.
Prior to this role, Silcock held a number of positions at the company, including head of revenue management and online and regional marketing as well as vice president of revenue management. He has also held a number of regional revenue and project roles across the business, as well as several positions at the company’s properties. Silcock began his career with Hilton as a catering and banquet waiter at Hilton Watford.
Skift: There’s a lot of debate whether hotels and OTA’s are in a true booking war. We believe the hotels benefit from getting the brand agnostic traveler, and the OTAs definitely need, especially the large chains, to have full inventory. What’s your broad outlook on the hotel OTA relationship, and then specifically with Hilton?
Silcock: How you characterize it is pretty good. We have had long partnerships with all the OTAs, continue to be partners with the OTAs, because we do recognize that they’re a good source of incremental customers, and customers who are in many cases non-brand loyal.
We do work with those OTAs that respect our business objectives, and part of what we want to do is build direct relationships with customers. The key driver for us wanting to do that, is that we can deliver a more personalized and a better experience to customers if they engage directly with us. We know more about them, and we’re able to give them access to parts of the experience that we can’t do if they’re booking through a non-direct channel.
People characterizing it as a booking war, I wouldn’t agree with that. We’re all part of the travel ecosystem, and we’ll continue to exist and work together.
Skift: We’ve heard some gripes that the OTAs don’t share as much data as they used to, whereas the meta model, because the booking happens at the hotel, you have more data. Also at the same time, we’ve seen some more partnerships between the hotels and the OTAs where there is increased data sharing. Other than email address, which I know has gone away, what types of data are you not getting from the OTAs that you would like to get, and do you view a lack of data sharing as an issue?
Silcock: We don’t see it as a huge issue. It’s just if a customer engages with us directly, then of course they’re going to share more information with us, and we’re going to know more about them. That enables us to personalize their experience more, and as I said, because we know about them, and especially if they join our honors club, it enables us to give them access to things like, changing their room from floor plans, digital key, bypassing check in, all of those great features that we know they love. That’s really because if they engage directly with us, they join our club, they provide us with more information about them.
The matter is obviously very different to an OTA, because the matter is a source of passing a customer to us, which then books in the most part directly with us. Again, we then have the opportunity there for them to join our club, and get extra information about them.
Skift: What percentage of bookings would you classify roughly as direct?
Silcock: Digital direct is over a quarter of our business, reaching up to about 30%.
Skift: Does that include things like meta and Google, or is that excluding and only pure direct?
Silcock: It is including, because we classify it as direct with an indirect source.
Skift: What percentage of your bookings are loyalty members?
Silcock: It’s almost 60% now. With last year’s campaign, we saw that increase faster than we’ve ever seen it increase in the past.
Skift: What is the gap between direct digital and the 60% loyalty? Some would be direct phone and in-person and some would be direct digital without loyalty. What else is in that 30% difference?
Silcock: Some of it is travel policies within companies. As you know, big companies used their travel agents to book and that’s how they control their travel programs, so that’s a big portion of that difference.
Skift: What percentage of bookings are on mobile?
Silcock: Last year, we got to a position where one in four of our digital bookings was through our mobile app, which was again, well over 100% growth year on year. We’re seeing that grow significantly. Then of course, we have mobile sites as well as mobile app. I’m not sure I fully understood the question, nor if that was the answer.
Skift: Is the percentage of people that book direct with Hilton versus through an OTA lower on mobile than it would be on desktop or laptop?
Silcock: It’s a good question. We don’t get information, for example our OTA partners on the specific channel the customer booked with on the OTA. We don’t know that. Now, I do know some of the OTAs have published the mix of mobile versus desktop, but they don’t parse that to us.
Skift: On the Stop Clicking Around Campaign, are you trying to target the brand agnostic OTA customer or is it more about training someone who could be a loyal Hilton customer, but just tends to think that it doesn’t matter how they book, and they’ll book through Booking.com, or Expedia or whatever?
Silcock: It was trying to educate broadly, whether it be a frequent traveler or an infrequent traveler, on the fact that if you do book direct you get a better experience with things like free Wi-Fi and Honors discount pricing – we’ll soon be launching our Amazon partnership. You get access to things like choosing your room from a floor plan, check in digitally and go straight to your room with a Digital Key, which is now in almost 1,000 of our hotels.
It really is everybody. As you know, there are some misperceptions out there about where you for example get the best price. We want to try and make sure that these customers understand what’s available for them if they engage directly with us.
Skift: What percent of your ad dollars on the campaign were digital versus television?
Silcock: I don’t think we’ve shared that publicly, but one of the ways we activated Stop Clicking Around, every channel we went in, that became the message, the lead message. All of our spend digitally started to carry a Stop Clicking Around message, as well as the significance then we had on TV.
We also did activate TV in a different way than we have before, so for example, we had commercials running in the U.K. for the first time in something like a decade. We had TV in places that were more visible. At the Grammy’s, or around big programs that were running, rather than just in off peak times. In the past, we’ve looked to run ads where we would get the most bang for our buck, we could stretch the dollar more, but it meant that not necessarily more eyeballs were seeing them all at once. Instead we ran around those big, must watch moments, like major sporting events, the Grammy’s, the Oscars, and things like that.
As we monitored our customer’s awareness of the benefits of booking direct, we saw those numbers increase significantly as we launched the campaign.
Skift: How much success have you guys have had so far in helping push to direct channels on Facebook? How does the ROI on Facebook compare to Google?
Silcock: I’m seeing huge success because of the targeted nature of it. It’s turning into a powerful channel. The scale of it is significantly different because of the level of specificity and targeting that you have. I would characterize it as good returns. Positive returns, but smaller scale. It’s still to be seen how much that can grow, because to be targeted, it narrows down your population whereas Google destination search is a pretty broad thing to spend against.
Skift: Okay. Then for cancellation rate, is it much higher on a booking through an OTA versus direct, or just a little bit higher?
Silcock: It is meaningfully higher on the OTAs, and different between different OTAs and different locations.
We see some higher cancellation rates in some key cities, take New York for example would be an example of where we have those higher cancellation rates.
Skift: In terms of loyalty, a lot of what gets talked about is points and rewards and digital, and best price. What are some of the things that Hilton has been doing to increase true brand loyalty, whether it be during the stay, or prior or after, that’s separate from the traditional, more point dollar based things?
Silcock: Yeah, well I mean, that is the epicenter of this whole direct book focus from us, is the customer experience. We know, the customers have a superior experience with us, that will result in more loyalty and more preference for us and our brands and our hotels in the future. I’m going to sound a bit like I’m repeating myself, but the way we are taking world class hospitality, physical that we’re known for, combining it with these new digital experiences, in a way we kind of refer to it internally as phy-gital, new phy-gital experiences, but we really think it’s changing the customer experience significantly and driving loyalty which is showing up in the numbers, which are quite different.
It’s the floor plans, and the e-check in, bypass the front desk, which is hugely popular with our customers because 100% of the time have to check in, and we know it was a point of friction. We’re going to focus on the room, and how do we allow their smart phone to become the controller for their experience in their room.
Skift: Outside of the US, the hotel industry is much more fragmented. Does the direct booking skew more indirect once you start going to Europe and Asia?
Silcock: It’s definitely different in different parts of the world, but you’ve got two factors playing there. You do have more fragmentation, but you also have less adoption generally of all the digital channels. We see more business still coming through our call centers and property direct internationally, meaning we’re still getting it direct.
It is different, if you take the U.K. or Australia, versus more immature markets where there’s still more hotel direct business.
Our honors membership is growing over 100% almost everywhere around the world, and for us, that’s the key to getting a better experience and getting into the hearts and minds of the customers.
Skift: Can you talk about Hilton’s relationship with TripAdvisor?
Silcock: Our TripAdvisor Instant Booking is not live yet. We have a deal with them which we’ve announced, but we’re in the process of implementing. We have been a partner of TripAdvisor (metasearch), which has been a successful partnership, hence why we’re moving to do instant book with them as well.
Skift: What about some of the other meta platforms out there? trivago is making some steps into the U.S. market, and Kayak in Europe, with the acquisition of Momondo. What’s your exposure there, in terms of your direct strategies on meta?
Silcock: We welcome choice for customers. We have worked with TripAdvisor for some time. trivago and Kayak are growing, as you know, from their results, but still relatively small. Obviously, we work considerably with Google on their hotel products as well as their search product.
Marriott launched its “It Pays to Book Direct” ad campaign in August 2015 with the focus being on digital advertising. The digital campaign features Grace Helbig in comedic 30- and 60-second ads on YouTube and shorter versions on Facebook as well as other social media. The company also used banners and physical displays at places like airports to reinforce the message.
In addition to receiving the lowest possible rate, Marriott Rewards members who book direct also have access to mobile check-in, free Wi-Fi, and the ability to earn points toward free stays. If a guest finds a better rate within 24 hours of booking direct with Marriott, the company will match it and provides an additional 25 percent discount.
While Hilton has provided details on the channel shift, Marriott has not provided much information (yet).
In its latest earnings call, CEO Arne Sorenson commented that:
“I think it’s still relatively early in assessing the impact of this. What we’ve seen so far is encouraging to us. But I think, fairly, we don’t have statistics that we can use that would prove to you that we have delivered true success from this yet. But the early statistics, we see a high level of signups, I think something like 800,000 or 900,000 incremental Marriott Rewards signups since member only rates were launched. I think we are getting through the din of the marketing battles.
As we’ve talked about in the past, there was a perception that rates at our hotels were cheaper on channels other than our own, which has not been true for well over a decade. And we wanted to really find a way to break through that noise and make sure folks knew that they could get competitive rates by booking directly with us and going so far as to say there’s a bit of a discount, actually, if you book directly with us we thought was a powerful way to get there. And so we’re seeing good pick-up of that marketing message, good stickiness with the loyalty program.
Obviously, though, the discounts are available to folks who would have booked directly previously, as well as folks who might be booking directly now for the first time, and that has – continues to have a very modest impact on RevPAR. We think in Q3, probably about 30 basis points. And we’ll watch it as we go forward. Obviously, this is something we talk with our owners about with some regularity, and I think generally the community to include us and our owner partners is supportive of continuing to pursue this. So it’s all systems go.”
There are some key details we know or can estimate.
- Marriott was already very successful in diversifying its distribution with low reliance on OTAs. At its investor day, the company noted that “Marriott uses OTAs less often than the typical industry hotel company. In fact, in 2016, OTAs accounted for approximately 10 percent of Marriott and Starwood combined room nights sold worldwide.”
- In 2016, 30 percent of Marriott’s room nights were booked through digital direct channels; Starwood was lower at 18 percent.
- Loyalty members comprised around 50 percent of bookings.
- We believe that Marriott attracts more business than leisure travelers by bookings and revenue. This would make unmanaged corporate travel strong for them. The brand recognition and vast supply would power leisure and business group bookings. Combined, we expect digital non-direct is in the 30 percent range.
- Direct bookings in total are likely well over 60 percent and at the high end of peers, which are likely in the high 50s to low 60s.
We expect that Marriott will see digital direct bookings increase, but the source of that is not the OTA war painted so often in the media. Instead, it is likely incremental from OTAs, traditional travel agents, and managed corporate travel.
STARWOOD ACQUISITION ADDS MORE SCALE FOR THIRD-PARTY DISTRIBUTION CONTRACTS
Marriott’s OTA contracts are 200 to 400 basis points (two to four percent) better than Starwood’s on average. As part of the acquisition, the Starwood hotels rates will be stepped down to Marriott’s contract rates. We fully expect future negotiations with OTAs and other distribution channels to see downward pressure on rates.
DREW PINTO, SVP DISTRIBUTION, MARRIOTT
Drew Pinto serves as the senior vice president of distribution for Marriott International (the combined Marriott and Starwood portfolio), where he is accountable for all indirect sales channels, which represent multiple billions of dollars in annual revenue. In this role, he is responsible for strategy, negotiations and account management for intermediary partners including OTAs, GDSs, travel management companies, wholesalers and group intermediaries. He also owns the development and execution of the company’s comprehensive distribution strategy across direct and indirect channels, and has led Marriott’s strategic moves in the distribution space over the past three plus years.
Skift: Drew, can you talk about your experience at Marriott and your current role?
Pinto: I’ve been with the company a little over 13 years which makes me not a rookie, but just beyond a rookie because the average tenure at Marriott is quite long. I was in our internal consulting group where I worked primarily on a lot of strategies and projects with our sales and marketing group. Then, I ran our voice channel for about four years. I took an operational role and ran our reservation centers across the world, and then got very heavily involved in distribution. I’ve been in some form of this distribution role for about four years now. Most recently, back in March, I took over all responsibility for all of our indirect channels.
So, basically what my role is currently, along with lots of help and a lot of partnership with other groups, I lead our distribution strategy which really encompasses all our channels, both direct and indirect. We develop a lot of the strategies about the benefits of booking direct versus what benefits we want to give to intermediaries. Also, anything that’s not a direct booking more or less falls in our group. That includes all intermediated business, whether it’s contract negotiations, account management, connectivity, or content distribution.
Skift: What is your outlook on the relationship right now between Marriott, the wider hotel industry, and the OTA’s. How do hotels and OTAs best partner together where it’s mutually beneficial?
Pinto: I think it’s a very interesting time for you guys to really be involved in reporting on this and analyzing it because it’s definitely an evolving relationship. I would say overall, we have a good relationship with all our intermediary partners including the OTA’s. We can disagree about some things at times, but for the most part we view them as partners and we have mutual business objectives that we think we can reach together.
We’ve had very open conversations about our strategy and what we’re trying to achieve as a business, and I’ve talked to all the intermediaries about are there ways we can think differently about our relationship that you can help us achieve those objectives? Number one being that we want to make sure that our direct channels are healthy and growing and I know that can sometimes be seen as at odds with some of the work that we’re doing with the intermediaries, but at the end of the day, we’ve found some good common ground where they do play an important role in our channel portfolio. They introduce our brands to customers who may not be aware of us, or are kind of agnostic to the Marriott portfolio, maybe aren’t part of our loyalty program, haven’t really engaged with us that much. The OTA’s and other intermediary channels are really good ways to access those customers and introduce them to our brand.
So, we’ve found that we can both benefit and have a good relationship, it’s just shifting a little bit and it’s not the way the business was run, and the way our partnership worked four or five years ago.
Skift: Some hotels get upset that the OTAs don’t share full data. Other than email, what data would you like to have from the OTA’s that you’re not getting? For metasearch where you own the booking and data, what are your thoughts on using them as acquisition channels versus the OTAs.
Pinto: So, I won’t be too specific, I’ll keep it general, but just from a strategic perspective. As I mentioned on the last question, customer acquisition is a very important role we see the intermediaries playing for us, so if the strategy is customer acquisition then the customer data becomes more and more important. It’s certainly a big focus of ours and depending on the quality of that data and the usefulness of it, it factors into our decision about how closely we want to partner with somebody and what channels we want to promote. So, I would say for some of the channels, I’m not really comfortable giving specifics, but in some of the channels the quality of that data is a topic of conversation and continual improvement.
I will give the OTA’s some credit and they’ve been open to improving in this space with us and trying to find ways that this can be more cooperative and more beneficial. I certainly realize their additional point of view and I’m sure they have concerns of what does this do for their business, but I think we’ve both started to see that there’s so much upside to this customer acquisition role for both of us that things are improving there.
When you get to metasearch, TripAdvisor, Instant Booking or other examples like that, yes, the quality of the data there is quite good. The booking is happening with us. That is definitely factored in our considerations. Once the customer comes in and has shown an affinity to our brands and to our loyalty program and wants to stay with us frequently in the future, yes of course we want them to book through different channels and stay with us, but our preference is that they book with us directly. Having that direct relationship with that customer is predicated on knowing who they are, so that is definitely a very important decision factor in the channels that we try to promote and the partnerships that we sign and who we want to view as very closely aligned with our strategy.
Skift: Can we define direct booking because companies can classify it a bit differently. Obviously non-OTA is a direct booking, but when a booking comes say through Google, traditional metasearch, or a TripAdvisor Instant Booking, and the booking happens on Marriott.com but you’ve paid for that, do you guys count that as a direct booking and just view that as a marketing expense or do you only count direct booking as someone who goes to Marriott.com and who is brand loyal and books truly direct.
Pinto: Yeah, very good question. A few years ago, when I was getting involved in the space and took this job we weren’t as sophisticated about how we looked at this. Of course, we tracked our ad expense and things, but we didn’t have a really refined way of defining channels and how we feel about those channels. It is much more refined now. So, like you guys just said as examples, we look at every booking and classify in a hierarchy that’s much more detailed than what we report out publicly. Someone who comes directly, has our site bookmarked, or uses our app, that’s a different kind of direct than someone that is coming through even natural search through Google. The economics are different. We track that.
We also classify that differently than to say paid search, or metasearch, or even the Instant Booking model, or anything like what TripAdvisor is doing. They’re all classified in their own buckets and we track them. And we also analyze them for all different factors, the strategic part, the customer relationship part, the economics of it, we watch the growth, and share of all that business.
So, when we say book direct out there, there’s a lot of gradients within that book direct that we’re watching very carefully and have somewhat different opinions about. The other thing too is, just so that you guys know, I know that both we and you are really focused on the online world, property reservations and voice reservations are still direct bookings, too, and they’re still a significant portion of our business. Now, they’re on a different trendline than the other channels, but we also watch that because some customers still choose to interact with us that way, or they might go use the app and then have a question and want to talk to an agent or want to talk to the hotel and click the ‘Call Now’ button and then end up closing the sale that way.
Skift: It seems that the large OTAs have the advantage with marketing budgets and technologies versus the hotels broadly. Obviously, you guys are much bigger than others. For travelers that are not brand loyal, how do you compete effectively for that type of customer versus the OTAs? Does Marriott kind of concede that’s the area that the OTAs are really good to partner with and the direct booking campaigns are targeting to other types of guests?
Pinto: I think, the way I view it, going back to that customer acquisition strategy is, they play an important role there and a lot of times we need a very good way to acquire customers. We also have a lot of other channels and a lot of other things we do. So, I would say when it comes to customer acquisition, we’re just very diversified. So, we’re doing our own digital marketing. We have other partners like Facebook. Google, of course. The metasearch players. Again, we have a very big travel agency business that is still very important to us.
There’s a lot of customer acquisition vehicles, OTAs are one of those and they do an effective job with that and then there’s also other ways that we do it. When we are competing for those customers, our view is, we put a lot of options out there or try to target different segments in different ways and get them to be engaged with our portfolio and our loyalty program. I would say though once they engage and it looks like they’re the type of customer that is going to really want to stay with us in the future, then that’s the case where then we start to shift to say, how can we get this customer to be a direct booker, but all within consideration. As you guys know, it’s a complex thing. There’s a lot of nuance to that. You have a corporate customer using a travel management company, we by no means have a strategy where we’re going to have them book out of policy.
But, if it’s an independent traveler who can make a channel choice, there are reasons and benefits to them to book in our direct channels and we focus our marketing to them to make sure that they understand that and then they make the decision that they want to make in terms of the channel that they’re going to pick.
Skift: Can you quantify the costs and impact of the “It Pays to Book Direct” campaign?
Pinto: We haven’t disclosed it. What I can tell you on that is, it was fairly material for us. It was a good-sized campaign. It was nothing like what you saw later from Hilton. I’ve heard some numbers thrown around the industry and it was nowhere near there. I think the important thing with the campaign that I wanted to emphasize is that we were the first ones to do it.
We clearly understood that, among some of our customer segments, the awareness of our direct channel booking benefits was pretty low, and so we wanted to make sure that it was an awareness campaign and that people understood that there are some benefits you can get by booking direct. It was a kind of a representation of the fact that our strategy had changed. As I said, our channels are all important to us and don’t take me the wrong way, but at the same time, we switched from being channel agnostic to making sure that there was an emphasis on our direct channel growth. We used to be channel agnostic and now we’re not. It doesn’t mean we’re against any channels, but for many reasons whether they be strategic, or customer relationship, or economic, a direct channel strategy is very important to us and something that we’re going to be more clear about and make sure that everybody knows that.
So, that campaign, too, was to tell our customers that there are reasons to book direct and we want you to know that rather than not really expressing it to you, like we had done in the past.
We started that campaign in the summer of 2015. We decided to be very much digital and social, really targeting those customer segments with a lot of people new to our loyalty program, new to our brands, emerging travelers. And we used Grace Helbig, a YouTube star. It worked really well. We got almost six million views on YouTube. We got 13.5 million Twitter impressions from that.
In terms of exposure for the way we decided to deliver it, we were really happy about it. And that was, as I mentioned in the beginning, that was the bigger goal of the campaign. It was an awareness raising. It wasn’t really, like when you’re in the low funnel and you’re about to book, get in front of the customers. It was more of an awareness through our social channels, and we were happy with the return we got from it from that viewpoint on our objective.
Skift: Can you give us a sense of the percentage of total bookings that are loyalty members?
Pinto: It’s about half.
Skift: How have Facebook’s Dynamic Ads for Travel been working for you so far?
Pinto: We were the company that Facebook designed those dynamic ads with. That was the first time they had built a product specifically for a vertical and that was with us, actually. We worked with them on that. And so, from a partnership standpoint and a willingness to work with us and come up with new ideas and things, Facebook has been really, really positive. We’ve been very pleased with the result. I would say we’re in the process of scaling it and also then talking about what other things might be out there in terms of possibility of what role they can play that’s beneficial to us, as well.
I would say overall, we’ve had a very good return on those dynamic ads. They’ve been very responsive about designing products that are going to work for suppliers and that are going to be sustainable for the long term.
One stat we will share on that is that the ROI is up to 33 to one, and if you’d asked us about a year ago, it was around 21 to one. So, it’s done significantly well, and our VP for digital marketing says that we’re getting better at it, so that number keeps going up.
Skift: How does that compare to Google? I know Google is a little bit different because if you’re competing for a key word like “Marriott”, it is probably high and then if you’re competing for a hotel in New York it’s going to be low, but how does that compare to Google broadly?
Pinto: Yeah, I think you got the nuance very well there. It’s very hard to do a benchmark on it because of the different situations. I would say it is in the same ball park as some of our more successful efforts with Google. It’s really positive, it’s encouraging, it makes us want to explore how we can get even better with Facebook or any other partner that wants to come with a similar model that we can see this type of return and this type of positive impact.
Skift: What are some of the things you’re doing with the website and the app to make sure that conversion is strong?
Pinto: Probably like many companies you’ll talk to, certainly the OTAs and others, we have a very similar approach in terms of what we’re constantly measuring, doing consumer research, testing, changing things. We watch that conversion very closely. One point of conversion, is hundreds of millions dollars for us, given the scale that we have. So, we’re constantly trying different things and really talking to customers to find out what they’re looking for.
It’s interesting though because if you’re Marriott.com or SPG.com, they’re quite a few different trip purposes and customer segments and reasons why people come, and so it’s not just everyone is coming for booking every time. Certainly, that’s the majority of it, but you’re coming to check your rewards balance, or we even have things like investor relations data on the site, things like that. So, we have to be very sophisticated about all of the different purposes for the use of the site and why they’re coming in and then we look very carefully at where our conversion might break down and what’s happening.
We have a user lab here at our headquarters downstairs. We bring customers in constantly and run through different scenarios and see what works best. Our goal is probably no surprise, but it’s all about removing friction from the process and getting that customer to be very comfortable booking with us and then also throughout the stay. Our growth in our mobile app is really exponential in terms of bookings, but also the use of it through the trip. So, that’s becoming more and more important. It’s not just, how is your search and book experience but whether you’re doing service requests at the hotel or mobile check-in, customer service, all those types of things.
We’re also using our same principles and our same approach we’ve used to build our website over time, we’re using those now in our mobile strategy with great returns on it.
Skift: How different is the cancellation rate for bookings done on Marriott versus through an OTA? Is it much higher on an OTA?
Pinto: Yeah, basically without giving specific numbers, direct bookings have a lower cancellation rate than the intermediary channels, particularly the OTA channel.
Skift: What are some of the things that Marriott has been pushing lately to increase true brand loyalty during the stay and after?
Pinto: Loyalty is a huge focus for us. My team and I work very closely with the loyalty teams about future strategy. We know empirically and from experience that when people join our program, in terms of their affiliation with us and affinity to our brands, their lifetime value really changes.
What we’re looking to do is to really unlock the value of the (Starwood) merger for our members. So, when you look at what we did on day-one when the merger finally closed, was that we enabled our members to link their accounts so they could have their status match, they could transfer points among the programs, and then that way they could take full advantage of each portfolio. They could literally discover the 6,000 hotels.
Skift: The hotel industry is more fragmented outside of the U.S. Do you have a much lower percentage of bookings done directly in international markets versus the U.S.?
Pinto: So, it varies a little bit. If you’re look just at the website and digital broadly, then it would be what you would expect where it’s lower in some continents and some regions than others. I would say our strategy is still pretty similar, it’s just we’re at a different starting point. So, in some areas where our loyalty penetration, or brand awareness is lower we’re kind of in earlier stages of strengthening those. But, I would say intent is the same. The reason that it’s a little nuanced is on-property in some markets is an important channel. The voice channel is still a very important channel in some countries.
Skift: Jumping back to the distribution partners, TripAdvisor has traditional meta and Instant Booking. Can you comment on which avenue for them you’ve found more success?
Pinto: You know I think they’ve both been really good. The meta product we’ve had success with them for a while, and we have a very good relationship with Trip, so with Instant Booking launching, we were supportive of that. We’ve been pleased with the results.
We’re scaling that with them as they scale it around the globe, but the meta product also is still doing well and so we see it as giving them some flexibility to maximize the customer experience in conversion with us and there’s a couple different avenues they can do that through.
