Hotels and Online Travel Agencies (OTAs) have a complicated relationship. Throughout time, and even more so with the arrival of the internet, this love-hate relationship has intensified due to the fact that most hotels would prefer to be free of the limitations and high commissions imposed on them by OTAs. However, OTAs invest heavily in marketing campaigns, which in the end benefits both parties. With that being said, many are left wondering whether or not hotels and OTAs can really benefit from direct booking campaigns. Read on to find out.
Recent studies indicate OTAs invest around 35 to 50% of their revenues in marketing. Hotels on the other hand, only invest 6% of their revenues in marketing. This is due to the fact that hotels have other expenses to take into consideration. Of the 6% that hotels invest for their marketing efforts, it is recommended that 75% of that should be dedicated to their online marketing cost as digital marketing is the highest traffic generator for their websites. Because of this, the relationship between hotels and OTAs become notably important.
This relationship works through a system where OTAs receive commissions for customers who book on their platforms. OTAs receive higher commissions from smaller hotels who don’t have much bargaining power and lower commissions for larger hotel chains.
The Shift towards Direct Bookings
Every business is looking for ways to cut costs. For large hotel brands, this means increasing the number of direct bookings on their websites. As a result, an increase in profit per guest is expected due to the fact that there are no commissions that have to be paid to OTAs. However, hotels have to take into consideration the fact that because of this shift, they will have to invest more in digital marketing to increase these direct bookings. Therefore, while there will be some level of increased profits from this shift, it is not as high as expected.
As for OTAs, it might look like a big loss but a closer look proves otherwise. Large hotel brands have a lot of negotiating power and are able to win the lowest commission OTAs can accept. By losing these low-paying clients, they will, in fact, increase revenues as they then focus on smaller hotel brands and are no longer forced to market large low-paying clients.
Is A Win-Win Situation Possible?
The question now is whether this shift can become a win-win situation not just for big hotel brands and OTAs, but for small independent hotels too. The answer there is yes. As larger brands shift towards direct booking, smaller hotel brands are given more exposure on OTA platforms as opposed to when they initiate their own SEO efforts. This, in turn, leads to increased sales volumes.
The win-win situation created here can only work if all parties see the bigger picture and act responsibly. Otherwise, OTAs and small hotel brands stand to lose.
If your hotel is looking to increase direct bookings, then Island Media Management is the right digital marketing agency to help you achieve your goal. We are based in Bali, Indonesia, an island with a highly competitive tourism industry. Through our expertise and experience, we can help you create the perfect strategy, implement it, as well as evaluate the result, leading to a higher ROI. Contact us now to arrange a consultation appointment.