By Suresh Acharya, vice president of product development, JDA Software
These are interesting times for the travel and hospitality industry.
Since the 2009 hotel price free-fall Advanced Daily Rates (ADRs) have slowly started to recover, yet hotels still face challenges when it comes to improving Revenue per Available Room (RevPAR) and occupancy.
At the same time that hotel prices went into free-fall, a new phenomenon emerged, a much greater reliance on OTAs for bookings as the latter saw opportunities in a sector promising higher margins.
Companies such as Expedia and Travel Republic appeared just at the right time to provide a much-needed incremental sales channel for the hospitality industry, offering rooms at attractive prices.
As such, the rise to prominence of the OTAs was a boon to an industry that had been hit hard by the global turndown.
However, move the clock forward to 2012 and while many hotels have reaped the benefits of working with OTAs, they also now want to regain control of their customer relationships and pricing.
Indeed, many hoteliers now feel that the rise in the number of OTAs has created an unsustainable model, where rate pressures continue to dominate, making it increasingly difficult to increase prices without risking driving away customers.
The reality is that the hospitality industry has very much a love/hate relationship with OTAs. The key lies in creating open channels of communication between the hotels and OTAs.
In the first instance, hotels need to set clear boundaries on what OTAs can sell and how they can sell. The key for hotels is maintaining control over their ability to act flexibly.
For example, targeted offers and promotions are key ways in which hotels can generate additional demand. Rate parity concerns, however, complicate the ability for hoteliers to expand similar initiatives.
For instance, if an OTA does not know that a hotel plans on delivering targeted promotions, they may be working at odds with each other, causing channel conflicts from a pricing perspective.
By providing clearer guidelines on initiatives that are customer segmentation specific, hoteliers and OTAs can arrive at a win-win strategy with each focused on their areas of core competency.
As the spheres of influence between OTAs and hoteliers get hashed out, it is critical that hoteliers do not lose focus on the one element they have full control over: customer experience.
Studies have shown that prices play a relatively minor role if ratings and customer remarks are not favourable. The proliferation of social media and sites such as TripAdvisor has put the focus back on the customer.
A happy customer not only has a better chance of being a repeat customer, they will be more likely to recommend the hotels to others. A hotel that has better ratings is also better positioned for favourable negotiations with OTAs.
The converse, unfortunately, is equally true – a hotel with poor ratings will always be at the mercy of OTAs. So ensuring a good customer experience is the hotelier’s best weapon in getting an upper hand in negotiations with OTAs.
The reality is that for the hotel industry today, OTAs are still an essential channel for demand generation.
In order for hotels to thrive, they need to work to ensure that the lines of communication between OTAs and hoteliers are open, and that the two are not operating independently of each other.
There can be a significant halo effect by encouraging hoteliers pursue a targeted customer-segmentation strategy. Likewise, hoteliers can raise their own profile by focusing on the customer experience.
By doing this, OTAs and hoteliers can develop a business relationship of benefit to all parties.