Skift: I’m assuming for somebody like Marriott, the commission or CPA rates on Instant Booking are privately negotiated?
Pinto: We have kind of a bilateral agreement with them in terms of what our commission rate is.
What about the other large brands?
InterContinental Hotels Group
IHG has disclosed more than most about its distribution channels. Its OTA business is a bit higher than Marriott’s and what we estimate for Hilton, but still quite low compared to the broader industry. This makes sense given that IHG has over 40 percent of its revenue outside of the U.S. where fragmentation and reliance on OTAs is higher; Marriott derives around 20 percent of its revenue from outside the U.S.
Digital direct stands at just over 20 percent and is IHG’s largest channel. From 2012 through 2016, the revenue CAGR (Compound Annual Growth Rate) was seven percent. If we then add the rewards club and call center bookings, we get to 47 percent of bookings coming direct. We believe that there is a meaningful share of the “other” bucket that includes walk-in revenue. If we assume that is 30 to 50 percent of other, the total direct pie for IHG reaches 54 to 60 percent for total direct bookings, which would be on par for what we would expect for large hotel groups of IHG’s quality and scale.
Source: Company Financials
IHG CEO Richard Solomons has noted that:
“Since launch, the relative change in our retail channel growth rates has outstripped that of the OTAs demonstrating the shift in behaviors guest recognize the advantage to them of booking direct. This has also driven increase to IHG Rewards Club enrollments, which were up 16 percent year-on-year.
As well as growing our loyalty base, our existing members are staying with this more often and redeeming more points for their reward club stays. All of this has increased our loyalty contribution by over three points since 2014 delivering low cost, high quality revenues to our owners. Our direct digital channels remain one of the fastest growing across our system and we continue to innovate and update them.”
IHG CFO Paul Edgecliffe-Johnson also said:
“Our growth in the digital retail channel rate is up 5 percent and the OTA growth rate is down 2 percent since the launch [of IHG’s loyalty member rates], so [we’re] definitely seeing business shifting across into our direct channels.”
On the relationship with OTAs, Solomons emphasized:
“We are not anti-OTA. So I think what’s important is it’s a good channel for price-sensitive leisure travelers who are never going to be brand loyal; it’s a great route to market for us, but it’s very expensive. And I have told them that, they know that. And so if it’s incremental and positive profitable contribution then have that refined with that. But for a lot of guests, direct booking is preferable: They know what they are getting, they know who they are dealing with, we get rich data create and engage them with the brand and obviously, again, for owners it’s much more profitable. So I think they are always going to exist in parallel. The important thing is you target it to the right guest. What you don’t want is guests who are loyal or can be brand loyal booking through OTAs.”
The approach to direct booking for IHG is comparable to Marriott’s where the emphasis is on digital advertising over a massive television campaign. IHG did run commercials, but that was not a large part of the strategy and nothing like what Hilton has done. The company offers discounted rates where Your Rate is up to five percent off the standard price. Additionally, direct has a best price guarantee (or your first night is free), free internet access, and extended check-out for Gold Elite, Platinum Elite and Spire Elite members.
ANDREW RUBINACCI, SENIOR VICE PRESIDENT DISTRIBUTION & REVENUE MANAGEMENT STRATEGY, IHG
Andrew Rubinacci is responsible for all revenue management, third party internet, and GDS for IHG’s family of brands.
Rubinacci is a 25-year veteran of the hospitality industry, with extensive experience spanning sales, revenue management, guest services, hotel operations and e-commerce. Most recently, Rubinacci served as vice president, distribution marketing, responsible for all facets of IHG’s reservations and distribution for Europe, Middle East and Africa.
Rubinacci started with IHG in the managed hotel side of the company in 1991 in the management training program at the Holiday Inn Select in Nashville, Tennessee. After that, he continued to serve in management roles at multiple properties, before moving into corporate roles in revenue management, e-commerce and distribution. He has held roles of increasing responsibility with IHG, Bristol Hotels & Resorts, and Meristar Hotels & Resorts.
Skift: Given that the metasearch lets you keep the customer data, is there a push get more bookings there versus the OTAs?
Rubinacci: Meta is distinctly different than OTAs for consumer interaction. For meta, we do push it as we do multiple channels, including OTAs and direct, it’s just another arrow in the quiver of distribution. We do like meta because it does share data and it allows to give a better consumer experience. So obviously that is important to us.
Skift: You mentioned TripAdvisor, which is a hybrid between meta and OTA under the Instant Booking model. We see the attraction for hotels on Instant Booking, but consumer adaption has been slow. What are your thoughts on using Trip, both on the meta model and the Instant Booking model?
Rubinacci: Right now, we only work with Trip on the meta model. We like the meta model as opposed to Trip’s OTA model, because I’ll say the Instant Booking is an OTA model. The booking for consumers happens on the TripAdvisor website. While we do like the data sharing and other things that they’re offering and some of the OTA’s offer, still, the consumer experience in the entire path of purchasing, happens on a different website. We just can’t offer some of the same things to consumers from an experience standpoint.
Skift: Is that the primary reason why you have yet to adopt the Instant Booking platform?
Rubinacci: No, we’re not opposed and do lots of business with OTAs globally. We aren’t opposed to it at all. We can’t really discuss anything that is going on potentially with TripAdvisor, but we aren’t opposed to a commercial relationship that’s agreeable to both. I’m sure we’ll wind up doing something with them at some point. (After this interview, IHG signed up for TripAdvisor Instant Booking.)
Skift: Would TripAdvisor or other distribution channels like that be handled at all at the hotel level or is it centralized?
Rubinacci: It is centralized. We have a distribution standard with our owner’s that allows us to negotiate on behalf of the hotels so all of the OTA deals or distribution deals are done centrally.
Skift: What are some of the things IHG is doing to increase true brand loyalty?
Rubinacci: I think we’ve done quite a bit in the loyalty space here in the last 12-18 months, really trying to strengthen the loyalty program. We’ve launched some new enhancements like our Spire Elite, which is a different tier for the most loyal customers that travel with us, we re-launched a new CRM system, it’s fully integrated and we launched the, what we call Your Rate which is our loyalty member benefit rate. So, there’s a bunch of things around that that goes hand-in-hand with strengthening our brands and the loyalty program is there to strengthen our core brands.
Skift: For Google, you have had a lot of changes where they’ve shifted how organic search is presented, where now you have the four paid ads and then, you have their hotel ad meta search and then organic. First, how has that impacted the cost of acquisition on Google and then just, broadly your thoughts on Hotel Ads versus AdWords?
Rubinacci: Well, Google is a for profit company and they will continue to try to monetize their space. That being said, them monetizing more, eliminating the free listing, let’s face it, they’re down below the fold at this point, that increases costs. Right now, we still get value and we’ll continue to work with them as we have and extend that relationship in the future but at some point, if the value isn’t there, we have to make decisions. But we’re not at that point or even close to it, we just want to make sure it’s a win for us and them.
Skift: We think the term booking war that gets thrown around is overblown and that is more nuanced then that. As an example, if an independent hotel in Italy gets a Japanese tourist to stay with them through an OTA when that hotel has no operations, it should be happy to take the OTA booking whereas for IHG, if you have your own in-house team and operations, it’s fair to say that depending on the type of booking, it’s lost revenue. How do you look at the whole so-called “booking war”, do you think the term is overblown?
Rubinacci: Actually, I think it is overblown. The industry has always looked at incrementality. When I was back at an individual hotel years ago in Florida, I would use wholesale to access a German customer 20 years ago. You give a big discount and then package it with air and tours.
All the internet did was kind of break down those geographical boundaries and allow different hotels to get different access in different ways. So, some of that business is less incremental, as the Japanese traveller can go on the website. If 100% of the business is incremental, we are willing to pay more for it. If it’s not incremental at all, 1% commission, 1% cost of sale would be too high so it’s just a matter of figuring out what the value.
I think your point, big brands with global reach and people on the ground in multiple countries, it is less incremental, because we can fill a lot of that business on our own. As long as the OTAs and distributors provide value in some incremental business to the point where we’re making more money than the cost of it, then it’s the thing to do.
Skift: Broadly speaking, what is IHG doing in terms of direct booking ad campaigns?
Rubinacci: I think we have done campaigns differently in different markets. Did we go out in the U.S. with an above the line television campaign for Your Rate, no. We didn’t. But we spent a lot of money on targeted marketing and programmatic marketing through the internet.
Lets face it, our competitors are pushing online bookings, so we just went directly there. We did do some original above the line campaigns in Europe so we started doing our loyalty rates back almost two years ago now, in the U.K. and we really had a lot of success. We went with, I don’t believe any television, but there were some radio ads, some print ads with our lowest price promise and really got people to stop shopping around and book with us direct and we launched a loyalty rate within the U.K. We saw quite a bit of success with it, did some trials in the U.S. the following Summer of 2015 and then went out and launched it globally in 2016.
Skift: What has the channel shift been so far?
Rubinacci: We’ve seen growth in loyalty member enrollment was 15% year on year. We’ve had more engaged members who’ve stayed six plus times are up 7% year on year. We’ve seen a 5% growth in direct bookings. It’s been a positive campaign. We’re very happy with it.
Skift: Looking at Europe versus the U.S. and other regions where Europe is more fragmented, how is the relationship with third party distributors different there versus the U.S.?
Rubinacci: Well we manage relationships globally. Whoever takes the lead, takes it where the OTA is located. Booking.com, for example, we manage out of our London office and Expedia, we manage out of our U.S. office. So, we do manage it globally, we look at it as one system and there’s real power to that.
Booking.com is extremely powerful in Europe and is looking to grow in other parts of the world. We can help them there and they can help us get that incremental business in from Europe. Expedia, likewise, with the very strong presence in North America wanting to expand out to other parts of the world, we can help them with that. Ctrip in China, is the same thing, where they are very strong domestically but we’d love to get the outbound Chinese business and we can help them with that.
I wouldn’t want to be in an independent hotel or even regional player that really can’t leverage some of the things that a global player can for scale that we can do.
Skift: In Europe, what is your policy when it comes to rate parity? Is it something that you’ve negotiated with recently, with your OTA partners? I know that legally you’re able to price your rooms differently on your websites versus your distribution partners but just kind of curious about best practices at IHG around rate parity and whatever you can share around that issue as you guys see it.
Rubinacci: Well it’s pretty clear. There’s several countries in Europe that made rate parity illegal therefore we have no agreement with the OTAs on anything because it would be illegal and we do price accordingly. We price differently in different markets.
Skift: When it comes to hotel individual pricing, does the IHG group coordinate that with the property level or is that purely up to the franchisee or the management at the property level?
Rubinacci: The property sets pricing. We have frameworks but the prices are actually set by the hotels. So we have a best flexible rate, we might have an advance purchase rate, we might put a range between 5 or 10% or whatever but they set rates. It’s up to them to set the rates. The frameworks we work with them to set up.
Skift: There is debate whether hotel owners are better off franchising with a brand or not. What are your thoughts on the value IHG adds for the hotel owners versus staying independent?
Rubinacci: Brands still matter quite a bit whether it’s our stay brands like Holiday Inn or InterContinental or whether it’s today’s booking brands. If you’re booking with us and you’re using the loyalties to get your rate, which obviously would be always a preferred rate to consumers. Right now, the big brands drive multiples of what the OTAs do for the hotels so we still think there’s good value there.
Again, it is like anything else, if we stopped offering value to our owners, they’ll make the decision not to work with us.
So, we have to evolve and make sure that we’re still offering value to owners, we’re doing things with investments into a new reservation system, integrating the technology, making sure that your app is can do a whole bunch of things to really make a seamless, easy travel experience and you can only do that if you have scale and the on-property guest experience.
One thing that OTAs really will have a problem doing is operational work on the property. They can do a lot and they do a very good job at what they do but end of the day, guests are sleeping in our beds and staying with our hotels and employees so there’s an opportunity to really enhance that experience and make it relevant.
Skift: So when it comes to direct competition with the OTA’s, you’re saying that IHG has the added advantage of having that direct relationship with the hotel at the operational level?
Rubinacci: Well, yeah. We manage hundreds of hotels, we franchise obviously over 5,200 hotels. That guest experience, at the end of the day, that is what people are buying.
You want a good, simple, easy booking experience and we’re working continually and improving on that and the OTAs are doing a fantastic job of that as well, but at the end of the day you’re staying at our hotels.
Skift: Do you get the sense that as the world becomes more digital, the large chains that have the technology budgets and scale where they can take share not only from third parties but also from smaller hotels.
Rubinacci: Yeah, generally across the industry, direct big brand websites are growing. OTAs are growing. That’s coming at the expense of what was traditionally booked on property.
I wouldn’t want to be a small independent property right now or even a small regional chain because I’m having to keep up with the technology and you have to have an entirely different approach and you have would likely be outsourcing probably quite a bit of your sales and marketing efforts to an OTA or to one of the big brands. When you take a look at the pipeline, hotel owners that are signing up with brands has only accelerated.
As a private company, there is not much data on Best Western available. Given its middle-market status, we expect that walk-ins would be important for the company. CMO Dorothy Dowling confirmed this is the case both for the leisure and unmanaged business traveler. Group bookings for things like conventions or weddings would be lower than at a Marriott or Hilton, but walk-ins could be as high. Non-digital direct is likely in the 20 to 25 percent range.
For digital direct, we suspect that would be slightly lower than Marriott and Hilton given the type of hotel (less advance bookings), but that would be offset by last-minute digital bookings (while in-destination). Our (very rough) guess would be digital direct at 20-25 percent for Best Western and total direct would be in the 40 to 55 percent range. For context, loyalty bookings are 40 percent and we have found that gives a rough starting point for direct bookings.
Last year, Best Western CEO told Skift,
“We just launched our new digital platform, the new BestWestern.com, which enables us to offer a gated discount rate to the Best Western loyalty members. We promote to our Best Western loyalty members. If they book with us directly they would enjoy a certain discount. Typically, it’s about 10%. But that’s only available if they sign in and then make that booking. That’s called a gated offer for that reason. Our contract with OTAs allow us to provide that kind of gated offer, and the OTAs can do the same thing. Now that we have that functionality, we’ve just begun doing it.”
Similar to other platforms, booking direct guarantees the best rate and free internet. The company has a highly-regarded loyalty program where there are no blackouts and points never expire. The company rolled out a book direct campaign in the U.K. in March 2017 called “Better Book Direct” across both television and digital channels.
DOROTHY DOWLING, SENIOR VICE PRESIDENT AND CHIEF MARKETING OFFICER, BEST WESTERN HOTELS & RESORTS
Dorothy Dowling is senior vice president and chief marketing officer for Best Western Hotels & Resorts. Dowling, a 30-year hotel industry veteran, directs all marketing and sales strategies, overseeing the brand’s loyalty program, consumer and field marketing activities, advertising and public relations.
Dowling has been honored with a number of awards, including being named the 18th most influential chief marketing officer in the world in Forbes/ScribbleLive/LinkedIn’s 4th Annual CMO Influence Study in 2015. Dowling, who jumped in the rankings from 27th in 2014 to 18th in 2015, is the third highest ranked female CMO on the list. Additionally, she received the prestigious American Hotel Foundation Award for Best Practices in Guest Loyalty Programs, and was among HSMAI’s Top 25 Extraordinary Minds in Sales and Marketing two times. Finally, in 2014, Dowling was inducted into the Direct Marketing News Marketing Hall of Femme.
Skift: What types of data are you not getting from your OTA partners that you would like to?
Dowling: From my point of view, I think the OTAs have provided partnership opportunities for us to look at them as a marketing channel, and that is how I see them, as a marketing partner. I think it is incumbent upon us, on the brand model, and then obviously, the work with our individual hotels, to help us come up with the right offers to conquest that customer and qualify them as a potential member of our loyalty program. When we do that, then we get the data that we need to be able to have an ongoing relationship with those individual guests.
Skift: There is no uniform way in the industry to count what it is a direct booking. Some hotels count only true direct bookings, non-OTA, non-Meta, non-Google, non-Paid. Others, look at basically anything that’s not an OTA as direct as long as the booking takes place directly regardless of acquisition costs. How do you think about direct bookings? How do you define it internally?
Dowling: That’s a good question. I don’t know that I think about it quite that way. I’m actually thinking in the moment as you’re saying that because we look across all channels and we look at particular performance relative to investment, customer acquisition and lifetime value of that customer.
We look at it channel by channel. Obviously, we’d like to bring people into our loyalty program because the likelihood is that they’re going to come to us directly. We definitely look at cost of sale by channel though.
Skift: What percentage of your guests are leisure versus business?
Dowling: In the US it’s around 50/50. In Canada, we’re slightly more business travel than we are leisure where it’s more of a 60/40 split. In other parts of the world it could be a 70/30 business. It can go down to 50/50 in other parts of the world too, but, it’s very much of a domestic play by country.
Skift: Have you guys done much with the Facebook dynamic travel ads yet?
Dowling: We’re starting with them and we’re doing more of their audience profiling. That’s more of a bigger initiative for us this forthcoming year. We did some testing with them last year.
Skift: In terms of your advertising channels, how much do you guys skew towards Google versus television versus other forms of digital?
Dowling: Television’s still a very important media strategy for us. It drives a lot of the digital performance still. We know that when we do our econometric modelling. Google is definitely the dominant play in digital, and is growing in terms of relative spend investment. This is mostly because of all the new products they’ve added and how they’re representing some of the hotels in terms of the numbers of hotels and hotel ads and what they’re doing in the destination space.
Skift: In terms of walk-ins, I can imagine your hotel profile being strong on leisure and kind of the road traveller, would you say you have a higher share in terms of walk-ins across your brand versus others? Is that an important channel for you guys?
Dowling: I think walk-ins are still a very vital part of the business and certainly for those that operate in the middle market. It is still very important for us. It has shrunk in terms of overall business delivery, but it is still important.
I would tell you it’s quite often business travelers that we already have engagement with at a business account level. A lot of those travellers are very much aware of what the demand patterns look like in a given market because they are there on a routine basis. They know when they have to book ahead and when they don’t. They know what those patterns look like in the markets that they spend time in.
In terms of leisure, I think mobile is changing some of that dynamic because I think there is more opportunity for people to book on the go as they’re traveling. I think they’re searching and shopping. Sometimes they don’t actually consume the booking, but they’re using it more as a research tool and then still walking in to actually consume the actually transaction.
Skift: Could talk a little bit about your loyalty program in terms of size and what you’re doing to grow it?
Dowling: I think we have a very strong loyalty program. We’ve had it for a long time and have a lot of unique elements to our loyalty program that delivers value both to leisure and the business travel space. In aggregate it’s about 30 million members. It’s a global program, so the program benefits are consistent around the world in terms of issuing and the earning redemption capabilities.
Obviously, we have redemption relevancy basically on gift card products that are domestically relevant. In China, there are very different gift card products from what you would have in say Canada, which again are different than what you would find in the U.S.
70% of customers participate in the loyalty program for mainly for free nights. We have continued to enhance in terms of adding a lot of instant levels of redemption like many in the space to have a duality of program benefits. Then, we also have the longer-term equity build in terms of the currency.
I think what differs about our program is the low cost of redemption relative to free nights. It’s also the points never expire, which is really important to that leisure customer. Because sometimes it takes them longer to build towards whatever their aspirational goal is on free night redemption.
Loyalty continues to be critical, and in fact, is the most important part of our marketing mix. It’s where we bring a lot of value to promotions to our customers.
Skift: Roughly what share would you say of your customers comes through your loyalty program?
Dowling: Last year we closed the year in North America at 40% and higher than that for first quarter.
Skift: In terms of distribution mix across the different platforms, would you say that your loyalty customers tend to book direct with you? Or is it really variable in terms of the channels that they come through?
Dowling: That’s another one of those complicated questions. I would say that generally, the independent travellers, most definitely come to us directly, typically through our web or mobile experiences, but the business traveller is still booking through other products.
Skift: Our checks indicate that 10 to 15% of bookings comes from the GDS channel broadly. Is that in the ballpark for you guys?
Dowling: Yes, that’s a pretty good assessment overall in terms of GDS booking paths.
Skift: Best Western has done quite a bit with TripAdvisor on the partnership level. How is TripAdvisor Instant Book turning out for you?
Dowling: We’ve been a long-time supporter of TripAdvisor in a number of ways, obviously in the content space, the review space. We were not a first, but a second mover in terms of Instant Book. It’s still a vital part of the business delivery for us. I think the whole play in terms of the mobile capabilities and making it easier for the customer to actually consume the room is the right strategy. The business volumes have declined through Trip for us as more entries have come into the space.
Skift: What are your thoughts on Google metasearch and the ad platform more broadly?
Dowling: The product has evolved. It’s a large part of our spend, because of its relative position in the search engine space. Since they’ve expanded (the number of ads per search), we have to be evaluating how we retain a position in that. We have a good partnership with Google. We always spend a lot of time trying to understand how and what they are doing so that we can be as smart as we possibly can in terms of how we invest and how we monetize those business opportunities with them.
Skift: When you’re advertising there, are you much more focused on branded search terms than location based ones?
Dowling: There’s been decline in branded search materialization. A lot of that I think has shifted more into the meta space. We do a combination of long-tail and branded search to try and monetize. It’s harder for brands to monetize in the long-tail space.
Skift: Any final thoughts?
Dowling: From my point of view, it’s far more important for us to be looking at the customer and understanding what’s important to them. The channel that’s important to them in terms of what they’re trying to accomplish. That’s where we pride ourselves in having that point of view. We always want to create the right level of engagement with partners to drive to the right outcomes for the customer.
While the namesake brand is upscale, the majority (75 percent) of rooms are economy, with Super 8 and Days Inn having the most rooms. This means that walk-ins are a meaningful portion of the business. Things like group bookings would be much lower here than for Hilton and Marriott. Additionally, we believe that digital direct would be much lower as well. While there would be less advance leisure bookings through OTAs, OTAs still matter for the road trip where someone is using their phone to search hotels in a given town. The quickest approach there is Google or one of the OTA apps.
Based on our interview with Wyndham, industry data, and public filings, we believe that a breakdown could be as follows:
OTAs 10 to 15 percent
Non-Digital Direct 25 to 35 percent
Digital Direct 15 to 20 percent
Total Direct 50 to 60 percent
GDS 10 to 15 percent
WYNDHAM WYZARD CAMPAIGN
Wyndham launched its Wyzard campaign back in May 2015. They invested over $100 million on ads featuring Game of Thrones actor Kristopher Hivju across TV, radio, digital, and on-property. In conjunction with the campaign, Wyndham simplified its rewards program as follows:
- Go FreeSM: With just 15,000 points, members can redeem a free night at any of the program’s more than 7,500 hotels globally with no blackout dates.
- Go FastSM: Members who want to redeem their points sooner or stay longer for less can book a night at available hotels for just 3,000 points plus cash.
- Go Get ‘EmSM: For every qualified stay, members now earn 10 points for every dollar spent or a minimum of 1,000 points per stay, whichever is more.
It also offers the typical features of other campaigns including best rates.
In our interview with CMO Barry Goldstein, we asked for more details on the campaign and its impact. Barry stated:
The origin of the Wizard campaign came back to a complete transformation of our loyalty program. The reason we even thought about that is because we recognize in the industry how difficult it is for customers to understand the value and benefit of a loyalty program. We wanted to create an incredible level of simplicity around that. We launched a new program that really talked to the ease of 15,000 points gets you a free night, 3,000 points plus cash gets you a Go-Fast room one night.
We also wanted a way to be able to portray that to our customer base, and we felt the importance of really using the Wizard as a device to try to convey that message, being a very different message than many of our other competitive brands. We thought the combination of using the Wizard, as that device and really talking about the program, and then transforming the program really would be well received.
Since then, we ranked as the number one loyalty program by US News and World Reports. We’ve received over 40 industry accolades over the last 18 months in the industry. We’ve created incredible brand recognition around the program that continues to grow every year. We’ve added 8,000,000 new members since we’ve relaunched the program. All our properties participate in the program. Then, what’s even most exciting, is we are extending the loyalty program to our other business units that have condos and vacation destinations and vacation homes, and an additional 17,000 destination opportunities are now part of the program. Our guests can redeem and earn in all those locations. We will be the largest program and the most unique in providing customers that incredible opportunity, to take advantage of their loyalty to us.
BARRY GOLDSTEIN, CHIEF MARKETING OFFICER, WYNDHAM
As chief marketing officer, Barry Goldstein is responsible for all aspects of marketing and revenue generation for the company and its 18 global brands, leading the brand marketing, loyalty, digital marketing, global sales, communications, customer care, and revenue management functions for a portfolio of more than 8,000 hotels in 77 countries. Goldstein was previously chief digital and distribution officer for Wyndham Hotel Group supporting the company’s digital marketing strategies.
Prior to joining Wyndham, Goldstein was chief revenue officer for Dolce Hotels and Resorts (later acquired by Wyndham Hotel Group) and vice president, global sales strategy, technology and operations, at Starwood Hotels & Resorts Worldwide.
Skift: What are your thoughts on the hotel/OTA relationship given all the ad campaigns and talk of booking wars, which we think are more nuanced in reality?
Goldstein: We have very good relationships with our OTA partners. They are an important part of our overall mix when we look at how customers come to us. We would expect that’s going to continue for quite a while. With that said, of course we want our guests to book direct with us, primarily to take advantage of all the loyalty benefits they get along with being the best program in the industry around the simplicity of the program.
What we think about with OTAs is given the types of properties we have, which really span across the economy to the upper scale segment, there are times and there are locations being many of them off of interstates or in secondary or tertiary destinations where we do recognize the importance of working closely with an OTA.
Skift: What percentage of your bookings were loyalty members before the program, and then now?
Goldstein: We have seen a 50 percent growth rate in terms of just loyalty members staying at our property over the last couple of years, but we typically don’t share the specific percentages of where started from and went to.
Skift: Marriott disclosed at its investor day that only 10 percent of bookings are from OTAs. Would that be a similar story for Wyndham with OTAs in the 10-15 percent range?
Goldstein: We typically don’t disclose that, but we’re fairly on par with the rest of the brands. It won’t be something that would be dramatically different.
Skift: Some of the hotels we talked to lumped everything that’s booked at the Brand.com as direct, whether it’s paid through meta or Google, or if it’s true pure direct. Others separate unpaid and paid. How do you look at direct booking?
Goldstein: Anything that eventually ends up being booked on our website (including mobile and tablet), or if it’s a voice booking or a voice channel, it’s considered a direct booking. We do have good perspective of where that comes from, whether it’s through a paid ad or whether it’s through metasearch or another vehicle. If the transaction is completed on one of our responsive sites or voice, we count it as direct. Then we obviously look at where it comes from, because there’s a different cost of sale depending on how it arrived to us.
Skift: We believe that for the larger hotel chains, total direct bookings, both digital and non-digital combined, are in 50 to 60 percent range. Would you guys fall in that general range?
Goldstein: Again, we don’t typically share that, but the one thing to recognize is we will have a much higher walk-in business than the brands that you just sited, in terms of Marriott, and others. We’re probably on the higher end. Of those that come, of the pie that’s left we’re definitely in the percentage of the other brands. It’s really just how you start the pie.
Skift: Right, so you guys may have less digital direct but more physical direct.
Skift: What percentage are your digital bookings are through mobile?
Goldstein: Actually we look at it just in terms of just overall growth where our mobile bookings have grown by about 52%, when we look at the things year over year. We’re approaching roughly in the one-third range for mobile bookings.
Skift: As the world becomes more mobile, how much harder is conversion on mobile for the hotels?
Goldstein: We have just gone through a major transformation of our site to new responsive sites, and you’ll see that each one really does an excellent job of both illustrating our brand promise and the differentiation between our brands, and also very much transactional focus. Mobile is always going to be a bit harder because people are looking around more. Depending, it takes three to four times more effort to convert a mobile booking.
With the redesigns of our site, we have seen conversion grow. The upside of mobile for us is significant. Mobile consumers have a shorter attention span so you have to deliver the content in shorter bite-sized increments. What you do on your desktop site has to be very different than on your mobile site. That is clearly a focus for us.
We have shifted the company to be a mobile first focus, because that’s where the growth is coming from.
Skift: Other than the obvious, email and phone number, what are some of the data points that are missing from the OTAs that you guys would love to have? More broadly, do you see more data sharing and partnerships as a trend in the industry?
Goldstein: It’s really important for us to engage with our customer directly. The biggest challenge when business does come through the OTA channel, is being able to connect with that customer prior to their visit, just having their email, which would be really important, because once we’re able to engage with them, we can collect a whole bunch of other information. That’s really critical.
I don’t see right now a lot of what TripAdvisor, Instant Booking has done. I’m not sure we’re at the point where there’s going to be in the very near-term data sharing. Both of us still feel the customer is really important to engage with, and I know we’re clearly not having conversations at all, like what Red Lion has done with Expedia in terms of sharing that customer with the OTA or sharing all that information with the OTA. We are years away from thinking about that level of data sharing. That will come from, at some point, the OTAs will try to broach that.
Skift: Just touching on Facebook, have you guys been doing the dynamic travel ads so far?
Goldstein: We’ve only done very limited pilots, so we don’t really have enough data to conclude. I will say that it is reaching a very different audience than what we’ve been able to, so we see that there’s a great opportunity to start to connect with some of the millennials and the Gen X’ers that we really want to get in front of, but not enough data to really conclude how that’s working.
Skift: For the cancellation rate, if a booking is done direct I would imagine it would be meaningfully lower than if it’s done through an OTA. Is that the case for Wyndham?
Goldstein: Yes, it’s significantly lower. When people book direct they often do show up. It’s two-X higher on OTAs.
Skift: For TripAdvisor, you’re participating on Instant Booking, do you see that as a meaningful benefit to your group, especially with the data sharing?
Goldstein: Yes, that’s what got us really excited about participating, is the shared customer data, allowing us to take ownership of the reservation and then be able to communicate directly with the guest. That was really our main driver. It’s been a little bit of a slower adoption to TripAdvisor Instant Book than we had hoped quite honestly. Some of their partnerships with some other OTAs have perhaps made it a little bit more competitive for us to get that booking, but what we do like about it is really the shared partnership of the customer in a very positive way.
Skift: Are you still using meta for TripAdvisor as well?
Goldstein: We are still using both, but quite frankly we have clearly slowed down our meta spend, when we ramped up Instant Book.
Skift: Was that because the economics weren’t there, or is it just traffic?
Goldstein: The economics are fine, it was really the traffic.
Skift: With more fragmentation, how different is your relationship with the OTAs internationally versus in the U.S.?
Goldstein: For the larger OTAs, we’re on a global direct connect for most of our properties around the world. From that perspective, and we have global agreements being that we’re in 77 plus countries.
The difference depending where you sit, Booking.com is clearly stronger in Europe, Ctrip is stronger in China, Expedia is stronger in North America. We try to manage globally the relationship to create scale, and consistency across all our brands. Then naturally, depending on your location, there’s differences in just the volume and the percentage of business.
Skift: Google’s organic traffic seems to display its hotel content skewed towards their paid links now. We’d love to get your thoughts on how the role of organic search has changed to drive traffic directly.
Goldstein: Like most brands we’re seeing, organic continue to grow. A lot has to do with really abiding by some of Google’s content algorithms and adjusting as they make changes. That really is very important. We have a team of people that continuously focuses on that. Like all of the brands, we want to continue to stay relevant. The ads component, we don’t participate holistically with all properties, but it’s really destination focus. We’ve seen very good results.
Skift: Can you just clarify on which component of this strategy has helped to drive the organic?
Goldstein: We went from multiple domains. We had each brand was its own domain to leverage a single domain strategy under Wyndham Hotels. We’re able to take advantage of the power of the overall umbrella brand more, which has allowed our customers to find us in different ways, especially using some of the unique media ads. We went for more of a multiple approach to bring everything in under the brand, very much aligned with how we’re thinking about the brand in general and how we’re thinking about our loyalty program encompassing all our brands.
Choice Hotels pushed its direct booking campaign out last summer and recently launched a larger multimedia campaign called Badda Book, Badda Boom. The message is similar to other large hotels that booking direct offers the best rates and things like free Wi-Fi.
We suspect Choice would have a similar distribution breakdown to what we believe is the case for Wyndham with direct bookings being in the 50 to 60 percent range and OTAs accounting for 10 to 15 percent.
JEANNIE LIN, VICE PRESIDENT, MARKETING AND DISTRIBUTION, CHOICE HOTELS
Jeannie Lin is the vice president of marketing and distribution strategy and operations for Choice Hotels International, Inc. Lin is responsible for driving the strategic development and execution of Choice’s marketing and distribution strategies, and delivering compelling consumer value proposition to optimize customer acquisition and retention. Additionally, she also oversees third-party distribution partnerships to extend Choice Hotels’ distribution through online travel agencies, global distribution systems and metasearches. Lastly, Lin is responsible for driving product management for Choice’s leading hotel technology solutions, including its property management system and revenue management system.
Prior to joining Choice, Lin served in a variety of business strategy, management, and senior technologist roles at past companies including IBM and webMethods.
Lin received both her MBA (Darden) and bachelor of science in engineering degrees from the University of Virginia.
Skift: What is your broad outlook on the hotel/OTA relationship in the industry and specifically at Choice? How can OTAs and hotels best partner together in a mutually beneficial way?
Lin: Choice values our business relationships with OTAs, which can provide a useful service for some infrequent, non-brand loyal guests. More importantly, we believe in full transparency and providing consumers with all the information they need to make smart lodging decisions. We are a strong believer in providing consumers choice.
- We best serve our customers by delivering the best pricing for our hotels and making pricing easy to find and understand, versus asking travelers to search multiple sites.
- At Choice, we give our loyal Choice Privileges members access to the most exclusive rates online. Choice Privileges Members save every time they choose to book directly on ChoiceHotels.com or our mobile app. They also receive instant rewards, points, and perks, which have made Choice Privileges the number no. 1 hotel loyalty program, according to USA Today. These benefits are only available when booking directly via choicehotels.com
- Hotels and OTAs can best work together by providing consumers with information to make smart decisions – transparency is critical to ensure travelers truly have a choice.
Skift: Traditionally, the OTAs keep the data and own the customer, but this is transitioning a bit for some relationships. Additionally, TripAdvisor is almost a hybrid meta/OTA where Instant Booking has OTA-like commissions, but the service and data is owned by the hotel. Do you expect more data sharing and partnerships to evolve? What are your thoughts on Trip versus traditional OTAs and metas?
Lin: Partnerships will continue to evolve across the industry over the next couple of years. The enhanced data sharing we’ve heard about seems to be predicated on an extension of the supplier loyalty program to OTA bookings. The current practice of many OTAs to withhold customer data from hotels, such as phone numbers and email addresses, limits hotels’ ability to best serve the guest when issues arise, e.g. if a credit card authorization fails pre-arrival. We hope that OTAs begin to reconsider their stance and begin to share more data with hotels, as it is in the best interest of the consumer.
Choice Hotels was a launch partner for TripAdvisor Instant Booking, and we continue to be strong advocates of that model today. It launched as a way to make the booking process easier for consumers, reducing the steps necessary to complete their transaction. It’s a natural evolution of the metasearch model. TripAdvisor fully embraces the role of reservation facilitator, providing all customer data to the hotel, which aids in customer service and fulfillment.
Skift: Choice is offering better rates for direct booking and has improved loyalty rewards. Can you discuss this a bit? How large have the discounts been and how does that impact the average room rate? Can we expect TV campaigns or is it more cost effective to proceed as is?
Lin: Our award-winning Choice Privileges program is now 30 million members strong. In 2016 alone, 4.6 million people became Choice Privileges members, more than any other year in our history. When booking directly through Choice, loyalty members gain exclusive access to the best rates, perks and rewards, including:
- Immediate Savings: Choice Privileges members have access to the most exclusive rates online and are guaranteed to save every time they chose to book directly on Choice.com or our mobile app.
- Your Extras: Members receive tangible instant rewards through partners, like Amazon, Starbucks and Uber, the moment they check in and can use these rewards throughout their stay.
- Fastest Way to a Free Stay: Guests can book a hotel night for as low as 6,000 points.
- Keep Your Points: Points never expire as long as members stay active.
- Digital Gift Cards: Guests can redeem points for gift cards to use instantly.
- 10 Points per Dollar: Members can earn 10 points per $1 at over 5,500 Choice properties.
Last month, we launched the “Badda Book. Badda Boom.” integrated advertising campaign, which spans television, digital radio, social, and mobile. The campaign airs most of the year, so you’ll be hearing a lot more about our efforts to encourage consumers to book direct.
Skift: It seems that the OTAs have the advantage with marketing budgets and technology to drive bookings from travelers that are not very brand loyal. How do you compete for that customer versus the OTA or is it more about competing for the stay with other hotels and the Airbnbs of the world?
Lin: As a franchisor, we must look out for our owners’ profitability, which includes driving as much of their business as possible through lower cost channels, such as ChoiceHotels.com and our contact centers. Our loyalty program and focus on customer service are key differentiators that help in these efforts. In addition to making the reservation process fast and easy across our channels, guests can save money through our Choice Privileges Member Rate, which can be found exclusively on ChoiceHotels.com. The benefits of the loyalty program extend beyond just lower pricing, too, with benefits, such as Your Extras offering guests instant, tangible value above and beyond just points. Furthermore, we continue to evolve our marketing practices to drive awareness of all we and our hotels do, including great on-property service to complement great free amenities, such as Wi-Fi and breakfast.
Skift: How successful has Facebook’s dynamic ads been so far? Would a booking done through Facebook count as direct with the costs being considered marketing?
Lin: We continue to evaluate and work with a wide range of partners across the digital landscape. It’s very important for us to ensure we are where the guests are, making it easy for them to find and book Choice branded hotels. Facebook’s dynamic advertising product is a perfect example of this. It’s still relatively new, but early results show it as a viable option to include in Choice’s overall marketing mix.
Skift: What has Choice done with its website to make sure conversion is strong?
Lin: We continue to invest heavily in our proprietary channels to ensure consumers have all the information they need to make a booking decision when they visit our channels. This includes features that reassure consumers that they will get either the same or better pricing on ChoiceHotels.com, useful information about the property, such as online content and real guest reviews, and extra unique perks by joining our Choice Privileges customer loyalty program.
Skift: The economics of the OTA booking are straightforward where you pay the commission, but with direct booking, there are advertising expenses, sales team, logistics, and others that are behind the scenes. How much scale is needed in a given market to make it more economical for a direct booking including the behind the scenes costs?
Lin: Scale is more impactful at the chain level than the market level. With more than 6,400 hotels franchised in more than 40 countries and territories, representing more than 500,000 rooms worldwide, Choice has great scale to drive cost-effective direct bookings and a valuable loyalty program that drives repeat business with significantly lower cost to hotels. With OTA bookings, hotels pay the same commission for each reservation regardless of past guest behavior.
Skift: Much of the conversation is about driving bookings through advertising and loyalty points, but getting people to be truly loyal takes a lot more on the customer service side. What are some of the things that Choice is doing during the stay as well as prior and after to make sure guests are happy enough to become brand loyal?
Lin: Today, guests want more than convenient check in and Wi-Fi – they want immediate rewards, inviting design, ways to personalize their stay, full-service bars with hand-crafted cocktails, restaurants with superb menu items and spacious work out facilities.
At Choice, we’re providing these amenities and more to anticipate and meet travelers’ demands. We really listen to our guests and our ultimate aim is to exceed their expectations – that’s why we redesigned our Choice Privileges loyalty program to include faster rewards and the lowest rates guaranteed.
We focus on engaging our guests before, during and after their stay to increase their loyalty. We pride ourselves on delivering a superior guest experience every day, every stay.
Skift: Realistically, what level of bookings are you targeting for direct? All things equal, 100% would be great, but given the complexities of missing bookings without OTAs and costs to drive direct bookings, what is a reasonable goal?
Lin: In recent years, we’ve diversified our third-party distribution because we recognize the value of having a presence in multiple channels. We expect a percentage of our business will continue to come through the OTAs and value our business relationships with those OTAs that provide a useful service for travelers or help facilitate our entry into new markets. At the same time, we are focused on our direct booking efforts, which establish consumer loyalty and drive hotel profitability.
Skift: Given the rise of Airbnb, how does that impact competition for bookings and pricing?
Lin: Airbnb and other third-party rental services tend to serve a different stay occasion and they are not affecting our core hotel business. At the same time, Choice saw an opportunity to take advantage of this emerging market, and is building our own offering – Vacation Rentals by Choice – to meet the needs of our guests who are seeking a rental versus hotel stay.
Unlike third-party rental services, Choice can offer the reliability of a major national brand, 24-hour customer support and the benefit of our Choice Privileges guest loyalty program. The third-party services just can’t do that.
Skift: What trends are you seeing for occupancy rates and room rates broadly?
Lin: Choice continues to see positive trends and is outperforming the industry in RevPAR. In 2016, Choice had a great year with record revenue. Domestic system-wide RevPAR increased 3.9 percent from the previous year. As of year-end 2016, Choice’s RevPAR performance growth outperformed the industry in nine of the last 10 quarters.
Our Upscale, Upper Midscale, Midscale and Economy brands grew RevPAR at higher rates than their respective segments as well. Our Sleep Inn brand is doing particularly well – outperforming its segment on RevPAR growth by more than a two-to-one ratio.
AccorHotels has a diverse range of brands with 22 percent of rooms being luxury, 34 percent midscale, and 44 percent economy.
Geographically, AccorHotels is concentrated in Europe with 28 percent of revenue from France and 39 percent in other Europe. The Americas account for only 10 percent.
Given its European focus, we believe that AccorHotels would have more OTA-generated bookings than its peers in the U.S. Our estimate is that it would generate anywhere between 15 and 25 percent of bookings through OTAs versus 10 to 15 percent for the U.S. chains. While it’s higher than U.S. peers, this is much lower than what independents in Europe would have, where OTA bookings can be in the 40 to 60 percent range. For total direct bookings, we would expect something in the 40 to 50 percent range versus 15 to 25 percent for European independents.
AccorHotels has been able to have a much lower reliance on OTAs than smaller European peers given its strength in branding and loyalty program. Additionally, it launched what amounts to its own distribution channel in its Marketplace, where it curates the hotels that can be on the channel and offers partners low commission rates and consumer data. This builds more brand loyalty and increases the likelihood that someone books through the AccorHotels site. Additionally, the company can get commissions from other hotels to offset some of what Accor pays to the OTAs on other bookings. Accor will not become an OTA, but does plan to expand this.
SEBASTIEN BAZIN, CEO, ACCOR
Skift Hospitality Editor Deanna Ting interviewed Accor CEO Sebastien Bazin last summer. Below are a few key points from the interview relevant to direct bookings.
Skift: We also wanted to ask you about the online travel agencies (OTAs), and how that works in terms of distribution. Expedia, for example, says that it wants to be hotels’ friends, and that it wants to aide hotel brands and their direct marketing efforts. That it wants to enhance hotels’ loyalty programs. Do you buy that?
Bazin: I do. One, I buy it. Two, I think they mean it. Three, I think they’re correct. As much as they want to be friends of the hoteliers, I also want to be a friend of theirs, and we are. We are from the very early beginning. We are, with Priceline, Booking, and Expedia. The only limitation to our friendship is, what is the cost of that friendship? They provide a fabulous service, at an acceptable rate. It’s expensive, but it’s acceptable, for a first time customer.
A guy in Minneapolis who wants to come to a Novotel hotel in the south of France would have never heard of Novotel Hotel in the south of France if Booking or Expedia did not exist. They’re providing me with a first-time client, at a cost which is cheaper than me creating a sales engine in Minneapolis. Then the name of the game for us is, when the client comes into your hotel, we need to make sure the client has been welcomed, identify him or her, and invite that person, whenever they would come back to the AccorHotels network in the world, so the second time around they don’t have to go back to Expedia and Booking. That’s called the retention program.
I’m doing it in a very transparent manner, even vis a vis Expedia and Booking. They know we’re doing it, and they’re fine with it. Because most of their volume is first-time customers, which means we don’t have common interests, but we have common ambition, which is to develop the travel and tourism world. My answer, however, is very different from the answer of the small independent hotel owner and operator. Because if I have a retention program, that means I want that customer to benefit from the other brands, and the other 3,999, which is my strength. If you are an independent hotel, and you only own one hotel, every time you’re going to have to pay Booking and Expedia, because you don’t have something else to offer them.
We just have to be very careful on which answer. The one thing they have to be careful is, that service has a price. I don’t want that price to be confiscatory. That’s basically where people have to talk, in a sense.
Skift: That’s why Accor has allowed independent hotels to advertise on its site, yes? You’re acting as a distribution channel.
Bazin: What we’ve been saying is under two premises. Number one, which is interesting, is, except America, the entire hotel industry is extremely fragmented. It’s majority in the hands of independent hoteliers. In Italy, for that matter, 95 percent of the Italian hotels are run and owned independently. In France, it’s 70 percent. Which means all of those independent hotels are suffering from the advent of new digital players, the OTAs the TripAdvisors, because they don’t have the technology, and they don’t have access to their clients anymore, as easily as in the past.
Groups like ours, we’ve been investing more and more in loyalty and technology, in CRM, and in data. We’ve actually missed offering to share our technology with the majority of the hoteliers, which happen to be independent. We actually never looked at them, except imposing our brands on them as a franchisee. In many occasions, you don’t want to impose the brand, because the hotel doesn’t fit your brand. What we’ve been saying for a few years, it is a bit rubbish. One ought to basically show hands, and open your arms to those independent hotels, because they actually need us. To pay for our technology at a much lower cost, and it makes them less dependent on the OTAs, so it’s a win-win.
At the same time, we’ve actually been telling them that all the client data, when they come to their hotels, even though they would have been sourced by AccorHotel.com, 100 percent of the data will be shared, and transferred to the independent hotel. You will know the name, the email, the address of your clients, which is not the case if you come to Booking. You’re the client of Booking, and I don’t have your email or your cell phone number. Which is something which is very difficult, because you happen to do the job, and it’s not really your customer.
We’ve been saying through that Fastbooking initiative, which is immensely successful, that it’s a win-win for the hoteliers in being independent, because it’s a cheaper commission, and data access. And obviously it’s not renouncing to Booking and Expedia. It’s just an additive measure. For me, it has a huge merit as being the first marketplace being curated by one hotelier, on behalf of hoteliers, and we’re going to be enlarging probably to 12 thousand hotels, from 4,000 today, of which two thirds are going to be independent. But they have to be the best hotel in town.
Skift: I know you guys were also an early participant in TripAdvisor’s Instant Booking. How has that been working out?
Bazin: It’s been working out very well. We, being the first backers of TripAdvisor, I think it was seven or eight years ago. It’s actually interesting, because most of my competitors said, “We’re not willing to put a TripAdvisor ranking on our hotels”. From the very first day, we said we should be transparent. Why not? We actually put banners with TripAdvisor. We have a very close and trusting relationship.
They want to have their own direct booking. We’ve actually been telling them, “Of course we can do it”. It’s been working very well with us. It’s not a penalty for me, because it’s similar pricing to Expedia. The reason they’re doing it is because they want to keep their relationship with the clients. Every time they have a client looking at the site, that client is actually looking through a booking engine. Why not have the same services on the same side? It is smart, and legitimate.
Skift: What are your thoughts on the other big brands’ direct booking campaigns? Do you think those are having an impact?
Bazin: I think so far it’s marginal. Let’s face it. The industry, whether it is our industry, or the e-commerce industry, people take leadership market share within five years. Eighty percent of the online traffic is in the hands of Booking and Expedia. Eighty percent of the recommendation side is in the hands of TripAdvisor. It’s a bit winner-take-all. Can they grasp some of the market share? Or course they can. Can they make a living out of it? Of course they can. Are they going to be successful in taking market share away from Booking and Expedia? I doubt it.
Every time there is a new site, it’s a stimulus for all of us. It’s a wake-up call. Because that new site has an extra technology which is smart, which is what the clients want. But it is so transparent, accessible, I guarantee you every time we see something smart, we try to steal it away, to incorporate that in our own system. But again, you’re going to see many of those new sites, of which 80 percent will fail. Twenty percent will be successful. Half of that 20 percent is going to be bought out by the big guys. It’s the nature of the game, which is what happened with Kayak, what happened with trivago, they were bought by Booking and Expedia. HomeAway, Abritel [the French HomeAway], all of those are being bought by the same people.
Skift: Do you think we’ll ever see a direct booking campaign from Accor, or are you not going to waste your time on that?
Bazin: I don’t want to create a third OTA. I have my own direct booking, which is AccorHotels.com. I have my own channel. But, am I going to be a big distributor or many brands to 500,000 hotels? Never ever. This is not my business. I’m not a digital platform, and I’m not a distributor. I’m a hotel company, and the service is a guest, and anything which is guest related, which means interfacing with the guests. You’re going to see me more and more in creating new supply. But on the pure digital distribution hand? No.
Hyatt is much smaller than the other big brands in terms of scale. In its 2016 investor day presentation, Hyatt shows it at 645 properties versus Marriott at 5,974, IHG at 5,070, Hilton at 4,820, and Accor at 3,942. This is just a snapshot as of Q1’16, but is illustrative of the size differential. Hyatt emphasized that it does have the critical mass to compete with the larger brands and how Expedia for example has over 300,000 properties for context. We agree with this assessment operationally. The disadvantage would be more on negotiating rates with the OTAs, but that is not a large part of the story.
Hyatt differentiates itself by solely focusing on the upper end of the market with nearly all of its hotels being upscale, upper upscale, or luxury. This leads to industry leading average daily rates or ADRs at $182 (as of 9/16 Marriott was $159, Hilton $141, IHG $119).
Hyatt is heavily focused in the U.S. with 71 percent of rooms in the Americas.
With a high-end brand, we believe that walk-in business would be low, but group bookings on events over the phone would be high. Non-digital direct would likely be in the 20 to 30 percent range with the skew being on groups. With a U.S. focus, digital direct is likely in the 25 to 30 percent range. Combined, total direct is likely in the 50 to 60 percent range. The OTA business should be comparable to larger peers at 10 to 15 percent of bookings where high-end travelers are tech savvy and like booking on mobile, but also can build valuable points through loyalty.
Hyatt’s direct booking campaign started in April 2016 with exclusive discounts (10 percent) for loyalty members booking direct.
As of March 2017, Hyatt changed its loyalty program to the World of Hyatt. Unlike Hyatt Gold Passport, the new World of Hyatt loyalty program has three tiers instead of just two. The new tiers are Discoverist (10 qualifying nights or 25,000 base points), Explorist (20 qualifying nights or 50,000 base points), and Globalist (60 qualifying nights or 100,000 base points). Base points for this program are earned either through stays or for spending on such things as dining and spa treatments, both during a stay and even when members aren’t staying at a hotel. Members will earn five base points for every U.S. dollar spent. Other benefits of being a member of the new program will include a free night award for a member who stays at five different Hyatt brands and confirmed suite upgrades at the time of booking for qualifying elite members.
What about the smaller chains and independents?
The independent and smaller brands typically get much more business from OTAs and much less directly. This is amplified outside of the U.S. where the hotel market is more fragmented. In the U.S., OTAs likely account for 30 to 40 percent of bookings while in Europe and other markets that number moves up to 40 to 50 percent. We estimate that direct bookings are in the 30 percent range with the U.S. being a bit higher and other markets a bit lower.
While the ad campaigns are being pushed by the large chains, the impact from OTAs is much more impactful on the smaller hotelier with more bookings and much higher commission rates. However, it’s important to note that the small hotelier may not have filled those rooms without the OTA as they do not have the advertising and technology strength of a large brand nor the allure of a loyalty program. The higher fees are justified by the OTAs giving truly incremental business and acting as an outsourced advertising and sales team. The issue comes in when the hotel could have won the booking and the stay without the OTA. For example, if a person finds a hotel on Google or metasearch and then wants to book, the independent hotelier will have a very difficult time showing up in the booking window on those sites as the OTA will dominate here. The hotel will get bookings on those channels, but often through the OTA. A simpler example is a highly-rated hotel on TripAdvisor in a top destination with high occupancy rates. That hotel should be able to rely far less on third-party distribution.
There tends to be a lot of OTA-bashing in the hotel industry, but we emphasize that there is not a clear good versus bad element here. Yes, OTAs are an expensive way to attract a guest, but the hotelier should focus on winning the repeat guest more than the initial first stay.
The hotel should offer impeccable service so that guests actively want to stay there the next time they are in town or with another property in another city with the expectation of similar service. The independent hotelier needs to have strong website that can convert, because a loyal guest who finds the site difficult to search will simply often just book the hotel via an OTA where the process is quick and seamless. Also, it’s difficult for the small hotels to build apps and compete on mobile, but reaching out to guests via text and email and offering top-notch service can alleviate this headwind.
For independent hotels, we agree that it’s important to diversify the booking distribution mix across direct, OTA, meta, GDS, etc., but looking at commission cost in isolation ignores the impact to occupancy and true acquisition costs of other channels.
The best way to lower reliance on OTAs is to build a lasting brand that people are loyal to due to a unique experience. Standard Hotels is the epitome of this with direct bookings exceeding comparably sized hotels by far and reaching or exceeding the big brands.
LENNERT DE JONG, CHIEF COMMERCIAL OFFICER, CITIZENM
Lennert De Jong is the chief commercial officer of citizenM. He’s responsible for citizenM’s revenue and commercial strategy with a key focus on digital marketing and demand management.
Skift: I think of citizenM as a kind of boutique, affordable luxury brand. Can you describe how you would define the brand and the type of hotels that you own.
De Jong: We actually started based on the frustration of travelers. People that wanted to stay in something luxurious, inspiring, but they didn’t want to pay for it. So, we really started to look there, what are people willing to sacrifice in order to still have the feeling of luxury, but be able to afford it.
We do erase certain things that we didn’t feel were needed and everything that we do is luxury. We don’t have a trouser press in the room, or a fax machine, room service or a concierge that is carrying your bags, but we do offer an extremely large bed with luxury linen on it, free Wi-Fi, free movies, almost free phone calls, stuff like that. We do that owned and operated so we’re not franchisers. We buy a piece of land, we construct the building and then we operate it. We have our own brand on it, which makes us almost a very large independent.
Skift: How can OTAs and hotels better partner together where it’s more mutually beneficial?
De Jong: I think there’s two problems. One is on the cost side, where hotels see OTAs as being an increasingly costly channel compared to some other channels that they’re used to from the past. That’s automatically reducing the willingness of the hotels to get more stuff from OTAs. I think that’s the problem that we are fighting against, so people see a booking on the website is free, and an OTA booking is very expensive. I think that’s a very minimalistic approach to the problem, because a booking on the website isn’t free if you take the same efforts of getting a customer that wakes up in Japan and looking for a hotel in New York, to get that hotel, your hotel, in his attention span. That is not free.
That is one part where I don’t see hoteliers being very flexible, but your part and that is where not a lot of people focus on, what do the platforms do to the price of a hotel room? If you look at the most profitable piece of business that we have at the moment, it’s the corporate traveler, that travels a lot through the city, because companies put people on the road and they have a travel program for it. In New York, a company like Citibank might have 25 hotels in the program, so that’s your competition for Citibank, 25 other hotels and the rates are fixed on a high price on a yearly basis. That’s good business.
Skift: One thing I wanted to clarify, we hear a lot of the term direct booking. If you book through metasearch, Google AdWords, or TripAdvisor, you’re paying CPC but it’s not an OTA commission. Do most hotels count this as a direct booking despite the costs?
De Jong: With us it’s pretty simple, we have our distribution cost, all this distribution cost. We have to pay Google a distribution cost, we have to pay booking.com a distribution cost, we have to get a salesperson hired, that’s distribution cost, and everything goes into that same P&L. We’re looking at this as an owner, we’re not trying to fool anyone, there’s no secret agenda here.
We’re looking at it, there’s a real cost of acquisition, and that means that our sales and marketing line in the P&L is pretty empty, but it all sits in distribution cost and we are shifting and we are focusing on more are these people that are coming to New York and are really expensive to get because they don’t know about us.
We have to fight to win on metasearch, the cost of the conversion might be much higher than me getting it from booking.com. We try to compete on display, on search, metasearch. In our destinations, with our brand, it’s almost impossible to compete in a more profitable way.
We still want people to book direct, we want people to come direct to us but we see that as a repeat intention. People that are coming to New York every month, or every week sometimes, those are the people we want. How do we get them? If people look for citizenM we want to show up, but if people look for a hotel in New York it doesn’t make sense for us to compete with booking.com or Expedia. Let them book through that, let’s not focus our time on that, let’s focus on finding those travelers that are committed to traveling a lot, which is our target audience, we’re not some type of resort in Greece that you only go to once in your life, all our hotels and our locations that have travelers that travel there frequently, those are good investments to make.
Skift: Have you done any of the TripAdvisor-type Instant Booking campaigns and have you managed any of those campaigns directly?
De Jong: Yeah, absolutely, we’ve done all of them, and we have terminated all of them except (TripAdvisor) instant book. Also on Google, we left the Google commission program on, so we stopped completely with paying on a CPC basis for the meta, and we are just on a percentage based acquisition cost at the moment.
Skift: Just curious, in terms of TripAdvisor, are you seeing an uptick in share that you’re getting from or is it still very much inconsequential, single digit?
De Jong: No, if you made a pie chart of bookings between Booking.com, Expedia and TripAdvisor, you wouldn’t even see TripAdvisor.
Skift: Can you discuss the data sharing on OTAs versus meta?
De Jong: I think it’s a myth that OTAs don’t share data. They’ve always shared data, they stopped sharing some data, like an email address, but they still give you an email address, it’s just not the guest email address, but they still allow hotels to communicate, but instead of it being [email protected], it’s a number at guest.booking.com, but it’s a unique number for Skift. It doesn’t matter where he books, it’s the same email address, so we started to use that email address as a profile ID in our database.
Plus, since we’ve automated our check-in process, we force people to activate an email address, so based on that email address we can find out everything else, but we do get the address information, we get the phone number, we get the credit card number.
I don’t get less information from Booking.com and Expedia that that I ask for on my own website.
Skift: That’s really interesting because we’ve heard so much about how there’s this big controversy where the OTAs don’t provide the data so it’s hard to win the customer, what data are people griping about then if they can get it on their own?
De Jong: Booking.com is sharing cancellation predictions, but when I go to a conference, I hear people talk about Booking.com causing lots of cancellations. It’s not true, hotels have a cancellation policy, if you set a cancellation policy of 6pm on day of arrival, then you start discounting prices as you get closer to the arrival date, of course you get cancellations, but that’s not Booking.com. That’s your own inability to do revenue management.
How do people get to your hotel? Just like if you have your own website, you get some of it from Google analytics. Well they’re not sharing with you Google Analytics, but they’re willing to share with you a lot of information on performance, a lot of information on the market, a lot of information on stuff like cancellation predictions, they have conversion ratio on arrival date in there, which would be for a revenue manager, but honestly, I’ve shared this with big chains, I’ve said guys, Booking.com has this and they’re actually terminating it because nobody is using it.
But in fact, they’ve never seen it, they never use it, they’re not really interested. When they say, I don’t get data from an OTA, I don’t understand what they’re referring to because they’re ready to share and they’re giving the key details you need from a guest, you get the guest in front of you at your desk, they’re browsing on your Wi-Fi, what else do you need from the guest that comes through OTAs?
Skift: What percentage for you is business versus leisure travel?
De Jong: I would say it’s 60 percent business and 40 percent leisure.
Skift: What are some of the things you guys are doing prior, during, and after the stay to increase the true brand loyalty?
De Jong: I think you cannot buy loyalty with a card or points. You certainly can buy the booking, and you can introduce an incentive for people to spend money for their company and get a private benefit, the rest of that stuff’s what all airline and hotel rewards are based on. It’s not on the experience, if you look at some of the experiences that are being offered by big brand hotels, it’s below par. I’m not saying every hotel, but that’s also being caused by the fragmentation of ownership.
We organize our staff so that they deal with customers at eye level. There’s no desk between you and the staff. We focus on design with big lobbies and rooftop bars that are guest only. That makes people want to come back, so our loyalty is experience followers.
Skift: What percentage of your guests would you say were multiple repeat visitors, if you can quantify that at all?
De Jong: At the moment it’s roughly between 30 and 35 percent.
Skift: Turning to Google, it has the AdWords and the newer hotel ad meta search business. Do you guys tend to focus on both of those? Within AdWords would you try to bid on say hotels in New York or would it be more affordable luxury hotel in Soho, how do you approach Google as a channel?
De Jong: We are definitely not trying to buy hotels in New York, unless maybe someone comes to our website and expresses a severe interest, and he’s on Google, the data has been passed below the radar, I see you can advertise on Google with that, that makes sense, but just a person going to Google for hotel in New York, there’s volume on it but there’s not a lot of profitability on it for independent operators so unless you’ve got 20 hotels in New York, you can leave that for Booking.com or Expedia.
Affordable luxury hotel, 50th street, Broadway, yes, we will advertise on that because I want that hotel and they want 50th Street Broadway and affordable luxury, it’s pretty targeted, so the chance to be converted is pretty high.
We advertise on our brand name, when people look for citizenM, we always want to show up, to keep competition out.
Skift: In terms of advertising budget, what percentage is TV versus digital, and then within digital, how much is to OTA versus search engine or meta?
De Jong: Well TV is nothing, because we are scattered brand. I would say 95 percent of our spend is online, and of that, I would say that 75% is with the OTAs. The rest is metasearch, Google, commercial team, tools, and stuff like that for the website.
Skift: How is your overall relationships with the OTAs?
De Jong: I would say that we have seen an improvement. That’s because we punch way above our weight with the number of hotels we have, and there’s a strategic interest from OTAs to play ball with us, even though we’re not big. I also think we’re pretty logical in our thinking and reasonable, and we are an owner.
For the European landscape, I don’t see these relationships improving. You see more and more hotels that see it as a one-way relationship, they have to sign an agreement, you cannot negotiate anything, the agreements don’t even have a person anymore, it’s just a checkbox that you fill online and basically sign off on all kinds of terms and conditions that are non-negotiable. There’s no control over brand bidding, so I think that’s something.
If you look at the European Union, they’re doing a big investigation into the digital single market and this is not just the hotel industry, but all verticals that have to deal with big firms. This is one of the concerns that the European Union has, the law needs to be good for consumers, but also for businesses. If a big platform is becoming sole access to demand, there needs to be clear regulations about it. I’m all for that. There is a small difference between a free market and a jungle, I think at the moment we live in a jungle where King Kong is really in charge.
Skift: Rate Parity has been an ongoing topic for a number of years now in Europe, have you seen a positive or negative impact at all to your business? The breaking of parity in certain markets, has that impacted your business at all?
De Jong: I think it’s not healthy to have that relationship one way or the other. The distributor dictates your price, that’s not just price, but also experience. It makes it impossible to invest in your products because everything you do, you have to offer at a commission again, but at the moment, we don’t really see an impact because even though Hotels in Europe are allowed to freely execute on price, a lot of hotels are not doing it because they’re afraid of punishment in ranking or Expedia dimming hotels.
You’re legally allowed to do it, but if you do it you might risk that the feed stops, and that’s something that hotels are very careful about.
I haven’t seen any impact anywhere, it’s not really been executed.
Red Lion Hotels
BILL LINEHAN, EVP AND CMO, RED LION HOTELS
Bill Linehan joined RLHC in February 2014 as executive vice president and chief marketing officer. He has more than 25 years of hospitality experience, most recently as chief marketing officer and managing director at Richfield Hospitality and Sceptre Hospitality Resources, where he led the sales, marketing and resource management activities surrounding the company’s portfolio of hotels and resorts. At Sceptre, Linehan repositioned the company to become a global leader of hotel revenue technologies. Prior to that, he was vice president of global marketing for InterContinental Hotels Group where he established the marketing to re-launch seven IHG brands to the development community. Linehan also previously served as global vice president of marketing, brand alignment and partnerships for Starwood Hotels and Resorts and held sales and marketing positions with both Hyatt and Sheraton.
Skift: Can you talk about some of the advertising campaigns you have been running and their successes in taking share in the industry?
Linehan: We are making our mark through what we call perpetual merchandising. Our seasonal national campaigns run coast to coast and across brands, these campaigns run back to back with special offers based on the demands of the market place each season. Perpetual merchandising, through our omni-channel national campaigns, allow us to be always on and always competitive with our value conscious guests.
Skift: RLHC has differed from the large hotel conglomerates where it is more positive about the use of OTAs. Part of this is pragmatic, given that only a few chains have the size to compete on ad spend with the OTAs. What is your broad outlook on the hotel/OTA relationship in the industry and specifically at Red Lion?
Linehan: We need to fish where the fish are; if guests want to look and book on the OTAs, we should listen to our guests and be available to them on these channels.
Skift: Can you talk about your partnership with Expedia?
Linehan: RLHC launched a first-of-its-kind partnership with Expedia last summer, offering Hello Rewards members exclusive rates and providing direct member sign-up for Hello Rewards. (Hello Rewards is the RLHC loyalty program that was founded on recognition rather than points. Members enjoy: the ability to earn free stays, express check-in and check-out, late check-out and room upgrades when available, and exclusive offers.)
As part of the program, Expedia shoppers are required to join Hello Rewards to receive the rate. Because these shoppers are required to join, RLHC receives pertinent guest information like their email address, which is unprecedented in the OTA/hotel relationship. As a result, RLHC can communicate with guests booking through Expedia prior to their stay.
Skift: Outside of the new Expedia partnership, what data would you like to get from the OTAs that you are not getting currently?
Linehan: We’d like to increase the volume of data more quickly, largely around future booking pace, site conversion, trends, new products to chains and hotels, and products specifically in the “service to hotels” segment.
Skift: You offer best rates for direct bookings. Are there any other incentives or marketing push?
Linehan: We always offer the best rate for Hello Rewards members.
We have regular sales including flash sales and seasonal promotions.
Skift: When you think of direct bookings, is that considering only true direct to the website bookings or would a Google search and AdWords and metasearch pushed bookings count as direct?
Linehan: Meta counts as direct bookings
Skift: Have you used Facebook Dynamic Travel Ads much yet? How has that progressed?
Linehan: No, we have not used Facebook Dynamic Travel Ads
Skift: What would be your advice for hotels outside of the mega chains on their relationships with the OTAs?
Linehan: We would suggest hotels work with the OTAs and not against them. Additionally, we would provide that same advice to the OTAs: work with the hotels, not against them.
NH Hotel Group
OTON GOMEZ, SENIOR VICE PRESIDENT, MARKETING SERVICES, NH HOTEL GROUP
Skift: Can you give us a sense of the size of NH and the brand?
Gomez: NH Hotel Group was launched in Spain in 1998, but now it’s a multinational with one of the main owners being HNA, which is a Chinese investment group. Today, I believe we are the sixth largest European hotel chain and in the top 25 in the world, with close to 60,000 rooms in around 200 hotels in 30+ countries. Our main business is concentrated in Spain, Central Europe, Italy and the Americas with the Americas mostly being South America.
Skift: How is your relationship with the OTAs and metas?
Gomez: It’s been a great dynamic. At the end of the day I think the challenge is to really understand what is your acquisition cost. what are the cause and effects of all the activities that you do. Because if you do a push in one channel, it will have repercussion in the sales of other channels.
For us, what we’re really investing in is to be able to understand the dynamics and having the technology and the knowledge to be able to understand the contribution and the attribution to each of the channels. Everything is becoming more complex and more mixed. Everybody’s everywhere, in some places we are partners, in some places we are fighting for the same user.
Skift: To what extent is that decision making process happened at the group level vs. the brand level vs. the property level?
Gomez: It’s highly concentrated via the headquarters. So, all the key decision making is happening here. We have invested in developing the tools, the technology and the team to be able to have from the acquisition perspective the full view on what channel is bringing more or less and at what efficiency.
We have daily contact with the other areas. Because you have the distribution, you have the revenue and you have the marketing, you have the three [layers 00:09:49] intervene.
Skift: Is NH Hotel Group more of an asset-light structure or ownership model?
Gomez: To be precise, we are 23% managed, 21% owned and 56% leased.
Skift: Do you consider metasearch as a direct booking with marketing spend or as a distribution channel like an OTA?
Gomez: For metasearch and Google, we would count that as direct.
But at the end of the day we have a holistic view, and I think that is the tendency on the industry, at least until now. So, in theory, people say that direct is better but it will depend on what is the true acquisition cost of that booking. So, I will say that, in equal conditions, it’s better direct, but if one channel is cheaper than the other, then you might be willing to push for that one instead of the other one.
Skift: For specific channels, are you looking to invest more or less into Google? What about Facebook? Or travel specific metasearch brands?
Gomez: Fortunately, we’re able to have a very good understanding of the return on investments that we do, because we have the technology to be able to understand the passive conversion, the contribution of the channel, and the attribution, we don’t have a preconceived idea of what to invest in. We adjust on a daily basis where the money should go in terms of what is the return that we’re getting and the CPA.
Skift: Obviously, there’s a lot of change in the landscape right now with everything that Google’s doing with the Hotel Ads. trivago is coming on strong in the U.S. market. We have TripAdvisor’s pushing in the instant booking. We know that a lot of this stuff gets adjusted on a daily basis but what are some of your channels that you’re seeing as more attractive then before?
Gomez: Facebook is increasing and is one of the fastest growing channels. Google is forcing you to spend more money with them, I don’t think it’s something that you can really leave.
Skift: Are you happy with the amount of information that you’re getting from your OTA partners?
Gomez: No. It is only partial information.
Skift: OTAs are a channel that hotels need to leverage, particularly with new traffic. What can you do on the strategy side to convert OTA bookers into longer term costumers?
Gomez: The moment that you have identified that customer, you can have a special personalized treatment with him, at the moment of check-in, at the moment of check-out, during the stay. You might choose to treat him really well and tell him that the next time he books direct he will get a proper treatment.
Skift: Are you doing TripAdvisor direct instant book?
Gomez: We’re in the process.
I think the whole industry is now converging and mixing and you don’t really know what is an OTA or a meta or an opinion site. But even with that conversion of things, I have a feeling that the OTAs and metas have a clear selling proposition and business plan. TripAdvisor started as an opinion site and it’s evolving, but I don’t think they have such a clear line of business defined.
Sometimes you go there to book and you have six different places to click. Other things are well done. I think they’re moving towards more of an OTA standard than before.
They are also changing internal organization because in the past, different teams from the CPC versus CPA parts of the business would essentially compete against each other for the customer or the client’s budget. I think right now that changes up and they’re going to migrate towards one company with different services, but to tell you the truth I don’t know what the plan is and for me it’s hard to see where they’re going.
Skift: That’s really interesting that teams inside of the company are kind of competing against one another.
Gomez: They were in the past and they don’t talk to each other.
Skift: So you would have multiple contacts at TripAdvisor, maybe from the instant book team reaching out to you, the meta team, the ad team. How does that compare to your experience with trivago?
Gomez: trivago has a unique party contact point that is more centralized.
But there’s certain thing for me that do not make sense, but I think they’re also going to be making some changes. I believe that they might have make some short-term decisions that they would be sending out that could affect the potential investment or other things with them. They might even focus in more on independent hotels. But in some instances, from my perspective, long term, they will make more money if they would do the opposite.
For example, they only allow you to have one bid for mobile and desktop. When the mobile conversion is lower, you are penalizing the real conversion. So, they are putting limits on themselves. The argument is that they want to have the same personal experience regardless of the device. With today’s world, that does not make sense, because if you’re searching from your phone it’s because you’re in a specific place with specific needs and if you’re searching from your desktop you’re doing something else.
Skift: What about Kayak?
Gomez: Kayak is good but, it’s a follower, it’s not a leader.
Skift: Do your marketing and distribution teams work together?
Gomez: Yes. We talk constantly.
Skift: What about your peers in the industry?
Gomez: No, they don’t.
Viceroy Hotel Group
BILL WALSHE, CEO, VICEROY HOTEL GROUP
We interviewed Bill Walshe late in 2016 for our 2017 Outlook on Metasearch Report. We provide some of those insights applicable to direct booking below.
Skift: There has been a lot of talk and advertising by the large chains on direct booking. For you guys, what percentage of bookings is direct versus through third party channels right now?
Walshe: There’s some diversity within our portfolio. It’s a very difficult question to answer to simply take all of the percentage, statistics, of direct bookings into the individual hotels and roll them up into one number would be misleading. It would give the impression of a much greater than reality contribution of direct bookings to some of our hotels and much less than others. We run the spectrum for a company like Viceroy. You have types of experiences that consumers will either book direct or feel comfortable hitting a button on a mobile app or on a website to book. Within direct itself, one of the interesting trends that we’re seeing is a resurgence of voice that people are using mobile in such a manner that to be on a mobile site or an app, receiving the information that helps them to make a buying decision, instead of just going in and pressing one button to talk to a human being.
The resort component of our portfolio is such that we will have people coming at peak times, and peak times being Easter, July 4th, Thanksgiving, and obviously, we’re coming into the festive period of Christmas and New Year now, where it’s not unusual for us, at checkout, for people to have a check north of 100 to 200,000 dollars. What we’re finding, if you’re going to a Caribbean resort for 10 nights to stay in a villa, which could be, say a $200,000 booking, you’re not going to book that by pressing a button on a website or on an app. We’re seeing that the significance of the interaction, verbal interaction, with a booking agent who can create confidence, who can answer questions, who can assist with the programming that our customers are looking for during a stay, has not diminished. If anything, we’re seeing that increase.
For our urban hotels, it is so much easier for somebody to go onto Viceroy.com, check that there’s availability, they understand the product. It’s probably for a 1 or a 1.5 night stay, and they hit a button and book. It’s high double digits of direct booking into particularly the leisure component and the resort component of our portfolio, but overall because of the brand recognition that Viceroy has, we have a healthy contribution.
The other thing, it’s about our loyalty program. We operate on the discovery loyalty recognition platform, which is a part of our membership of the global hotel alliance. The other unique thing that we’re trying to do is not only to get customers to book directly with brand, but to retain customers within an alliance structure where there are now close to 30 like-minded independent brands.
We have dual intent in what we’re trying to achieve at the moment, which is yes, to get the customers to come directly to brand, but also to get the customer to come directly to GHA and to bring cross-brand benefits so that the Viceroy customer will also book directly with all of the other member brands. Exactly the same model as the one world alliance for the airlines or star lines.
Skift: Would you say that that’s something unique that you’re doing? Are you seeing this alliance model across the independents developing out?
Walshe: I think it’s something unique that we’re doing as a brand. I think any collaborative recognition model that existed in the past came through associations for independent hotels such as leading hotels of the world, or small luxury. The global hotel alliance was inspired by the star alliance, in fact, the founding CEO of star alliance was an advisory on the board of GHA for a number of years, initially. It is the only brand alliance of its nature that I know of. It’s extremely beneficial.
For a company like ours, just put it in perspective, the discovery database at the moment has 8.3 million card holding members. All of whom have been recruited within the alliance brand at point of sale. All of whom, therefore, have come out of strong, proud, independent brands that attract affluent customers who will pay a premium for individuality. In terms of profiling, I know that we’re up against some of the larger hotel brands that probably have 20, 30, 40, 50 million members. There’s such a degree of auto-enrollment in those programs, that it is, on occasion, a battle of quantity versus quality. Whereas within the alliance model, what we’re doing is we’re recruiting, as I say, at point of sale in a hotel, somebody who by the very nature of being there is perfectly profiled to bring benefits not only to the brand who recruited them but to all of the brands in the alliance.
The cross-brand revenue that’s been generated from Discovery are really quite enormous.
Skift: For metasearch Instant Booking, are you in that 12 to 15 percent public rates bucket or are privately negotiating?
Walshe: We don’t have visibility of what specific deals competitors, larger or smaller than us have negotiated. One would assume that scale comes to their aid at the negotiating table. We’re in the range and we’re comfortable. We’ve been in that range and have value for the bookings that we receive.
I was on a panel in New York a couple of weeks ago and this came up for conversation. A point that I made, for a company of our size, was not super popular as they’ll tell you. It concerns me that the conversation has gone to a point where there is an inference that every OTA booking is a bad booking and that OTAs are cannibalizing business that would otherwise come direct. I don’t agree with that.
As I said we operate this ourselves. We’re headquartered in Los Angeles. We have no operating product in a country like Australia. I don’t have a sales office open in Australia. I’m never going to have a sales office open in Australia. I don’t want to have to send my director of sales or general managers on flights to Australia to make sales calls. I’m actually doing nothing to penetrate that market. I’m not investing a dime. Whereas booking.com, Expedia, TripAdvisor and others are spending significant amounts of money to bring my product to a point of visibility within the market that I have done nothing to penetrate.
If that results in a booking, from that market to my hotels, that is the best, 12, 15, 19, 20 percent that I could possibly spend. I’ll take that booking 7 days a week. I see all the stuff that we’re talking about as being an extension of the reach available to company like Viceroy and commission is not a bad thing. Commission is an alternative to me having to invest dollars directly into those key source markets through permanent presence of a sales office, through hugely expensive brand advertising, be that digital or traditional, or deploying boots on the ground through sales trip which is also an extremely investment both in terms of time and dollars.
We are, just to be clear, if we pay somebody 12, 15 percent commission upon receipt of a booking from a key source market that we’re not doing anything in, we do not begrudge that for one second. We are, in many respects I often say for a company of our size, the day that I sign the commission checks is the happiest day of the week. It means that our third party, intermediates and partners our there representing us in markets where we have no standard of representation of our own.
Sure, if I was running Intercontinental, Marriott or Hilton, and I had made the investment to create a sales platform globally and I see other people competing in the markets that I’ve invested in for that customer and sending them to my hotel, I would think that they were cannibalizing my business. I wouldn’t think it’s good. When I hear people within companies that have 10, 20, 40, 50 hotels saying oh yeah the OTAs are cannibalizing my business, I go, what have you ever done to deserve to receive a reservation from Japan? Nothing? Then shut up and pay the commission. Take the booking and move on.
JIMMY SUH, CHIEF REVENUE OFFICER, STANDARD HOTELS
We interviewed Jimmy Suh late in 2016 for our 2017 Outlook on Metasearch Report. We provide some of those insights applicable to direct booking below.
Skift: What percent of bookings are direct for you?
Suh: We get definitely the lion’s share of our bookings direct from our website and from our immediate sales force as well as our reservation centers. We definitely do. We get roughly between 65 and 70 percent on average across our portfolio, but that’s also the type of brand that the Standard is. We’re not for everyone and the people who know us are far more engaged. That higher level of engagement often transmits to just coming to us as our direct channel first and foremost, without even a secondary thought of trying to find the lowest rate somewhere else. Even if they do, and I’m sure you heard this a hundred times over from other companies … We do always ensure that you get more … Not only the lowest rates, but also more product portfolio, if you will, of the types of rates that you can book on our own channel.
The Standard Time is a prime example of what we did to ensure we offer some things that other hotels or other sites can’t offer.
Skift: Right. For you guys, you probably have a lower spend rate on things like AdWords or Google Travel Ads or metasearch with the CPC bidding. It seems like you would probably skew less towards that because of the brand that you have. Is that true?
Suh: Absolutely, yeah. That’s true. We focus a lot of our marketing dollars on building the cultural aspects. What company, for example, has an editorial team on staff? We spend a lot of time partnering with or doing events and activations on-property that generate the social buzz for our local community. One thing that the whole Internet and social media world has provided was to equalize the playing field, in which more times than not for our brands, it’s the local community who brings out the viral effect for the consumer markets as well.
Skift: Yeah, that’s a really interesting perspective because it’s so different. You guys aren’t a mega chain, you’re not just another nice hotel that really benefits from the OTAs and being on distribution channels. It’s interesting to hear your perspectives on this… almost as a third-party observer on the third-party distributions … because it’s not really a big factor for you guys, it seems.
Suh: Don’t get me wrong. We only participate in less than a handful of OTAs. They do drive business for us but our concentration has been to do what we do best and that’s to spend our marketing dollars expanding our cultural effectiveness. That’s for sure.
Skift: It’s not the type of thing that the typical hotel could try to follow. It’s not a typical business model of the hotel. It’s something that takes time to build and there’s a culture. A lot of things that you guys are doing are unique. When we look at industry-level perspective, we see the validity of the OTAs and the metas, but for you guys, you’re definitely much different than the typical hotel.
Suh: Right. We are. I’ve been with the company two and a half years, and outside-looking-in before I joined, I was absolutely intrigued. When I got onboard, it was a learning curve for me to understand that your traditional best practices in the revenue management and the marketing side have very different effects for our brand and our hotels. It’s very similar to our sister properties, for Bunkhouse, where we’re the majority owner for that.
You can try to take the strip hotel approach of just trying to compete with dollars, but at the end of the day, the churning and burning practice just doesn’t bode well for us and possibly a lot of the other boutique companies that are starting to surface. I do think that from a trend element, people are trying to find their cultural pillars and it’s hard to try to reinvent a brand to evolve and develop that versus a brand who set that tone out from the get-go and has always lived and breathed it.
Skift: Just for you, in terms of effective marketing channels, if you had to rank digital versus TV versus other channels? Facebook is now starting to do targeted ads, dynamic ads. What are your thoughts?
Suh: Yeah, no, totally. I think this goes back to what we talked about for the life of Standard. There has been nothing more effective than our internal email campaigns. That, by far, is the cheapest, most effective and so on. Again, targeting to the most engaged audience will obviously have the biggest benefits. Outside of our internal database marketing, PPC and Google definitely ranks up there as well. Again, we haven’t had the dollars nor necessarily the concentration of playing too heavily in the CPC world for the metasites.
We have developed some products to be able to book directly from some of the meta sites, but outside of that … I think you had also alluded to the likes of Facebook and Instagram ads. They’re starting to show an obvious increased trend of worthiness and return, so we have been doing that. We’ve also been doing that for our apps as well. I do so the Facebook ad evolution starting to come into play.
Skift: Have you done the TripAdvisor Instant Booking?
Suh: Yeah, you have to be part of the business listings in order to get that, so yes. That coexists with their CPC model. I haven’t been able to tell which side of that coexistence we’re getting more bookings from. When we do show up on the CPC searches, we do get a pretty good return.
We attempt to quantify what percent of bookings for Priceline and Expedia come from some of the largest hotel groups. Marriott disclosed that systemwide revenue was $70 billion; firm revenue was $17 billion as Marriott, like most chains, relies on the franchise model. Using this ratio of system revenue to company revenue as a rough estimate, we back into a rough combined gross bookings number for Marriott, Hilton, Wyndham, IHG, and Accor at $172 billion.
Next, we assume that 12.5 percent of these bookings are to OTAs, taking the number to $21 billion. While Expedia and Priceline have comparable total bookings, Expedia has more airline exposure and U.S. focus, making the impact more meaningful. If we use 25 percent for the amount of these bookings to Expedia and 15 percent for Priceline, that would imply that the largest hotels account for seven percent of Expedia’s bookings and five percent of Priceline’s. If we were to assume that Expedia and Priceline have all those OTA bookings, the percentage would be close to 15 percent of bookings from the large chains. This clearly impossible, but shows the top of the range.
Our best estimate is that the five hotels account for a low- to mid-single-digit share of bookings for Expedia and Priceline, but the impact would be greater to Expedia with more airline bookings in the denominator. As a reminder, airline bookings typically have zero to low-single-digit commissions for OTAs.
If the hotels were to move 25 percent of bookings away from the OTAs, this would be only a one to two percent headwind and that can be offset by independents taking share in the OTA channel. Additionally, because independents pay more per booking (as much as 2x more), the OTAs can lose share, replace that with less than they lost and still come out just fine. This is the point that we believe gets lost in many cases.
It’s crucial however that both sides do not engage in a price war, which hurts the industry. The OTAs can lose share from large chains, but the relationship cannot become so contentious that large hotels do not post inventory on the OTAs as the OTAs need full inventory. In reality, this is practically impossible since at the property level, some hoteliers may rely on OTAs heavily to fill rooms.
We expect further small share shift for the large chains to direct, but that booking being replaced fairly easily on the OTAs, at least from a net economic perspective.
When asked about the data received by hotels from OTAs, 58% of independent hotels stated that they were satisfied with the data while just 44% of branded hotels did.
MELISSA MAHER, SVP GLOBAL PARTNER GROUP, EXPEDIA
Melissa Maher is senior vice president of the global partner group for Expedia, Inc., where she manages all aspects of global business relationships with the company’s top strategic hotel partners. Her team is charged with managing and enhancing relationships for the industry’s leading ownership and management companies, key industry associations and hotel groups. Based in Las Vegas, Maher also oversees the team responsible for driving the strategy, distribution and support of Expedia’s gaming lodging supply division.
Skift: Melissa, the last time we spoke in December, we discussed how you’re partnering with Red Lion and you guys are starting to share more data than in the past. Can you update us on that and other ones?
Maher: We’re very excited about the new partnerships, like with Red Lion, and to find more ways to get them customer information. As a reminder, with Red Lion what happens is when a consumer comes on to their site, they can pick a rewards rate plan and if they pick that rate plan, we automatically enroll them into (Red Lion’s) Hello rewards. Through that process, we’re able to give Red Lion customer information and pertinent details that are most important to Red Lion like email address. The consumer agrees to that when they go through the process and it allows us to give Red Lion customer information and then it also allows the customer to receive Hello rewards benefits as well as Expedia points. The overall program since we spoke in December, has reached really great results. Really good for the consumer, really good for Red Lion and it’s just been overall very successful.
Skift: What are some of the main data points that some of your customers are looking for that they’re not getting currently?
Maher: Usually the information they want from us is customer contact information. That can help them with service ahead of arrival or they can eventually use that information to convert one of our customers into one of their customers. Also, once the consumer gets to the hotel, they are able to provide a greater service and experience on property and then they’re hoping they will convert them into a real customer and come back to book directly with them.
Skift: Last time we spoke, you mentioned that these partnerships could be a model of future ones.
Maher: When we spoke in December, we had a lot of really great conversations with our partners and continued to look at innovative ways to help them. We’ve been helping Marriott offer a better customer experience on their website.
They’re seeing benefits from that and they’re able to essentially extend our technology to them. So, it’s a great example of ways that we’re thinking more strategically, working with our partners more strategically to be more than just a pure distribution partner.
When I talk to our hotel partners we certainly talk about their objective as well as ours. They certainly want to continue to drive direct, but they also want to continue to have OTA share because the OTA customer, particularly the Expedia customer, is incremental to them. If they go to our business, they will get a package customer for example or a customer that books internationally and stays longer and pays higher rates and books further out. While they certainly want to drive business direct to their hotels, they also continue to utilize the Expedia to drive incremental business they can’t get on their own.
Hotels continue to partner with OTAs because we have a lot of tools that they can utilize. Recently, we launched Rev+, which is a revenue management tool that’s really to help our hotel partners with smart, actionable data and insight. We’re giving it to them for free and it helps them manage their business. That’s an example of our Expedia Partner Central, which is a little hub for hotels to go to and have their live data and insights. We continue to see hotels utilize Expedia and our site, because we have such tools to help manage their business. So again, going a bit more beyond just a distribution partner. We’re becoming a partner that gives them tools and insight to help look at their business as a whole.
Skift: I’m assuming there probably isn’t much change since last year, but just wanted to check if Expedia has seen an impact to bookings from the book direct campaigns this year?
Maher: We have not seen anything significant. We’ve seen a little bit of increase to independent hotels or hotels that have competitive rates in inventory. We still make sure we focus on our marketplace and showcase the hotels that have great rates, inventory, photos, and and make sure we’re servicing those hotels. Red Lion’s gains would be an example of a such a shift.
Skift: We’ve spoken to a bunch of hotels, but you speak to thousands of them. From your sense, do most hotels tend to look at a direct booking as anything done on the brand.com site, even if they’re paying Google or they’re paying a metasearch platform? Or, do they separate true unpaid direct versus paid channels.
Maher: That’s an interesting question. I think it varies quite a bit by hotel and runs the gamut. I’m constantly telling all my hotel partners whether they be large partnerships, small partners, that they need to look at all of the different costs for different channels.
Skift: I think you guys have mentioned this before but just to refresh, what percentage of Expedia’s bookings are on mobile these days?
Maher: We have about 1 in 3 transactions today that are booked on mobile, which continues to be a growing and very important channel for us.
Skift: As the mobile experience keeps getting better, we would expect conversion to go up. Are you seeing that?
Maher: We’re definitely seeing the mobile conversion increase and also continue to spend a great deal of time and energy improving our mobile experience and making sure that for our mobile users, it is a very simple and great process for them.
Skift: Large chains have their own apps, but independents would not, nor would it makes much sense to spend much time on building one. It would seem that as the world becomes more mobile, the OTAs become more valuable to the hotel industry. Do you see that as sort of a tailwind for you guys? Initially, it was a headwind because of conversion but now we would think that is changing.
Maher: It is starting to change and hotels, to your point, that don’t have a mobile site or don’t want to spend the money to continue to improve their mobile, they’re using us as an extension of that and a way to utilize that to reach out to that customer.
Skift: Outside of the U.S. the hotel market is more fragmented. Is your relationship different with hotels in international markets vs. in the U.S.?
Maher: For the most part it’s not. We develop our tools for our partners and it’s all about merchandising and marketing opportunities for our partners. We want to have just as many opportunities for independent hotels, small hotels, and hotels internationally. So for the most part it’s not.
Internationally we do often find that it’s more fragmented and one of the things that we’ve done is we’ve increased our resources to make sure we have full resources on the ground that can spend time with hotels. We want to make sure we’re in the market and able to meet with our hotel partners and help them with marketing opportunities.
Skift: Can give us a sense of what the key factors other than price are in determining where hotels rank on an Expedia search?
Maher: We’ve been pretty transparent about this with our hotel partners. There’s really two factors that we look at and the first one is offer strength. Offer strength is determined by the value on our site for the date searched for popularity of the hotels on Expedia as measured by the number of rooms actually booked on an Expedia site and the level of repeating scores. Then the second factor that we look at is quality score and that is based on the content provided to consumers when they are shopping and booking on Expedia sites. Things like number of relocations or refunds, making sure that hotels have competitive rate inventory that certainly goes into this area. Again, we want to make sure we’re focused on the consumer seeing the best deal in our store.
Offer strength is the first one, quality of scores is the second one and then lastly is compensation. Similar to every marketplace out there, we want to make sure that we account for the compensation that Expedia receives so that is also a factor in what we look at.
Skift: Following up on a recent comment that Dara made at ITB Berlin on commissions coming down as OTAs look to pass on those lower fixed costs to pass on savings to hotels. Can you comment a little bit more around what he meant there in terms of commissions gradually coming down for hoteliers? Whether or not that was directed towards hotels, whether or not it was directed towards airlines or in general?
Maher: If we look at commission in general, our commission over the last several years, it has certainly come down.
It was interesting, because he was talking about it and how much it would impact him that we have gotten more economies of scale and passed on those savings to our hotel partners. We’re seeing commissions come down over the past two years and unfortunately, a headline came out (that was forward looking) and we have clarified since.
Skift: So it’s more they have come down but not necessarily will continue to go down in the future?
Skift: How does the airline business impact the hotel part?
Maher: The airline and package business is something that our competitors don’t have and that’s an opportunity to tell partners. They find the package business as incremental business because most of our partners don’t do this on their own. As a result, we’ve continued to improve that product with over 450 airline relationships and continue to focus on that experience for consumers and driving up business for hotel partners that want that. Package and air will always be an important component to us and we’re investing a lot in our tools and technology for the air and package business.
Skift: That’s it from our end. There’s been a lot of hype about booking wars and we see it as much more of a nuanced situation. If you have any final thoughts about how that whole discussion might play out in 2017 it would be great to get your take.
Maher: Sure, I’m very excited about discussions in 2017. We had a lot of really interesting end of the year discussions with our hotel partners and while it might sound like there are arguments and lack of continued direction together, that’s quite the opposite.
We’re having better discussions now than we ever have about how we can help our partners book direct. Some examples are what we’re doing with Red Lion and what we’re doing with Marriott Vacations.
It feels more that you’re in a situation of an evolving partnership and really helping our partners not only get direct business, but helping them get better payback, better insight, and to utilize us to get incremental customers.
I’m personally excited about 2017 based on the conversations that we’re having and based on the new products that we’re bringing to market and hopefully we have a few more announcements to give you in the coming months, but we’re really accelerating in this area.
Metasearch is becoming an increasingly important channel in the industry for generating bookings. However, the complexity of CPC bidding and costs of CPA on instant booking combined with massive ad budgets at the OTAs make it difficult to receive direct bookings on metasearch. That being said, companies like trivago are working with hoteliers to improve their ability to convert. This will likely lead to increased use of metas by hotels.
Larger brands have the budgets to compete with OTAs here and smaller ones can use third parties to manage CPC campaigns.
TripAdvisor’s Instant Booking platform helps level the playing field in that channel by pushing a 12 to 15 percent commission rate. The hybrid approach where data is shared and the customer is owned by the hotel should be attractive to independent hoteliers, especially with lower commissions than OTAs. However, consumer adoption has been slow so this channel will not comprise a large portion of bookings.
Google is also extremely difficult to compete with (both on metasearch and AdWords). Bidding on your own brand names and very narrow search terms will have high ROI while generic search can be a waste of money.
If hotels are able to win clicks from the OTAs and then convert those clicks, meta can be a very cost-effective channel to drive direct bookings. The key here is conversion. If the website does not convert, CPC rates can wind up being much higher than OTA commission rates.
We discuss the landscape below with Kayak, trivago, TripAdvisor, and Google.
For much more insight on metasearch, please see our 2017 Outlook on Metasearch report.
KEITH MELNICK, PRESIDENT, KAYAK
Keith Melnick, president of Kayak, has been with the company for over ten years. He was part of the original team that launched Kayak in 2004. His current responsibilities include oversight of all commercial activities and international operations. During his tenure at Kayak he also served as chief commercial officer, EVP corporate development, and VP business development.
Prior to joining Kayak, Melnick was a management consultant with the Boston Consulting Group, where he concentrated primarily on travel, e-commerce, financial services and industrial goods and helped found Orbitz, Inc. Prior to this, he served in revenue management and finance with American Airlines.
Skift: OTAs traditionally have owned the customer data while metasearch provides it to the hotels. Do you believe that this makes hotels push more for metasearch bookings versus OTAs or does the OTA dominance of metasearch results mitigate that?
Melnick: Hotels like metasearch, because, a customer that comes from metasearch to a hotel directly looks like a direct hotel user. They get the data and own the customer relationship, which is what they want and what they like.
As far as OTA’s being on meta as well, it’s just a competitive environment. It’s not different on meta as it is out on Google, or even on TV. We’re just another channel for them to acquire traffic directly.
I can only speak for Kayak, but Priceline lets us operate independently. We don’t get influenced by the fact that Priceline owns us. They own booking.com, they own priceline.com, but we run the companies independently.
Skift: When a hotel gets a booking where they pay you CPC, it looks like a direct booking to the hotel, as it’s booked on their website, but there’s still an acquisition cost. Do the hotels tend to look at that as a direct booking and just consider that marketing cost, or do they bucket meta search as an indirect channel with the OTAs.
Melnick: Of course I can only generalize, because some hoteliers do things differently, but in general, they view us as a marketing cost.
Skift: With cross device tracking, it’s starting to improve, but still has a way to go. If I search on mobile on Kayak, but I don’t click off right away and book, and then I wind up, say booking a couple days later at Marriott.com, would the hotel attribute this to Kayak?
Melnick: If they search on Kayak and then later, go type in www.marriott.com, nobody has any insight that they searched on Kayak. It’s the same thing, no matter where they search in their past search history. If they do click from Kayak, off to the provider, whether it’s mobile, or on the website, we have lots of different ways we can track.
Unfortunately, none of them are perfect. We can do cookies, but cookies have expiration dates and people clear their cookies. On our side, we can do some pixel tracking, so we can share information. It depends on how we drop them in to the provider’s website, so you’re right that the technology and the capabilities are getting better. We’re trying to improve that, but we can only go so far.
Skift: What percentage of bookings are done on mobile?
Melnick: It’s about one-third and growing. A few years ago, when mobile really started to grow, I think there was a big fear, or at least a lot of conversation in the industry that mobile was going to cannibalize from direct web traffic and this could definitely hurt a lot of companies. We see that the cannibalization is a lot smaller than people expected, or at least talked about at the time. The mobile traffic is very complimentary to the desktop traffic.
You have people that will be on the train, on the way into work. They’ll start their search. They’ll get to work. They’ll be bored. They’ll continue their search and then they’ll go home and buy, so people are continuing across device and we want to be platform agnostic. I think users are platform agnostic as well, so they complement each other a lot.
Skift: As mobile continues to become a better experience across the board, do you see the difference between desktop and mobile CPC rates starting to converge a bit, where conversions are increasing on mobile and people are willing to pay more for those clicks?
Melnick: Yeah, because the conversion goes up. If we look at things in terms of an effective CPC, whether it’s an actual CPC, or if somebody’s paying us on a CPA rate and we use the conversion to get to a CPC, we definitely see the effective CPC going up, just because the conversion is going up, because our mobile assisted booking’s getting better, but also supplier, mobile sites are getting better as well, whether it’s an OTA or supplier direct. It’s just a better experience now.
Skift: Outside the U.S., the hotel market is more fragmented. Is there more reliance on meta than in the U.S?
Melnick: It is very different, because, exactly as you said, it’s much more fragmented. You have a different dynamic with booking.com in the market versus the way the market looks in the U.S. as well. It’s not necessarily reliance on meta, which providers, regardless of their size, they like meta, because we help them with referrals directly.
But there’s a bigger reliance on OTA’s there, because with the smaller hotel, it’s harder to get the reach that they need, so a small hotel in Switzerland is going to have a lot of trouble reaching the U.S. market for example. They’re much more reliant on somebody like booking.com to help them reach that market, so the OTA’s just are a little bit more important in Europe.
Skift: What are the key determinants to where the hotel and OTA’s rank for a property on Kayk search results, other than price.
Melnick: Price is definitely an important one, but we have a lot of factors that play into it. Ultimately, we’re trying to find the best result for a user and the best order within that result. That’s going to give the user, the best property and the best booking experience to get them what they want, so the user needs to come first in our minds.
But, what plays into that are things like, reviews, and star ratings, and the value of the deal relative to historic value. Economics definitely plays in. We not a non-for-profit company. We look at what a hotelier’s paying us.
Skift: What can hotels do to increase bookings that come direct, including through meta?
Melnick: Kayak’s not the only one that has the marketplace that allows them to bid on the properties, so participating in those marketplaces is important. Some of the hoteliers there a little bit smaller and don’t have the same capability as some of the bigger providers.
We’ve launched some tools that are a little bit easier to use. They should definitely look into that. The content they put out is very important. Users still look around for reviews and ratings and the more they can get that content directly from a provider, is helpful.
Expanding their reach, different languages, and even currency capability to accept payment is also important. Tracking may not be important to a user, but whether it’s pixel tracking, with kayak, so we can better track when users are converting and make product changes that benefit the suppliers.
The biggest one is, price really does matter. Users do look at price, so keeping control of their pricing and being smart about their pricing. They can definitely drive demand with their pricing.
Skift: There’s so much in the news and the media about the whole direct booking wars, it seems like some of it is blown out of proportion where in reality it is a couple of large hotels running campaigns, but clearly meta, OTA, hotels, they all need to work together. How do you see this playing out in the coming years?
Melnick: Your point is I think exactly right. I think it is a little bit blown out. All things being equal, a provider would like a booking to come directly to them. OTA’s are a great distribution channel for them, and so is meta and at the end of the day, they want to fill their rooms and put heads in the beds. They’re looking at the channels. They’re looking at the ROI’s to make sure they all make sense.
I think the way it continues to play out is that direct providers continue to try to offer things that make it a benefit for a consumer to come directly to them. And the market just gets more competitive, which I actually think benefits meta as well. The more competition we see in the market, it’s also good for users, consumers really. The more competition in the market, the better. Users get better rates. They get better benefits. The importance to meta then improves too, because we’re all about creating transparency. The more differences there are in the market, then the more important that transparency is and we just want to make it easier for consumers to find what’s best for them.
Skift: A lot of companies are running performance marketing campaigns. Are you still doing display ads? To what extend is display relevant to the future of Kayak?
Melnick: Performance marketing definitely is growing. Kayak is not just an advertising platform, we’re also advertisers ourselves. And we see performance marketing being very important and actually the opportunity for advertisers to buy performance driven marketing placements on Kayak continues to increase. A lot of our display ads are internally what we call smart ads. They’re very much performance driven and they include content and I think you will see, not just hype, but the whole industry continues to go more towards performance driven marketing.
Skift: With more distribution platforms continuing to come online, are you seeing fatigue on the part of these hoteliers? At what do they just say, “We’re just going to work with a couple OTA’s and let them do the work for us on meta”?
Melnick: I think there’s two parts to that. One of them is that scale matters, which we see across meta. I think that’s why you see some of the consolidation that’s gone on in the meta markets. We have our acquisitions we announced, so scale does matter. Whether it’s a hotelier, an airline, or a car rental company, they don’t want to manage 30 different providers. A few that give them scale really matters. The other part of this, is there are third parties. They don’t have to just say, “It’s an OTA, or I manage it myself.” There are third parties out there that can help manage them, that we work with.
Skift: What’s the plan for assisted bookings for Kayak?
Melnick: We always viewed assisted booking as being another choice for consumers. I think it’s a great experience on mobile, but ultimately, we want to let a consumer book where they want to book. If they want to go directly to Expedia, or to Booking.com, or to Hyatt, great. They can do that. If they go to book from one of those providers on Kayak, we want to make sure that they can do that as well. And we do that across all of our product verticals, whether it’s hotel, airlines, or rental cars. I think we have a bit of a different philosophy, where we’re not saying it has to be assisted booking and that’s the way to go. We just see it as being another choice for a consumer.
BRIAN SCHMIDT, VP OF GLOBAL SALES, TRIPADVISOR
Brian Schmidt is VP of global sales at TripAdvisor, where he oversees the global sales, operations, analytics, and product teams for TripAdvisor’s core metasearch and Instant Booking businesses.
Previously, Schmidt served in a variety of sales leadership roles at Google, including as director of Google’s health services, finance, local and CPG businesses. He also served as head of office for Google Boston, overseeing Google’s local business presence. Prior to building Google’s Boston office, Brian worked at HQ in Mountain View, California where he built and led mid-market sales and agency channels, focused on scalable sales acquisition and growth, with responsibility for over $1 billion in annual revenue.
Skift: We have heard from hotels that they like how TripAdvisor lets them keep the data with the booking done through them versus the OTA model where the OTA owns the booking. How does that data sharing help you with the hotels?
Schmidt: It helps with engagement with hotels working with TripAdvisor across our different services and products that we would offer them. It certainly aligns with what you’ve heard from many of them in terms of things that they value.
It’s a good situation for our hotel partners in that clearly, when they get a booking off of our metasearch platform, for example, that’s happening on their sight and we’re facilitating that feed over to them and so they get all the information completely.
I think with Instant Booking, one of the things that we consciously did when we rolled that product out is our hotel partners are the merchant of record and we facilitate the transaction on our platform, but then we send and export all that consumer information over to the hotel partner directly which as you mentioned, is often very different from OTA transactions.
For us that was a conscious decision. We felt that’s valuable information. We want the hotel to be able to engage the consumer directly and provide great customer service. We really position Trip as the transaction player there and we’ve been met with very positive feedback from our hotel partners. They appreciate the fact that we’re sending that complete information to them which is I think is a differentiator for the Instant Booking platform.
Skift: It is interesting that there seems to be no uniform way to look at what is a direct booking. Some hotels include anything that’s booked on their website regardless if it’s paid and others segregate paid and unpaid.
For you clients, does it vary quite a bit?
Schmidt: You nailed it on the head where our partners look at it differently. Clearly, everyone looks at a booking through meta as a direct booking that’s happening on their site. Some partners have said to us, “We view it as direct booking. It’s an extension of our site because we’ve got all that information and don’t have any limitations in engagement with the customer just as we would if they booked on the brand.com.”
Other partners have told us, “It’s not a direct booking, but it’s more like a distribution acquisition similar to an OTA,” and others have told us, “Hey, you’re in the middle as this hybrid approach”.
There’s not an easy label to put against it, but I think across the board, regardless of how different hotels have looked at how they would label or bucket a booking that would come through the platform, it’s been met positively by everybody that we work with because of ultimately the value that they’re getting of having the chance to get that transaction.
Skift: What percentage of bookings are mobile for you?
Schmidt: We don’t disclose that, but we disclose our traffic mix. We’re well over fifty percent for mobile traffic on the site. We don’t disclose what the division is for bookings between desktop and mobile but clearly, with over fifty percent of our traffic coming through mobile, it’s a material channel.
Skift: As your mobile platform and your hotel partners have gotten better at mobile, are you guys seeing better conversion on mobile versus what you’ve seen in the past?
Schmidt: For us, it’s no secret that the mobile experience has a lot of friction compared to the desktop booking experience and that was one of the key reasons that, frankly, we invested in Instant Booking.
We don’t disclose conversion rate breakdowns and we don’t always have a view into partners for any individual partners’ conversion rate, but we’ve seen Instant Booking really take off especially in a mobile environment.
Consumers on the TripAdvisor app or they’re in our mobile web environment and we make it really simple to close the transaction without having to jump over to another site, which in a mobile environment can often be challenging.
Skift: Mobile was a challenge for Instant Booking’s rollout, but do you think with the world becoming more mobile, that facilitates broad industry growth for the online travel sector? Large chains will have apps and large ad budgets, but the small, independent hotels will not. Many don’t really have good mobile websites. Longer term, will mobile turn into a tailwind instead of a headwind for Trip?
Schmidt: I would agree. We feel really well-positioned in an increasingly mobile word and I think for all the points that you just raised. The TripAdvisor app has been downloaded more 390 million times globally. We know that almost fifty percent of the users who visit TripAdvisor are doing so via a tablet or a smartphone and that number continues to grow. Increasingly, when people are out there searching for not only where to stay but for prices and availability, they’re coming to TripAdvisor and that’s a huge competitive advantage for us.
We know there will always be individuals who are loyal to a particular brand, hotel brand, and a lot of those folks will have that hotel brand app downloaded, but the vast majority of travelers out there don’t have every individual hotel brand app or multiples of them downloaded on their phone.
They do have TripAdvisor downloaded on their phone and so we think that is a big competitive advantage for us. We see it in the way that our users engage with us increasingly in mobile and we’ve seen it with the launch of Instant Booking in mobile as well. We’ve seen a really nice uptick in engagement.
Skift: Looking outside the U.S., the hotel market is a lot more fragmented. How is the relationship with hotels different internationally versus in the U.S.?
Schmidt: We know that the U.S. is a much more of a concentrated marketplace around the really big brands, and then as you move to Europe, maybe even more so on Asia, it’s much more fragmented. What we’ve done is consciously set up our sales and operations teams, for example, to be able to work with the different needs of our different partners and also be localized.
We take great pride that we’ve got teams that are located around the world working with our large and small hotel partners because we know that that’s critical for success, having the ability to understand what’s happening in the marketplace from the user perspective but also from a commercial perspective. It’s going to set both of us up for success as opposed to if we were doing everything homogeneously out of our headquarters in Needham.
Skift: What are some of the things you are doing to push more into China?
Schmidt: Since TripAdvisor rebranded and relaunched under its new Chinese brand name Mao Tu Ying in May 2015, we have seen positive growth in the number of registered users, monthly active visitors, app downloads, as well as revenue. In China, our strategy is mainly focused on mobile, as China is a dynamic, mobile-first market. To that end, we have invested most of our resources into developing and testing new features and functionalities on the Mao Tu Ying App, which operates independently of our global mobile app.
We have completely tailored the usability of the Mao Tu Ying app so it is easier to navigate and use, helping Chinese travelers have the best trip when they go overseas. We continue to optimize and improve the mobile experience, adding features that empower Chinese travelers with the wisdom of millions to make confident travel decisions.
Wherever they are researching outbound travel or when traveling in destinations, our reviews, ratings and services are there to help guide their choices and empower them with confidence. So far in 2017, we have launched several new features on the Mao Tu Ying app, including a shopping coupon tie-up with a major department store in Japan, special set menus with discounts in popular Tokyo restaurants and bilingual dish recommendations.
Skift: With OTAs and hotels advertising heavily to win the booking, will the digital ad campaigns act as a meaningful tailwind for you guys where they’re both competing on TripAdvisor?
Schmidt: I think our partners have recognized and continue to recognize that TripAdvisor is a really valuable channel for them to engage with and ultimately acquire travelers and bookers. We live in a world where consumers are increasingly focused on making sure they have a good view of all of the options that are out there, who has availability who has the best price.
Skift: Within the property listing, say Marriott Midtown, what determines who gets the order of that listing, whether it be Booking.com, Marriott.com, Hotels.com? Is it commission based, the pricing? What are the other things that go under there that you could share?
Schmidt: It’s a function of really two things. One is price and availability and then second is an auction, so we balance both of those things. We’ve got an auction where all of our partners are basically submitting a bid based on how much they put value to click off to their site and then we also balance that with the price and availability for a room. What we have found is consumers care deeply about price and availability and so we want to make sure that we’re showcasing that price to give us a stronger likelihood that users can actually go off and make a transaction with one of our partners.
We do both of those things as part of the balance. That’s obviously different from the overall sort order. So, when you’re looking at New York hotels, for example, that is actually agnostic from economics. There, we really look at more of a user-centered approach. We have a default sort that’s designed to showcase the best value for the money for our users based on a variety of data sources including travel rates and hotel room rates and popularity of those hotels and location, and brand affinity depending on the individual.
Our goal is making sure that we’re presenting hotels to our travelers that are the best hotels for the best prices that are going to make their experiences delightful, if possible, and true to budget.
Skift: One thing we’ve seen with one of your competitors, trivago, is that they’ve been really aggressive on television. They have been building brand awareness. For Trip, you have tons of brand awareness, obviously, in terms of the reviews, but it’s still educating the consumer about booking. Do you think we will see Trip push a branding campaign on television and digitally?
Schmidt: We’re always evaluating options. For us, we have the traffic. A lot of it is already upper funnel as I would say in terms of researching and looking for great properties.
Our opportunity right in front of us, and I think you’ve heard this in the earnings call from Steve Kaufer, our CEO, is how do we get those individuals to move down funnel and come back and book with us and find all the great prices that we have on TripAdvisor?
That’s our challenge and our opportunity. As part of that we’re always looking at both offline and online marketing opportunities that will effectively drive that message home to our users.
I can’t disclose any particular offline or online marketing campaigns, but it’s clear what the challenge and opportunity is for us and we’ll evaluate different options in the future that we think meet that need effectively.
Skift: Since you added Instant Booking, can you talk a little bit about how the user experience has changed a little bit between balancing the TripAdvisor meta and the TripAdvisor Instant Booking models for specific hotel brands?
Schmidt: I can’t speak to any particular hotel brand. In general, we’ve gotten a lot smarter about presenting the best options for our users and so you’ve seen since we’ve launched Instant Booking, we’ve continued to test and will continue to test what’s the right placement, the right user interface? What’s the right balance of providing the right metasearch link versus an Instant Booking link?
In a perfect world, where we’re showing the exact placement or the exact solution that is right for that traveler, that TripAdvisor user at that precise moment. That’s the ideal that we continue to work towards.
Skift: Do you have an update on Instant Booking partners?
Schmidt: TripAdvisor continues to add new hospitality partners to its Instant Booking marketplace. We’ve recently added Expedia and Hilton, and the roster also includes other global brands such as Priceline, Accor, Best Western International, Carlson Rezidor, Choice Hotels, Hyatt Hotels, Langham Hospitality, La Quinta Inns & Suites, Mandarin Oriental, and Marriott International, Starwood Hotels & Resorts, and Wyndham Worldwide.
These respected suppliers have joined a growing list of more than 70 hotel chains, groups, and online travel agency (OTA) partners that will power bookings on the platform.
As noted in a previous earnings call, we continue to deepen our partnerships with large hotel chains, OTAs, and with an ever-increasing number of independent hotels. In just two years, we built direct connections to enable users to book more than 500,000 hotels on TripAdvisor.
JOHANNES THOMAS, MANAGING DIRECTOR & CHIEF REVENUE OFFICER, TRIVAGO
Johannes Thomas was appointed as a managing director of the company in 2016, and joined the company in 2011 as global head of SEM and has served as a managing director of trivago GmbH since June 2015. Before joining trivago GmbH, Thomas worked as a marketing executive at isango! (TUI today), a website for booking travel experiences from 2009 to 2010. He later founded his own company, which operated travel sites in Germany, Italy and Spain.
Skift: The OTA has traditionally owned customer data while metasearch provides it to the hotels. Do you think this makes the hotels to start push more for meta versus OTAs? Does the fact that the OTAs have dominated metasearch results and have partial ownership or full ownership of the meta sites make it hard for the hotels to compete?
Thomas: I think what we see in general, that there is obviously a strong push on direct booking. Hotel chains are investing a lot. They are trying to learn about metasearch, about direct marketing and how to become more visible, in general, online. And they are realizing that it’s become extremely important also to create future loyal guests.
To create loyal guests, you need to know a lot about your guests. And you need to build a strong relationship. And that’s one of the reasons why they are pushing into that direction to build more of this loyalty. Still, I think it will take a few years.
One important part that has happened is that hotel chains and also hotels to a degree, have struggled understanding how to cope with online marketing, where to place metasearch. Metasearch was, for quite a while, treated as a distribution channel. So, we were discussing with the distribution representatives there that were working with OTAs, and we were not talking to marketers. We are actually a marketing channel, so we need to talk to marketers and understand how to optimize the booking funnel and so on. And that has happened, so I think that is a big structural change that we clearly see.
We have seen that small and medium hotel chains have been able to address this topic faster than large chains; we have hotel chains that take as much as 80 percent of their share on trivago. On our side, at trivago, we are empowering hotels by providing expertise. We’ve built a big team, more than 200 people hired in the last one and a half years. And just to be there, be available proactively consulting with hotel chains or hotels on how to work on metasearch, what’s important in marketing.
If we look at the history of trivago, we didn’t have tools for hotels to manage their content on trivago. That is something that has changed. We are providing technology and it is very affordable technology. We’re providing a booking funnel, and so they can utilize the expertise we have in turning more lookers into bookers. That’s pretty much where a lot of things need to happen. But it’s a clear trend, certainly.
Skift: For the hotels that are on trivago now, how is their conversion versus OTAs?
Thomas: I think the answer is pretty straightforward, it’s significantly lower. And if you look at two things they need to improve, I think one is spending time learning about marketing and investing into marketing, and the second one is really getting technology that is competitive. What’s really the problem here is that there are technology providers that provide complex technology that does not perform well and is expensive. So, in small and medium hotels, in their economics, it doesn’t fit in to buy technology. Technology needs to be provided that is good for the user, for conversion, and easy to adopt for the hotels. Hotels also need to be more open to change and brave the digital world.
Conversion is a very important part to overcome. That’s why we provide booking channels for free. We bring our product expertise, we use our data to build a booking funnel that’s extremely optimized for trivago clients and help them to turn more lookers into bookers, improving their conversion rate. So at least from that level, they have less of a disadvantage, basically.
Skift: Can just touch a little bit more on the trivago Hotel Manager platform, how you partner with hotels and can help increase their direct bookings?
Thomas: The platform is tailored and was built for the individual hotel rather than chains. It enables them to take control of their hotel profile on trivago. They can go in there and build a profile. There are free versions. There is a basic version which really comes down to managing the story of your hotel, the visual content, the descriptive content, making sure you actually show your strengths and illustrate what your hotel is about.
Then, there is a pro version that targets a very broad set of hotels. It can be small, medium size hotels, or big hotels, which is a yearly subscription product. This product provides extra promotion in our search results, and it provides analytics functionality about the user, about the competition, and about rates. It has a rate shopper inside so they can compare their rate against competitors. We are helping them to position themselves better on trivago and they get extra visibility. For direct booking, that is basically the expert version where we provide the hotelier a product where they can connect their website, connect their rate.
One big problem in the industry is that marketing is too complicated. We are trying to build a tailored tool for the hotels so marketing doesn’t require years of studying. Marketing is really a matter of checking once a week at the performance. And we are guiding them step by step in how to do that, how to improve their booking engine, how to improve their profile and boost their conversion so that they come in more competitive.
Skift: The three tiers that you mentioned, are the fees a meaningful contributor to trivago or is it more incremental about having really great customer experience with the hotels so that they use trivago more as a channel?
Thomas: Yeah, I think it’s a great question on the economics. I think what motivates us more is to improve the user experience. There is an opportunity on incremental revenue we are getting, but it’s not the reason why we go so aggressively because it’s unclear how that will turn out. But the big important point, and where we see a lot of impact, is to our users, our aim is to have all online bookable rates on board. It’s not just global hoteliers, we want local hoteliers, we want all the hotel chains.
When we offer direct rates, we improve our user experience significantly. We improve our commercialization. Our user has more choice. There is a significant part that wants to book direct, and we are doing that. They don’t have to go somewhere else to check it. It’s on the direct website, it’s a better rate. We are providing more transparency. And that’s really the motive for what you also refer to, the user experience. This is very important.
Second, and maybe equally important as a motivator, is getting the relationship with the hotels. So historically, we have worked with the hotels on the free version. And we have seen the hotels sign up, give us content and so on. But they didn’t come back too often. And now, where we built the commercial relationship, where we provide extra marketing or we provide some extras to our option marketplace, they come back very often, they give us fresh content. They make sure their profile is even more in shape. And the more important we get for hotels, the more they will take care of their profile. And we need to know everything about the hotel so we can actually match what a hotel has to offer with what our users want. If the user filters for a pet-friendly hotel, we need to know which hotel has that and which hotel is good at that. The hoteliers are a very important source to get this information.
Skift: When we do searches on trivago, it always seems that results are dominated by the OTAs. In your filings, I think between Expedia and Priceline, revenue from the OTAs is something like 60 to 70 percent, what percentage of bookings is OTAs versus hotels and where do you see that going?
Thomas: It varies a lot from country to country. What we look at in terms of the traction and in terms of interest from the hotel side, we see a lot of hotels signing up on our hotel manager platform with more than 240,000 hotels signed up now. On our pro version, we have more than 30,000 hotels on our paid subscription.
Skift: So just when you’re thinking about looking outward, what’s the end goal when it comes to the split between the inventory that’s coming directly from the hotel website versus the OTAs? Is it 50-50 for example?
Thomas: I think what we are aiming for is a healthy marketplace that motivates as many advertisers as possible to be in our marketplace, to share their rate, and run a campaign on trivago. We want a healthy distribution mix and balance that everybody gets a stake.
We are rather agnostic for hotels versus OTAs. We talk about the incrementality, and that’s where we say, advertisers are rather substitutable easily, so from a business perspective promoting one or the other or motivating one or the other is not very strong for us.
We want to empower a small, medium OTA. We want to empower little hotels, hotel chains, that they all get a fair chance on trivago. That they get all the tools and knowledge they need to compete. But, there’s no optimization function that we want to optimize for. It’s really about providing a fair playing field and everybody who wants to join should join. Our ultimate objective is to provide diversity for our users with as many rates as possible for a hotel on trivago. We want a direct rate on the hotel on trivago because that’s where we provide full transparency to the user so the user doesn’t need to use another site. So that’s the goal. We want to have as many at a time look for a hotel as possible. Then we should have a good diversity at the end.
Skift: I know you guys operate independently of Expedia and Kayak operates independently of Priceline, but given the Expedia financial stake in trivago and past full ownership, is there a perception, whether it’s fair or not, from the hotels that because of the influence of the parent that it’s a hard channel to think that they’re going to get bookings on? Do you have to educate the hotels of the true independence?
Thomas: That is a perception that was there at the beginning, but we’ve made very clear from that nothing is changed. Expedia is an investor. It’s not the Expedia OTA, but what amounts to the Expedia Inc. investment company that has invested into us. We are totally independent in what we do from a strategic, operational, and financial standpoint. At the beginning, there were concerns, but we overcame that. Today, it’s really rare that we still have to talk about that. Maybe when we reach a new advertiser, but explaining the dynamic is rather easy so that it’s clear that there are no impacts from that.
Also, when we explain how trivago works, we are a marketplace where everybody has the same opportunity. There is no interest from us to manipulate the marketplace. A manipulated marketplace destroys the user experience. It’s a fair marketplace, and that’s why there are not many discussions on this now. We are also now a public company that makes it even more clear that we’re an independent identity.
Skift: For TripAdvisor, maybe you can talk a little bit about your thoughts on the facilitated booking approach and whether or not trivago would go down that road of pushing this more aggressively? Also, what is that main difference between the TripAdvisor Instant Booking platform and the trivago Direct Connect functionality?
Thomas: I can talk about how we think about it. Where does the customer think that he has booked? Because we have a clear view on that, we want to be conceived as a metasearch. In the moment where a customer thinks he has booked with trivago, he has booked on trivago, he potentially gives us a call and wants to change his booking or cancel his booking. That’s the moment where we say we have done something wrong. We spend hundreds of millions on TV to educate the market on the value proposition of metasearch and what we’re doing, providing transparency and more inventory in full view, a great search experience. And we don’t want to weaken the position as the search by now providing a book on trivago experience. I think that’s the big difference.
You will not see Instant Booking as an integrated part of our search. You don’t find a book on trivago experience. How we do that is basically is our usual experience, you do a click out, you will land on express booking that is advertiser branded. We are going more and more into that direction. Today it’s totally advertiser branded and we want to give a white label to the advertiser. And that is just for empowerment and leveling the playing field so they have a competitive booking experience. So that’s really the purpose for us. We don’t say it’s part of our search experience.
It’s really leveling the playing field as a tool for our advertisers. If you look at the booking funnel of a traveler, at some point you have the access point where he starts his travel search. Then you have the search experience where he searches for a city or a destination and then for a hotel. And then he compares prices and then he books. We really want to be at the top of the funnel. We want to be the brand. That’s why we spend a lot of money on brand, because we want travelers to start with us and the majority of our travelers start directly on trivago.
We want to own this part, the access to the traveler, and then we want to excel and become very good in this search for guiding you from unqualified intent I know I want to travel and maybe you want to go into this region. And then finding the ideal hotel for you. So that is where we invest a lot into customer integration.
Skift: What percent of your traffic comes organically without a Google search?
Thomas: Today it’s more than 50 percent of our traffic coming from direct. We have a strong brand awareness in Europe. Nine out of ten know trivago there. In the U.S., already six out of ten do. Getting organic traffic and that is today, our major traffic driver. And I think that was the intent from the beginning.
At the beginning of our journey, we were 90 percent dependent on Google. And that is something where you think on the one side how it’s scalable, but that is when we decided to invest heavily into T.V. and today we were on T.V. in more than 50 markets, trying to build a brand globally in a very efficient way.
It’s easy to spend hundreds of millions in T.V., but the big question is how much from one euro coming back. And when we look back for eight years now, we have pioneered in this area in building T.V. and a performance marketing mindset that we optimized. We’ve built a team with the knowledge and the tools to optimize T.V. marketing very well.
Skift: You mentioned earlier how important it is for hotels to consistently update their content, make sure that you have the most availability in terms of pricing and making sure their content is up to date. How much maintenance is it to manage trivago?
Thomas: I think from technology, this is an essential question: how do you ensure that the hotelier can still focus on the guest experience and making guests happy, and doesn’t have to study marketing for ages? Because it’s just extremely complicated. If you look at online marketing as it is today, it’s getting more and more complicated. And how do you actually want to realize that the hotelier with a very little investment, a few hours of investment, and then maybe a weekly 30 minutes or so, can manage marketing. And that’s what we want to achieve. And with today, it’s already running on autopilot pretty much.
If we look at our marketing tool in the trivago Hotel Manager, it is too big to be automatic. We are building the connectivity to the hotel’s technology provider. And then we go to the hotel and ask how much does it make sense for you to invest per month. And to trivago, the hotel invests the money, and we are doing things like figuring out which countries to buy traffic, which is the next cheapest and best converging place that he can get. These are very sophisticated decisions that we know how to do in our performance marketing channel. This is when we take the knowledge and do that for the hotelier.
It’s actually extremely easy. We see that hoteliers don’t need to come every day, finding CPC, changing budgets, switching on market, switching off market. That’s something we have simplified.
Skift: For those properties that may not have that marketing acumen to manage CPC campaigns and would prefer to connect by CPA, and want to be on the trivago marketplace, is that an option?
Thomas: No, that’s not an option. And that is exactly the point where we say, we are not the distribution channel, we are not an OTA. We are a marketing channel. And that is something, yes, the more painful way to go, we could make it easy for us and say, we put everybody on board on CPA. But we think this is the easy route, and not the most sustainable route because you need to get the hotelier to think about his website. Whenever he will do a CPA you cannot send him to your website. You have to send him to a facilitated booking environment.
So, when you send him to your website, you need to make sure your website is in shape, and you have proper technology that has good content and really that is the pressure needed and the hotelier really takes care about his website. And by explaining the CPC dynamic, and saying, we sent you the visitor, for your application to give him a good experience, and providing a good setup, and a good user experience. And that is what you need to provide to convert this user. That’s part of the reason we want to put in an incentive to get your direct channel in shape and not go the easy route where we act like an OTA.
We recently launched a Deep Dive into Facebook’s Impact on Travel. Below we follow up with Christine Warner on some new things that have transpired since then.
CHRISTINE WARNER, TRAVEL HEAD OF INDUSTRY, FACEBOOK
Christine Warner serves as the travel head of industry at Facebook. In this role, she leads operational excellence, revenue growth, and product strategy to help travel marketers capitalize on the shift to mobile. With over one billion people on Facebook and Instagram every day, Warner’s team partners with the world’s largest travel brands to empower connections that drive business results every step of the journey across every device.
Prior to joining Facebook, Warner was the west coast director of a Viacom digital marketing team. She also developed advertising partnerships for Viacom in New York for five years. Warner launched her career in finance at NBC Universal and holds a bachelor’s degree in business administration from the University of Michigan.
Skift: We spoke to Marriott and they gave us some pretty staggering ROI numbers for Facebook Dynamic Travel Ads. In our Facebook Deep Dive, we spoke at length with you about these ads broadly, but we wanted to follow up on this. With Marriott, the ads were designed with them and they have a massive ad budget compared to smaller hotels. Are you seeing similar success from smaller hotel brands so far or is much of the ad spend so far from larger companies with smaller ones experimenting? Outside of the US, what is the progress on gaining traction with hotel brands? It seems that with the international landscape being so fragmented, Facebook should do quite well.
Warner: We’ve seen large and small hotel chains alike adopting Dynamic Ads for Travel because of the ability to drive bookings with strong ROI. This is something our COO, Sheryl Sandberg, has spoken about on earnings calls in the past.
However, the ad product can be most effective for hoteliers that have large catalogues within their portfolio of hotels. Dynamic ads for Travel allows these brands to upload their entire inventory, and then dynamically serve ads to travelers based on the specific parameters of destination and time. While effective for any hotel chain, we see the most efficiency gains for those hotels with larger property catalogues.
Dynamic ads for Travel is available to hotel brands around the world on Facebook, Instagram and the Audience Network. We’ve seen adoption of DAT globally from large and small hotel brands.
Skift: The OTAs and hotels have somewhat of a public battle for bookings, but at the same time, the hotels also need to compete for occupancy. Given that you partner with OTAs/metas along with hotels, how different are the OTA/meta ad campaigns versus the hotel ones in terms of strategy and targeting/retargeting and success?
Warner: Of course strategies vary brand by brand and company by company based on business objective – but the beauty of Dynamic ads for Travel is its ability to retarget travelers who have expressed interest in your property based on parameters the brand cares about. And the end goal will always be the same — to drive bookings. This strategy is consistent across OTAs and hotels.
Skift: With Facebook, you have a unique value proposition where you are not competing for the booking, but acting truly as an advertising channel more akin to television or display ads on digital versus metasearch and Google where the hotels have to compete with OTAs on those platforms for the booking. When you are working with independent hotels with limited marketing budgets, what are the key selling points Facebook uses to gain share of ad spend? Of course, there is the reach of Facebook and retargeting capabilities, but are there some more subtle advantages for the small hotelier?
Warner: When we talk about the value of Facebook and Instagram with any industry – not just travel – the conversation always begins with mobile. The consumer shift to mobile has been unprecedented — unlike any major technology adoption we’ve ever seen before. And as a result, brands are still racing to catch up to the new expectations and demands who live in a mobile-first world.
Facebook and Instagram present a powerful opportunity for all brands when it comes to this mobile opportunity. 1 in 5 mobile minutes are spent on across these two platforms, which means marketers can reach people where they are spending their time.
After establishing the power of mobile – we can then talk about advertising advantages like delivering personalized messages to the right audience at scale, and being with your customer every step of their journey down the funnel.
But beyond these advantages, when we look specifically at dynamic ads for travel – this tool enables independent hotels to identify potential travelers that have specifically expressed interest in their property. This capability offers a unique value proposition to Facebook – engaging directly with travelers who have proactively raised their hand, expressing interest in your property.
The last advantage I would call out for a smaller hotelier ties back directly to the mobile opportunity. Mobile has opened the door for smaller, more nimble brands to take full control of the experience they offer their customers. This includes within the advertising they create. The beauty of mobile is that it levels the playing field in a sense — offering brands with smaller budgets the ability to create meaningful, powerful advertising content directly on this device, to reach people on Facebook and Instagram in a personalized, relevant way.
Skift: Since we spoke, Facebook has rolled out City Guides, which lets users book restaurants, hotels, and things to. In many ways, it seems comparable to an in-app metasearch platform. First, are you seeing much in hotel interest coming through this feature or is it more about in destination things to do? Second, if a user clicks a book now feature or goes to the website, does the hotel or restaurant pay a CPC for the click as it would with other ads? Finally, any broader comments on City Guides would be great.
Warner: Right now, we are still in very early days with this feature.
We’re testing a redesigned surface on city Pages that showcases information about your city. This content already exists on Facebook, and during this test we’ll be centralizing it in a way that is more personalized and relevant to potential travelers. So, this new feature can help people get a better sense of their city, or a city they’re visiting through their friends’ eyes.
One important call out however is that we are not offering the ability to make a booking directly via Facebook. People are pointed to the brand’s website to make any bookings through this surface.
Skift: Do hotels that advertise on Facebook push much in the way of discounted rates or additional amenities for booking direct on Facebook ad platforms or is the focus much more visual and about attracting guests to the hotel and brand in general?
Warner: We encourage our travel marketers to approach our platform with an open mind and a willingness to test, learn and adapt based on insights gleaned throughout a campaign.
With that in mind, travel advertisers are running a range of creative and offers on our platform – starting at the top of the funnel with inspiring creative to build interest and awareness for a property or destination, and moving down the funnel to the more tactical offering of ‘Book Now’.
Skift: Do you see more “book now” functionality on Facebook where the hotels and OTAs pay commissions on the booking versus a CPC-type cost or will the focus still be CPC or impression or any of the many action items on Facebook? I would think that conversion will improve with more booking action buttons and more experience on the platform by advertisers, which helps the clients and brings higher ad values to Facebook. What are your thoughts on this?
Warner: Our platform operates on an advertising model, not a revenue sharing model. This means advertisers on Facebook are enabled and encouraged to build their campaigns based on the business value they want to achieve — bidding on the outcome that matters most to their brand.
Facebook’s auction helps advertisers drive the right message to right person, at the right time.
Skift: What are some of the key challenges Facebook faces as it pushes more broadly into the travel industry and how are you positioning to overcome those?
Warner: As we look ahead to the rest of 2017, we’re focused on two big opportunities with our travel advertisers on Facebook and Instagram.
The first is the opportunity and ability to put the right measurement solutions in place in a mobile-first world.
From our research, we see that travelers visit 56 travel-related touchpoint before actually making a booking. And we know these touchpoints span a variety of devices – from mobile to desktop to tablets and back again. Legacy measurement systems that rely on ‘last click’ have swiftly become out of date for advertisers in this multi-device world. We’re focused on helping our travel advertisers understand the value of newer measurement tactics, like multi-touch attribution, to understand the true value of their advertising dollars throughout the entire customer journey.
We’re also focused on the full-funnel opportunity that travel advertisers can take advantage of on our platforms. While offerings like Dynamic Ads for Travel are ideal for lower funnel tactics that drive bookings, we know campaigns can be more efficient and effective when they begin at the top of the funnel – building awareness through mobile video creative and identifying relevant audiences before engaging lower down with direct response tactics. This is something we currently and will continue to talk regularly about with our travel partners.
OLIVER HECKMANN, VP OF ENGINEERING, TRAVEL, GOOGLE
Oliver Heckmann is VP of engineering for Google Travel, responsible for Google’s travel products including Google Flight Search, QPX, Hotel Ads, and Travel in Google Search. His total organization is about 300 people based in Mountain View, Cambridge and Zürich. Before working on travel, Oliver was a VP based in Zürich, leading the global YouTube Creator teams. And before joining Google in 2006, he was leading a research team at the Multimedia Communications Lab in Darmstadt/Germany. In 2004, he won an award for the best German computer science dissertation.
Skift: What are some things partners can do to maximize the chance of winning a booking on Hotel Ads?
Heckmann: Partners should provide customers an effective booking experience on the landing page which maximizes conversion. Additional, they should ensure their ads are complete and compelling, for example by testing and uploading effective callouts, brand icons etc.
Some tips for maximizing conversion rates:
- Eliminate steps: Help travelers fill out cumbersome forms and leverage tools like Google’s instant booking feature to make for seamless mobile booking – while still being the merchant of record.
- Anticipate needs: For example, put call-to-action for primary mobile activities front and center. And, make sure to pay attention to where your customers are located, and tailor your message accordingly.
- Optimize your website for mobile: We see that slow loading times are a primary reason that travelers do not convert – 52% of mobile travelers said they’d switch because a mobile site or app takes too long to load and 45% would switch if it takes too many steps to book or get desired information.
Skift: Why does Google feature booking options from a variety of partners?
Heckmann: It’s our mission to enable travelers to find whatever information they’re looking for, in a format that helps them to make quick decisions and move seamlessly from intent to action. To surface the best hotel information to travelers, we work with a wide range of partners for Hotel Ads, including both OTAs and suppliers on Hotel Ads. We intend to keep supporting both types of partners now and in the years to come – helping them connect with the right customers at precisely the right time during their travel planning journey.
Skift: Which parts of the product are organic and which are paid?
Heckmann: When it comes to Hotel Search, all of the essential information about the hotel, such as the link to the hotel’s website, address, phone number, amenities, photos, and review, is organic – or unpaid – content. The only paid placements are clearly labeled as ads – and these can be the promoted hotels at the top of the search results, or the Hotel Ads booking links.
Skift: What determines what companies are featured for the booking other than room price and bidding price on the click?
Heckmann: Hotel Ads booking links are ranking according to a variety of factors including:
- Quality score: incorporating a variety of factors, such as price accuracy that estimate the relevance and quality of the advertiser’s offer
- Room price
Industry Expert Insights
ERIK BLACHFORD, FORMER EXPEDIA CEO, CURRENT VENTURE PARTNER AT TCV PARTNERS
TCV partners with CEOs and founders of public and private growth-stage technology companies as they strive to achieve market leadership. TCV provides management teams with data-driven insights, sector expertise, access to world-class talent, and connections with category leaders. TCV takes a long-term perspective, committing substantial capital, time and internal resources to support and partner with our companies on their journeys.
Blachford was the president and CEO of IAC Travel, managing all of IAC’s travel assets including Expedia, Hotels.com, and Hotwire. Blachford joined IAC with its acquisition of Expedia, a former TCV portfolio company, where he served as president and CEO. In 1995 Blachford helped establish Expedia within Microsoft, where he led the creation of the brand as SVP of marketing; later served as the president of Expedia North America; and ultimately was named president and CEO in 2003.
Blachford has also served as executive chairman of Couchsurfing, a hospitality exchange and social networking website; as CEO of Butterfield & Robinson, a world leader in top quality active travel; and as CEO of TerraPass, a leading retailer of carbon offsets, consumer energy efficiency products, and green gifts. Blachford serves on the boards of several TCV portfolio companies, including SiteMinder, Varsity Tutors, and Zillow. He is also a board member of GlassDoor, Peloton, Choose Energy, and Liftopia.
Skift: It would be great to know how you look at the whole direct booking saga that’s been playing out between the OTAs and the hotel chains, and where you think it’s all going to go.
Blachford: That’s quite a question.
Skift: We don’t think it’s black and white, but, would love to hear your thoughts.
Blachford: Yeah, that’s really what I was going to say. It’s not just shades of grey, I mean, there’s just a spectrum that goes from black to white. There’s kind of two forces here. One is the consumer side, where there’s clearly ongoing demand for having all the different properties and their prices in one place. And you see that, just by the incredible traffic that goes through the OTAs and the metas, and so on. So, any hotel who decides not to participate is going to lose a whole lot of business.
And then, on the supply side, you’ve got a situation where the hotels have got a mandate to make sure that they pay attention to RevPar, but also the cost to fill the rooms is really important too.
And so, you’ve got this tension there between the hotels saying, “well, we want to keep costs down so prefer not to have to pay these third parties for distribution, but we also sort of recognize that we can’t really fill the hotels without spending time with the third parties. And so, we end up having to pay them, if we want that volume.”
That’s sort of the fundamental tension in all that. A lot of hotels would probably like it if consumers didn’t want aggregation, but they’d also like it if they didn’t have any local competition, right?
The tension there means that you can have situations where some properties don’t list on the OTAs because they’re full all the time and they just don’t need the distribution. Other properties wouldn’t be able to maintain any kind of occupancy if they weren’t getting a steady stream of demand from third parties. And, so they have to list and, not only that, their options will introduce better margins and better pricing so that they can get their rooms filled against their competitors.
Skift: Do you get a sense that OTAs are opening up in terms of data share with their hotel partners?
Blachford: It’s one of those things where I just don’t know that you can generalize like that. You just have all these different situations. There’s clearly situations where OTAs would be more willing to be more open with customer data. But there’s also plenty of situations where the hotels are going to feel like there’s never enough data coming back.
Skift: How much negotiation actually goes on at the individual hotel level? How much negotiating power do they actually have with the OTAs, or is it really just the big chains that have any leverage in terms of what data they get, what rates they get, etc?
Blachford: If its only game in town, which might be more of a destination type place, they are going to have a much stronger negotiating position than in an independent, crowded urban market that’s got pretty similar competitors all around. It really depends on exactly what the circumstances are. The big chains have negotiating ability on behalf of the different members.
Those deals often come down as hotel-by-hotel negotiations within some sort of a raw framework. Of course, chains are pretty anxious to show some sort of value-add, to their franchisees especially. And so, if they can figure out how to cap commission rates or margin or whatever it might be, they’re going to be trying pretty hard to do that, and that’s because they want to stay relevant for the hotel. If you’re a big chain, you don’t like the idea that the hotel might be able to fill even if your name wasn’t on it. That’s what’s scary to chains and would erode their business model. They’re trying to find a way of persuading the hotels all the time that there’s value, and that’s partly in negotiating with third parties.
You know, not to be too cynical about it, but there’s no question in my mind that some percentage of all this marketing around driving direct bookings, is a way of signalling down to the franchises that the chain still matters.
Skift: With the OTAs massive ad budgets, can hotels really compete on any click based channels like meta, Google, or Facebook?
Blachford: Not generally, I think you guys understand this, but the basic truth is that if I click through on a destination keyword to an OTA or a meta, the chance of my converting to one of the hotels that they feature there is definitely higher than if I click to an individual hotel because, that hotel is only got certain rooms available, whereas the OTA is going to have all the rooms in all the hotels available. So, it’s just basic math, right?
This means there’s more conversions and more margin opportunity, which is why the aggregators, pretty consistently since we started doing this way back when, have always been able to get down to at least match and usually outbid individual properties, unless those properties are willing to be uneconomic about it.
It’s just conversion math, there’s nothing magical about that.
Skift: Speaking of conversion, for mobile, you’ve seen mixed impact where TripAdvisor’s move to Instant Booking has a headwind because of mobile conversion, but at the same time, as mobile gets better for the industry, mobile conversion and CPC will go up, and the share of bookings on online travel sites should go up. What are your thoughts on mobile broadly and how it impacts the industry?
Blachford: Well, in the long run, you’ve got to assume that most booking ends up on some type of mobile. I think that the impact should kind of obvious, where if you are on a smaller screen, you can’t show as many properties.
Search becomes less important, which means SEO and SEM is less important and branding becomes more important where people use your app, or they get directed to your mobile website.
I think there’s a kind of demand generation change there, but I don’t think anybody really knows how that’s going to play out yet. And then in terms of conversion, it just seems to me that the technology’s still at a fairly early iteration. Clearly, metasearch as configured for a desktop, is not optimal on mobile with clicking and then being taken to some other mobile website experience, that may or may not be optimized. That’s not going to work in the long run.
Some flavour of server-to-server Instant Booking will be the way the mobile world ends up shaping out. I imagine it will be really seamless, before too long. And that mobile booking, whether you’re doing it server-to-server or whether you’re doing it through an OTA, probably is going to feel so similar. Hotel Tonight, is probably not a bad example of how easy and sort of well-designed online booking can be when you’re on mobile.
Skift: Do you think that TripAdvisor is doing a smart move with its focus on Instant Booking?
Blachford: I think anybody who is taking the mobile platform seriously has to take some type of instant or direct booking.
Skift: I’m kind of generalizing here, but typically for larger chains, we’ll see roughly ten to fifteen percent of bookings from the OTAs at the lower end, and then the European independents that are around fifty percent OTAs with the rest being a mix of things like direct web, group bookings, walk-ins, GDS, etc. If you look in your crystal ball, how do you think that distribution mix might change over time?
Blachford: Well, I guess I would say that for the smaller independent properties or any independent properties, they aren’t going to have the marketing budget, or the people-power to be able to stay top of the mind with their customer base. They are going to end up with more and more dependence on aggregators through mobile whether that’s OTAs or meta.
I think it just looks sort of academic. What’s going to happen is people are going to start to say, “well, if I need to book a hotel, here’s my go-to app, or my go-to aggregator”. Unless they’ve got an awfully close relationship with a given independent, it’s pretty hard for that independent to stay top of the mind. That’s particularly going to be true for new travellers.
You do have the people who go back to the same cities over and over, and they have a certain independent that they really like and if you do, there’s no reason that would change. But, in terms of discovery, I think it will become even more tilted towards the aggregators, partly because, like I’m saying, I think that the role of the search engines, and particularly Google, on mobile is just going to be less impactful than it has been on desktops.
Skift: There are so many booking platforms that are growing in terms of consumer adoption, but who do you think is best positioned to capture booking share? Is it Google, the metas, or the traditional OTAs?
Blachford: I think that they have a false distinction. Consumers are going to go to the place where they can get a good view of all the rates and availability and they feel like they can make a booking quickly, easily, and in a trustworthy environment. I don’t think consumers particularly care if it’s an OTA or a meta, or Google searches off to a website.
Those distinctions are more internal industry distinctions, because we tend to think in terms of what happened on the back-end, but I don’t know that a lot of consumers particularly care whether they’re booking on Booking.com or Kayak.
Skift: Regarding, alternative lodgings, it seems like the big online players will put more of that inventory on the main OTA sites, where eventually, someone may be more likely to be searching for lodging in California instead of hotels in California. How does that impact the hotel’s ability to compete for bookings?
Blachford: I think you’ll probably see a big push to try to put all the inventory in one place, because that’s easier for consumers. If one player gets that right, then that makes it incumbent upon everybody else to get it right and it won’t be long before a lodging display that only has hotel rooms is going to feel incomplete to consumers. We might even be there already, but that’s, pretty clearly, where that’s headed.
Skift: There was one statement that Dara (CEO of Expedia) made at ITB Berlin, and he talked about how OTA commissions have gone down historically. Do you think that it’s a race to the bottom for the OTAs in terms of commissions or that is not the case?
Blachford: No, it’s just that the level of commission is, long-term, going to be set by the cost for a hotelier to fill their rooms to the occupancy they want, and unless some magic channel appears that makes it really cheap for hotels to fill their rooms directly, they’re going to keep paying OTAs.
And then travel agents, by the way, they’ll keep paying them whatever is economically rational to do, and I think we’ve got to be pretty close to that level already.
This might be different if there were hotel operating companies that had 35% market share. We’ve seen this play out very differently in the airline business, because it’s pretty hard to have an OTA, in air, if you’re missing one of the majors. So, they have huge leverage.
It is not the same with hotels. You can have a fine hotel product without one of the big chains, and most people won’t even notice they’re not there.
JEAN-LOUIS BOSS, CO-FOUNDER & CHIEF MARKETING & DIGITAL SERVICES OFFICER, FASTBOOKING
From the beginning, alongside the founders, Jean-Louis Boss has been a key player in FastBooking’s development, especially its digital business. A marketing specialist, Boss began his career in the marketing department of Reader’s Digest. He then took charge of overseeing statistical analyses at the Yves Rocher Group, where he rose rapidly up the ranks and became the director of international development. His experience with internationally renowned brands enables Boss to bring to FastBooking real client expertise in terms of positioning and online sales development.
FastBooking helps independent properties manage their sales and distribution channels. That includes the OTAs as well as paid search channels. Generally, paid marketing channels including meta, Google AdWords and Hotels Ads have captured a larger share of direct bookings, relative to organic search. That company’s data show a 20 percent increase in the share of revenue attributable to paid traffic versus organic and direct web visits, from 38 percent to 58 percent in the past two years. Google CPC plus the metas including TripAdvisor, Google Hotel Ads, and trivago are part of that paid channel mix. Changes in Google search results help explain this share shift from organic to paid as much of those premium clicks originate from travelers searching for specific hotels in specific markets.
Some hotels choose to break parity with the OTA providers and offer better rates on their own websites. This is particularly the case in Europe where, in the big markets, hotels are no longer beholden contractually to maintain parity. For hotels that break rate parity, mainly in Europe, 27 percent of online bookings were made direct on the website versus 12 percent with parity. For hotels with higher pricing, direct is only one to two percent. We asked about the impact that lower rates have on occupancy, and Boss noted that it would impact it unless the hotels already have very high occupancy and strong reviews and rank on TripAdvisor.
Within the direct channel (12 to 27 percent of online bookings), true unpaid direct is 42 percent of online bookings versus 58 percent for paid. Below, we see the breakdown of paid direct for FastBooking’s clients, based on 2,000 hotels in Europe and Asia.
Within the metasearch bucket, Google dominated, given the European focus of FastBooking.
For hotels, driving additional traffic through paid clicks can be more cost effective than the OTA channel where costs are 15 to 20 percent for FastBooking clients. Skift does not believe this implies that meta is “better,” but rather is a complement to the OTA bookings. If hotels aggressively push meta, the share would increase, but so would the costs.
Skift: Can you give us an overview of FastBooking?
Boss: FastBooking started in 2000. I am one of the co-founders of the company. We started the company with the concept of building a booking engine for independent hotels. Then, we did a lot of different activities to help the hotelier to increase the direct bookings on their own website. The company now is owned by Accor after being acquired two years ago. Today, we have around three hundred people at FastBooking. Three years ago, we were only one hundred fifty people so we doubled in the number of people working for FastBooking in two years since Accor acquired us.
We still focus on helping independent hotels to drive more direct business. This is our core promise. We offer things like a booking engine, channel manager, and connectivity with PMS and CRM systems. Everything is built in house. We also offer a suite of digital marketing services to help hotels be more efficient.
Skift: Since being part of Accor, how independent are you guys, because you’re working with other hotel groups that compete with Accor, so how does that work?
Boss: We are still focusing on helping independent hotels to drive more direct revenue and to be more efficient on their digital activity. We are a part of Accor now and are very active on the Accor Hotel Marketplace project where Accor added independent hotels to their website. It was one of reasons why Accor acquired FastBooking two years ago, but not the only reason.
Skift: Is FastBooking primarily focused on the European market?
Boss: FastBooking is based in two main areas. Globally, we have four thousand hotels working with us. Half are in Europe and half are in Asia. In Europe, the main market is France and Italy. In Asia the main market today is Japan. We also focus on Thailand, Malaysia, Singapore, and Indonesia.
In Asia, the kind of hotels are very different than in Europe. In Europe, we work with mostly independent hotels and don’t have a lot of groups of hotels. There are small groups, but not big groups. In Asia, we have many groups that may have forty to one hundred hotels.
Skift: Can you discuss how organic search has changed?
Boss: Globally, the revenue coming from the paid traffic including search marketing, metasearch, display, and everything else is 58 percent of direct bookings. Two years ago, in 2015, it was only 38 percent. There has been a huge increase of the part coming from the paid traffic on the direct bookings (due to the change in display on Google with organic below paid and meta).
Skift: What type of hotels are successfully able to break rate parity in Europe?
Boss: Qualitatively, the type of hotel would be trendier and have very high occupancy rates to begin with. Hotels that have a very good reputation and ranking on TripAdvisor for instance. We have many hotels that are very well ranking on Trip Advisor that have decided to have lower rates on their website and not to work too much with OTAs.
KURT WEINSHEIMER, SVP PROPERTY SOLUTIONS, SOJERN
Sojern is travel’s leading data-driven performance marketing engine. Currently one of the fastest growing travel tech companies, Sojern works with top travel brands and independent hotels in North America, Latin America, Europe, the Middle East and Africa, and Asia-Pacific.
With more than 15 years of experience in online travel commerce and media, Kurt Weinsheimer is a veteran in travel demand generation. At Sojern, Weinsheimer leads the company’s property solutions team, charged with driving online bookings directly to hotels worldwide. Prior to Sojern, Weinsheimer served in executive and leadership positions at Netpulse, Spot Runner Inc., Cendant Travel Distribution Services, WorldRes.com, and Patagonia. He was also founder and GM of the hotel division for Orbitz.
Skift: What type of data is withheld from the OTAs to your hotel clients, and do you think there’s going to be more data sharing going forward?
Weinsheimer: I think that this has been one of the challenge points between the hotels and the OTAs as far as that data-sharing and customer ownership. In fact, I think some of the OTAs used to share more data than they do today, so we have not seen any increase in data-sharing, we’ve seen kind of a decrease in data sharing.
I was actually talking to some clients in Dublin last week, and what they’re getting is first and last name, dates of stay, total rooms, and room rate. They’re no longer getting email, address or phone number. So, it’s up to the hotel when that client shows up, to try to get that customer information, so they can build a relationship with them.
Skift: We have heard from one smaller hotel group that they may not get an email address, but do get a type of booking.com equivalent email address that they use as a proxy. Is that common, or is that more of like a one-off type thing that they’ve arranged?
Weinsheimer: You know, I don’t know, I haven’t heard of a lot of guys getting that, so that may be something that the bigger players are getting. When we talk to the independent hotels, they don’t seem to be getting a lot of information, but there’s the desire for it.
You guys may be getting different information from certain partners that are able to negotiate certain deals.
Skift: In terms of direct booking, there’s no real clear definition of what it is, so for your clients if they generate a booking that came through metasearch or Google AdWords, where the booking takes place on the hotel website, but they had to pay a commission or other click-based acquisition cost, do they tend to view that as equivalent to an OTA booking, as indirect or do they look at it as a direct booking with marketing cost?
Weinsheimer: Our clients tend to look at that as a direct booking with the marketing cost. So, if it’s coming through their website, if it’s coming over the phone, or it’s a walk in, if you will, those are all tagged as direct. Whether they paid marketing expenses or partnered to get the client there is a different thing.
Skift: It would be great to understand how Sojern sees this issue of direct booking and these so-called wars between OTAs and hotels. How do you guys approach the topic when you’re talking to your clients?
Weinsheimer: I was just at ITB last week, and it’s like, “Book direct! Book direct! Direct bookings. Do you want more direct bookings?” You know, it’s pretty much the only thing that people are talking about.
It has also escalated by the focus of the chains really pushing hard with their marketing dollars with the stop clicking around campaigns and the incentives to loyalty members. The chains tend to lead a lot of this and so their big push for direct now has a lot of the smaller chains and independents wanting that too.
My view is that, and this is what I tell hotels, you should be taking a kind of portfolio approach. I think you need to understand all the value of the different channels that you’re utilizing, because the OTAs actually do drive a lot of value. and they can fill rooms. They can bring a lot of travelers. They’re spending literally billions of dollars a year in marketing and attracting travelers, and a lot of those travelers are people that the hotel would not be able to market to on their own.
So, there’s definitely value that the OTAs can bring. I think it’s more understanding the balance of your portfolio. We’ve got a number of hotels that are looking at their non-corporate group bookings with 50 to sometimes 70 percent coming through one or two OTAs, and what they’re seeing is they’re starting to lose control of their pricing to a certain extent, because they have to be competitive within this mini-market, if you will.
Second, as you noted before, they are losing control of the customer. They don’t know much about the customer when they’re coming in to the hotel before they get to that hotel, and therefore losing control of that customer experience.
Third, it’s a lot easier to plan for a customer’s needs if you know who’s coming and when they’re coming. Hotels want to have the ability to email customers and ask them if they have preferences.
And then last is just that cost. It can be pretty costly to actually drive a lot of demand through a third-party. So, that’s where the challenges are really coming in.
Skift: You mentioned a 50 to 70 percent number, is that for leisure travel? Also, is that your sense for the U.S. market or globally?
Weinsheimer: It really depends on a couple things. I think this is one of those areas where you can kind of hit the average and miss the target. I don’t think average is really telling you much in this. What we see is that there’s a higher dependence on the OTAs in Europe. From our clients, this is more the anecdotal data, they’re saying it’s anywhere from 40 to 60 percent of their bookings from the OTAs.
In the U.S., it is from 25 to 40 percent of bookings coming through the OTAs.
You’ve got to remember there are a lot of hotels that still have a fair bit of walk up traffic, believe it or not, and a fair bit of Phone business.
Skift: How does it vary by type of hotel?
Weinsheimer: I’ll talk to some high-end luxury brands and they’ll have only five percent coming through OTAs. They’ve got a really strong, exclusive brand with a very loyal customer base. They work very hard on marketing themselves as a unique experience, but, that’s definitely the exception to the rule.
Skift: For the large chains, what’s your sense of the percentage of booking that comes through OTAs for them?
Weinsheimer: It can be a little bit lower. Because, for the larger chains, they’ve been very aggressive in driving direct bookings. They’re spending tens of millions of dollars trying to drive direct. They’re pushing very hard on their loyalty programs to balance that out, to kind of push back a bit.
Skift: Turning back to Sojern, can you talk about the Rev direct product for property solutions, and what you’re doing with your clients to push direct bookings?
Weinsheimer: When we’re talking to hotels, and specifically talking to independent hotels, I think the biggest challenge that we see clients running into are kind of two-fold. One, they don’t have the consistent marketing budgets you need to drive direct demand in today’s environment. And then, the second thing is they don’t have the expertise.
In today’s online world, it’s a data-driven marketing game and we’re a data-driven performance marketing company here at Sojern. It’s not just about the data, but it’s what you can learn. So, the way online advertising works now is the more you do it, the more you know. The more you know, the better you get.
And so, if you don’t have a consistent marketing budget, you are not consistently online bidding in programmatic, online in the meta-environment, it’s really tough to be competitive. It’s really easy to light a thousand-dollar log on fire if you do search poorly where you can get a lot of clicks, but nobody converts.
And so, I think the points that we’re taking is we’re saying, look, let us bring the latest and greatest in performance marketing technology, whether that’s platforms to optimize against search, platforms to optimize against display programmatic, and then also bringing those so that we can bring audio to some target people across desktop, across mobile, across tablet.
What we’ve done is we’ve kind of flipped the ad model on its head. We actually charge a commission for any bookings that are driven by the marketing that we do. But, those bookings have to happen on that hotel’s website or on their mobile website. So, they’re all direct driven bookings, but there’s no concern about marketing budget. You get to pay it as a variable cost after that user has stayed. So, that’s really kind of the approach that we’re taking in order to allow hotels to be more competitive in the online demand market and drive more direct bookings.
Skift: It sounds like more of an acquisition model that you’re running. What’s your target hotel that you tend to prefer to work for?
Weinsheimer: The majority of the hotels that we work with are independent hotels, but we also are working with some properties at the property level.
There are a couple things that we look at in order to determine if we can help the hotel. One is their online presence. So, do they have a website that converts? Do they have a mobile experience?
The way our algorithms work is if you’re not driving conversions, it changes. So, you need to be able to figure out how to actually drive conversions. We look at the standard online conversion and user experience for that hotel site and then, we look at, to a certain extent, the number of rooms and their ADR. Are they able to generate enough revenue and traffic? What are their TripAdvisor reviews, etc?
Skift: When you are doing these campaigns, how much of the budget is Google versus Facebook versus traditional metasearch?
Weinsheimer: Yeah, so today we work mainly in search and performance display, so we’re not so much on the meta side of things. Its basically 50-50 between search and performance display, so the performance display is running across thousands of websites, including things like Facebook, etc., so that’s kind of pretty diversified on the search side. The majority of it is AdWords and in certain markets, you’ve got players like Bing that are still 20 to 30 percent of the market, and they matter. But, in general, AdWords really is the most dominant player in most of the major markets.
Skift: Can you elaborate more on the performance display side?
Weinsheimer: When you look at performance marketing, there are two pieces to it. One is what you look at as what we call prospecting and then the other is your targeting, so the whole idea around performance marketing is, can you get your ads in front of people that are intending to travel? And the way that works is we’re capturing millions of real time searches and bookings online.
So, we’ll see people that are searching or booking airline tickets, hotels, car rental, etc., and we’re capturing that real-time data, and we’re turning those into traveler profiles and audiences. And then, we target those audiences.
I’ll give you an example. If you just booked an airline ticket on American Airlines from New York to San Francisco for May 20th for two nights, a one-person, business class, we know when and where you’re traveling, depending on the dates of travel, if it’s a single person mid-week, we optimize to more of a business traveler versus leisure. And then, through the algorithms and targeting, we’ll start showing you offers in a desktop or a mobile environment.
Skift: On the acquisition costs front, our understanding is that small hotels pay as much as 20-25 percent commissions to the OTAs. Is the effective acquisition cost by partnering with Sojern comparable or lower?
Weinsheimer: Yeah, so there are a couple things. One is, I think in the end you’re looking at a cost that will be equal to or a bit lower to what they’d be spending from an OTA standpoint, when they really drill down and look at all costs incurred. So, I think you’re probably looking at slightly lower, but the idea is typically a higher booking value.
One thing to note is that a booking that a hotel gets on its direct website is going to be greater value than what they’re getting through an OTA, because, typically, the rooms that are being marketed most broadly from an OTA standpoint is a standard room. When a user is booking on a hotel’s website, there’s a broader opportunity to book a suite or upgrade the room in some way.
MARTIN SOLER, MANAGING PARTNER, MARTIN SOLER CONSULTING
Martin Soler runs his own consulting firm that works with company founders and management to build reputation and brand awareness. According to Soler, what drives him is marketing hotels and travel tech startups using great graphic design, communicating clear selling points, understanding large amounts of analytics, deciphering buying funnels, and measuring ROI.
Skift: OTAs traditionally have owned the customer data while metasearch provides it to the hotels. Do you believe that this makes hotels push more for metasearch bookings versus OTAs or does the OTA dominance of metasearch results mitigate that? Do you see more data sharing from the OTAs and hotels in the future?
Soler: While it is a fact, hotels have not been tremendously efficient at using the data, the odd email and promo does drive revenue but there is very little in terms of actual efficient marketing. Many hotels recuperate the data on check-in so I understand the debate with “who owns the client” it is more of a theoretical debate than reality. I do think OTAs are going to be sharing more data because I don’t think it is that important. The issue for OTAs is when hotels email the client to cancel the booking and re-book direct which is understandable. If OTAs share the data post-stay it doesn’t mean that big a difference for them. Their brands are still a bigger reason why people book there than directly to hotels.
The push for metasearch is more about decreasing dependency and some (though not huge) cost saving. The worry from a hotel side is more about not being totally dependent on a duopoly but diversifying their distribution and keeping control over it.
Skift: If you had to wager a guess, what percentage of hotel bookings are direct versus through an OTA in the hotel industry? When hotels look at what is considered direct or not, would metasearch click-through driven booking count as direct with the spend being marketing dollars or would that count like an OTA non-direct booking? What about Google AdWords or Facebook?
Soler: It’s quite different depending on the regions. I believe the U.S. chains have a much higher percentage of direct than the European independents. In the U.S. chain world, I would guess it is more like a third, but it is reducing every year. On average, in the independent and EU hotel space it is around 15% direct, (general rule).
Paid search is direct, essentially direct is divided into two sections, hotel website (paid or non-paid) and the broad category of phone calls, walk-ins, emails, regulars etc.
Paid search costs are growing every year which means the cost of direct is growing as well, in many cases metasearch is no cheaper than OTAs. It does comfort the hotels to know that it is a separate channel which they can control. If all their distribution is outsourced to OTAs, they risk the obvious raised commission costs and fees that will be added as has traditionally been happening on all major distribution channels.
The uncomfortable part of paid direct revenue is that they need to pay for it upfront whereas with OTAs it is a “low risk” distribution since they only pay for what has been sold.
Skift: When you hear words like booking war getting thrown around, what do you think of this? To us, clearly direct booking is better all things equal, but the real booking war should be between lodging providers for the guest and loyalty versus the booking method where there are hidden costs on direct like employees, advertising, etc…?
Soler: The “war against OTAs” is a phrase mainly used by hotel associations and direct marketing service providers. In reality, most hotels are quite happy to work with OTAs, but there is a concern that OTAs are quite aggressive and taking more and more market share every year. It is essentially a duopoly between Expedia and Booking.com which means they can do what they want with the distribution costs and it will negatively affect hotels.
Hotels understandably don’t want to be entirely stuck with just two major players.
But in the end, it does nothing for the guest, who really couldn’t care less about where they booked and just want to get the best deal in the easiest way possible. OTAs have been much better at that.
Yes hotels should be spending more time trying to gain guest loyalty by optimizing the guest experience rather than spending so much money trying to increase their bottom line.
Skift: What can hotels do to increase the amount of bookings that come direct?
Soler: Really the most efficient solution is also the one that OTAs dislike the most (because it is so efficient) and that is giving a better price for direct bookings. If they can’t do that, they need to find other ways to give perks to guests for booking direct. There is very little they can do in terms of pure advertising or marketing or booking funnel design. These things will always be much more efficient through an OTA.
There is however one deal that should be cut between OTAs and hotels which is that acquiring a new customer through an OTA should cost the hotels more, whereas repeat guests should cost the hotel less and OTAs shouldn’t be advertising on hotel names.
In just about any industry advertising on someone’s brand name is a legal offense. A reseller of Hermes goods will need to work extremely hard to get the right to use Hermes’ brand. Yet in the hotel industry, it has become the norm that OTAs will advertise on a hotel’s brand name – which is the keywords that generate the most revenue.
Big chains have a large enough legal team to police that, but the average hotel can’t and so needs to try to outbid the OTAs on their own brand.
Of course the OTAs and particularly Booking.com is taking great advantage of this including all types of spelling hacks to ensure they can go around any restrictions set by the hotels. But behind that there is an issue that the search engines have facilitated this and they’re making a lot of money on it. This mainly becomes a problem for the smaller hotels while the bigger ones have the resources to fight it (somewhat).
I’ve heard rumors of some OTAs doing IP exclusions on their ads so hotels can’t see that they are bidding on their names and so forth, I hope these are just rumors. If true, it is these practices that give OTAs a bad rep.
Skift: What are some of the best practices for increasing brand loyalty?
Soler: Amazing service and word of mouth. From a survey I did a few years ago of over 20,000 direct reservations, almost 40% of a hotel’s direct bookings came from word of mouth, between reading reviews on TripAdvisor and friends and family talking about the hotel.
A hotel’s most important asset is how well they can take care of the guest and make them want to come back or refer a friend. So, while point systems and cash rewards obviously help and there are new systems for independents such as Wanup that will help that – hotels need to focus on wowing their guests. The Library hotel group in NYC does an excellent job at that and as a result, they excel at direct bookings. But their focus isn’t about how to make direct revenue, it is all about how can they make their hotels the best guest experience in the city (and they have a pretty tough competition).
Skift: What types of bookings are best served by OTAs versus hotels versus facilitated by metasearch?
Soler: Both are quite similar and both are great methods of acquiring new guests who haven’t heard of the hotel before. Both OTAs and metasearch are great at discovery. Metasearch has a percentage of brand comparison as well, but I would put both these in a similar category of client acquisition.
The return bookings or word of mouth bookings are best served on direct channels as they are made because of the hotel’s great work.
Skift: What are some of the most common advertising mistakes both on the content side and on the optimization that hotels make?
Soler: It is hard to categorize these without going into micro-details of how to manage a retargeting campaign for example. But I would say the biggest mistake hotels do is not clearly creating an identity for their hotel and then unashamedly going after their segment. Today, most hotels still try to please every guest type with all room types and keeping things quite bland. This makes their advertising quite boring and the advertising then is only about price.
In online marketing, the most basic mistake most hotels do is not outbidding the OTAs on their own brand name and registering their brand name in their major markets to restrict how much advertising OTAs can do on their name.
Skift: How would you compare the ROI levels of Google vs Facebook vs TV..what are the ranges on each?
Soler: I don’t have accurate data on all three them, but Google AdWords ranges at about 12-15X (when protecting the brand) Facebook I believe is at around 3-4X, metasearch is between 5X to 10X depending on rate strategy. On TV, I have no data unfortunately.
Skift: Can you offer your broader advice to the hotel industry on how to best drive direct bookings, thoughts on some of the large ad campaigns, how the OTAs and hotels can best work together, and anything else you think is important?
Soler: I think the push to book direct has been exaggerated in that a lot of resources are being spent for something that does not help the guest. My advice for hotels would be to work with OTAs on how to distribute the cost of acquisition whereby hotels would pay higher for new guests, but much lower for return guests. Several hoteliers have already proposed this before but in this way, we can all focus on doing what is best for the guest rather than just best for balance sheet.
Skift: Given the massive ad budgets at the OTAs, where should hotels push ad spend? We see Google AdWords as a losing battle, but more specific terms being won (i.e hotels in NYC vs. boutique, trendy hotel in Tribeca).
Soler: Today most of the ad budgets go towards protecting brand as that also has the highest return rate. For broader keywords such as boutique, trendy hotel in Tribeca, the cost per click is still quite high and the conversion rates are rather low, because people searching for those terms are still looking for choice rather than looking to finalize. If one can serve multiple hotels it can be profitable, but single hotels are hard to advertise that way.
In other words, it is a little early in the funnel in most cases, for that stage I would use social media which has a much more visual medium and thus easier to convey emotion. Besides through social media it is also much easier to target specific lifestyle and age groups and thus more relevant. Using search only for the final stages of the conversion.
Skift: Any broader thoughts you would like to share on direct booking?
Soler: I think I have covered most above, the main point as I see it is hotels need to have some diversification of their distribution channels even if the costs are the same or similar. It is too risky for them to have all their distribution managed through two channels that control the costs.
But it needs to be done in a way that it will help the guest rather than distract everyone from the real job of hotels which is to deliver a great stay to their guests.
TONY LOEB, CO-FOUNDER, VP SALES & MARKETING, EXPERIENCE HOTEL
Tony Loeb started his career in hotel marketing in 2001 as a simple webmaster and quickly became the technical director of a web agency specializing in the hotel industry. During this period, he was managing marketing campaigns for several hundred hotels around the world with the sole aim of increasing their online reservations and lowering their commissions.
In 2014, he co-founded the company Experience Hotel with the goal of solving the “after reservation” part of the stay where there was a real technological lacking in the marketplace. Since the creation of this new company, he continues to grow the Experience Hotel solution by improving automation and customer relationship optimization tools from the first reservation to customer loyalty.
Skift: Tony, maybe you could just start by giving us an overview of Experience and your overall footprint.
Loeb: Experience Hotel is really a guest relationship management platform. The idea is you have many, many companies which are working on bringing you customers. Our job is to transform a new customer to a routine guest. That’s where we’ll be working and to do that, there is three major steps that we need to work.
First, is to have a place where we can centralize and gather all information about the customers. I’m sure you are familiar with the email problem that all independent hotels are facing. There is between 30-50% of email addresses which are missing in PMS. It’s really a big problem. So, that’s a first thing we’ll be working on. And once have all this information, our second step will be to provide an amazing service and guest experience. And to do that, we will first of all get in touch with every guest about one to two weeks before they arrive, based on different things, different factors, and trying to know the guest, anticipate all his needs and everything he could need.
So then, when the guest arrives, we will have a digital check-in form to help him check-in quickly. We’ll have a little follow up with various tools during the stay. Then when he will leave, we will ask him a complete overview and a complete survey about the experience. That’s including of course the hotel, but also things nearby like shops, activities, museums, and restaurants.
Then once all these steps are done, then we will enter in a fully automatized system, which basically will take every guest, analyze their behavior, profile, what they like or do not like, why they came, with who they came, and how often they’re coming back to the city. Then they will start to receive automatic email every one or two or three months, depending on the hotel setup, to transform him into repeating guest.
That’s basically a very global overview of what we are doing.
Skift: It sounds like you’re very focused on collecting guest intelligence and really trying to use that information to convert guests into loyal customers. The context of this report that we’re focusing on right now, is very much focused on direct bookings and what makes a healthy distribution strategy.
Can you talk a little bit about why there’s this gap in terms of 30-50% of email addresses being unavailable at the PMS level? Is that because of the channels that customers come through? If it’s indirect, coming through OTAs, and just the lack of information that hotels get from those bookings?
Loeb: Yes, you are completely right that it is depending on the channel. If the guy came from Expedia, then clearly you have nothing. If he came through Booking.com, you have a temporary email address that you can use to communicate with for just a certain amount of time. So, that can be a problem. If he came direct, yes for sure you have it.
Also, a big problem that we are facing is how much the front desk will not enter this information in the PMS. A classic example is there is a guest that sent an email to the hotel. It still happens, not a lot, but it still happens. And we say, “I would like to book for the 27 of March. Arriving 27, leaving the 29.” Then the front desk will answer, “Sure, we have availability, here is the price. Okay, your booking is confirmed.” He will enter the booking in the PMS without the email address. That’s another issue that we are facing.
Then another much more important issue is, if you have a double room, there’s a 90% chance that two people will arrive and sleep in it. But in the best-case scenario, you will only get one email, which is the guy who made the booking. You will never get the second email except if you really have a process, an internal process, to take it and the check-in, or when you connect on the wi-fi or anything. If you don’t have this internal process, then you’re basically missing much more than 50% of your email addresses.
Skift: You mentioned OTAs, and Expedia and Booking.com, and what information they share. Can you give us a sense of which OTAs tend to be better at sharing guest information compared to others? Is Booking.com better than Expedia?
Loeb: I could say that at the least Booking is giving you a temporary email address, which is better than just giving you nothing. Today, we see more and more OTAs not giving the email address. It’s been 15 years I’m working with independent hotels, so of course I will always be on their side, but I can completely understand why Expedia, and why Booking, and why all of OTAs are not giving the email address anymore. They know that by keeping it, the guest will turn loyal to them and not to the hotel. If the guests are loyal to Booking, the next time he wants to go back to New York, then he will not go back to the hotel\. He will say, “Booking is sending me email everyday. Well I’ll just check in there, they have a good opportunity now.”
I will give you another very concrete example, that for me it’s a shock. Expedia created its instant review process where you make the booking through Expedia, then you check in at the hotel, and then Expedia immediately send you a little survey. “How was the check in, was the hotel good?”
But this, even if Expedia is trying to give good services, it should not be done by an OTA. It should be done by the hotel. Because what’s happening, the client receives that, he answers, and then in his mind, the guy he needs to talk to in case of any problem is Expedia, not the hotel.
Skift: You did a survey based on 108,000 reservations, can you share some percentages surrounding OTA and direct bookings?
Loeb: I can tell you that direct was about 20-25%. Almost 50% were coming from OTAs, and then were others, 25%.
Another interesting stat is that when you look at all your reservations and you ask your customer how they discovered your hotel, 27% of them will tell you ‘word of mouth’.
Skift: Are those stats for Europe or globally?
Loeb: Those numbers are for Europe, but you know in the past I’ve been working with many hotels in New York, in San Francisco, in Dubai, in Moscow, St Petersburg. When you are in a main city, those number are pretty much the same everywhere. But then it completely changes when you are out of city.
Skift: Could you talk a little bit about what the overall perception for strategies in terms of direct in distribution for boutique hotels and whether or not the needle is moving more towards direct bookings or more towards the distribution providers?
Loeb: I would say between three to seven years ago, it was really the age of direct booking. Everybody was talking ‘direct booking’, ‘direct booking’, and ‘direct booking’. But it became so big, that it started to cost a lot. Let’s be honest, if you want to have a beautiful website, you want to have your metasearch, you want to have your AdWords, then you want your emailing strategy, your retargeting, your price comparator. All these kind of tools, when they add to each other for boutique hotels, it started to cost a lot. Yes, you will get more benefit than a reservations commission, but not that much.
Today, the competition is much more difficult. So, that’s why we really see a change where they’re letting OTAs bring more reservations and continue to invest a bit on direct booking. After they will really try to catch the client when he’s here on the spot, and make sure that this client turns into a future loyal and direct guest.
About five years ago, we thought you should have 50% of your guests coming through OTAs and 50% coming through direct bookings. I’m talking about new guests here, I’m not talking about returning guests. That’s what we used to have. It was good average. But today, if you remove the returning guests, it would be more like 70% OTA. Then after, they will have more and more repeating guests. You can come back to the 50-50 we used to have before, but this is with repeating guests.
Skift: It’s a matter of swinging the needle back to direct by focusing on loyalty and targeting customers who’ve already come as a way to push back over to 50-50.
Loeb: Yeah, exactly. Also, we have seen a major change for corporate travel at boutiques. Before, it used to be a big thing where a hotel could say, “I have 30-30-30. I have 30 repeating guest, 30% corporate contracts, and 30% new clients”. Corporate contracts have gone down. The large company doesn’t care about the price per night, but only that the stay is within a given average price. However, it is different for the majority of smaller companies who will book between ten, twenty rooms per year in your hotel. If you have a flat price with them, in the high season they will book with the flat price; but in the low season, you will be cheaper on Booking.com or on your website, so they will book online.
This was a major change in the boutique hotel industry. They started to lose a lot of corporate contracts because of that, because corporates start to just book online. We now see a new kind of deal which is more adapted for corporate. You will not tell them, “Okay I will give you a flat rate throughout the year. I will give you 20% off my best online prices if you give me 20 or 50 nights per year.”
Skift: Is there anything else you would like to add?
Loeb: At the end of the day, a hotel’s reputation and ranking on an OTA is based on the satisfaction of the customer. The guest experience will provide you with satisfaction, that will provide you with better comments, higher ranking, and more people will discover your hotel because you are better ranked. More people will Google your name and you will have more people arriving at your hotel.
The guest experience is almost the future of SEO. This is what will make you go up on the website where people are going to search for your hotel.
Hotelier Distribution Outlook
Looking at the hotels’ prediction of how their distribution mix is going to change we see a particular peak in the digital direct channel. 82% of independent properties stated that they are looking to increase their digital direct channel, followed by paid click 57% increase, and OTAs 38% increase.
The channels where independent hotels predicted to see the largest decrease were traditional travel agents, 30%, and phone bookings, 23%.
A similar scenario appears with branded hotels too, with 83% predicting an increase in digital direct bookings, 62% expecting an increase in Paid Click, and 61% in OTAs. The largest decreasing channels were predicted to be traditional travel agents, by 49%, followed by managed travel agencies, by 41%.
Both independent and branded hotels felt like group bookings and GDS bookings were going to see no change at all over the next two years.
When asked about the ideal distribution mix, both branded and independent had digital direct in the 40% area, with phone bookings around 10%, and Paid click at 11%. OTAs were a major channel for independent properties, which in their ideal distribution mix had 25% of total bookings coming through them, compared to just 14% from branded hotels. Branded hotels, in their ideal distribution mix, relied more on GDS bookings as well as traditional travel agents.
When asked about projecting spending changes on certain online platforms there was a strong divide between independent and branded hotels. The latter ones were looking to increase spending more, particularly with Google, both on its hotel ads as well as its Adwords. Branded hotels were surprisingly also looking to increase spending with both Expedia and Booking.com.
When it came to independent hotels the top 5 platforms hotels were looking to increase spending were:
- Google Adwords (42%)
- TripAdvisor (34%)
- Trivago (33%)
- Google Hotel Ads (33%)
Of the independent hotels, 52% didn’t use Ctrip at all. Those who did projected no significant increase in spending on the platform.
Endnotes and Further Reading
- Global Business Travel Spend Topped Record-Breaking $1.2 Trillion USD in 2015, GBTA, July 2016
- Hilton considering cutting travel agent commissions, Hotelmarketing.com, March 2016
- Demystifying the Digital Marketplace, Kalibri Labs, January 2017
- Hilton Launches Its Largest Campaign Ever with Exclusive Room Rates Not Found Anywhere Else, Hilton, February 2016
- Hotel CEOs Aren’t Slowing Down Their Push for Direct Bookings, Skift, Febrauary 2017
- Marriott Strikes Back at Online Travel Agencies With Another Direct Booking Push, Skift, March 2016
- TripAdvisor Instant Booking Gets Very Personal, Skift, April 2017
- This Is How Hotels Could Win the Direct Booking Wars, Skift, August 2016
- Best Western launches Better Book Direct campaign, Travel Daily Media, March 2017
- Wyndham Hotel Group Unveils Multi-Million Dollar Marketing Campaign to Launch New Loyalty Program, Wyndham, March 2015
- AccorHotels CEO to the Hotel Industry: ‘You Have an Obligation to Be Bold’, Skift, August 2015
- Hyatt Hotels Is Replacing Its Old Loyalty Program With a Brand New One, Skift, October 2016