Small and independent hotels are giving resistance to online travel agencies (OTAs). These sites are being brought under investigation again by competition watchdog organizations with charges of price fixing.
Smaller Hotels Arming Up Against Online Travel Agencies
Major online travel agencies (OTA) have been on the spotlight over concerns regarding price fixing. Expedia, InterContinental Hotel Group and Starwood Hotels faced a lawsuit last year over price-fixing; and as more allegations come out, the French-based Union de Métiers et des Industries de l’Hôtellerie recently flagged the issue to the Euro competition watchdog Autorités de la Concurrence, citing possible collusion in existing prices.
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One of the major concerns over price-fixing has been a gradual and consistent rise in room rates. According to the Transport Research Institute, room rates in London have grown 54% over the last decade, while commissions have increased more than double over the same period of time. Price-fixing by major OTAs and hotel chains has led to a steep rise in commissions and a growing disconnect between the amount a guest pays and what the hotel receives.A significant amount of each room’s revenue goes to the OTAs and the amount keeps rising each year, which is why some hoteliers are challenging OTAs, and it is also one of the reasons the European competitive authorities are poking around.
OTAs have raised controversy before with accusations of price-fixing, with the most apparent indication being the identical prices set by hotels and OTA websites.
This may sound like a strange claim considering the way that we interact with OTAs. In our industry the hostels set the final selling price. The OTAs list our properties at that price and collect a percentage from the guests as their commission. In this case it’s perfectly normal that the price listed on the hostel’s website and the OTA would be the same. If the OTA chose to charge a lower commission in order to create a better price, we could simply raise the price for that site until they balanced again.
Another pricing model is the wholesale model. In this case, the property gives the OTA access to its beds or rooms at a low wholesale price. The OTA then chooses a commission to add on top, and displays a selling price at their discretion. Using this model, the OTA could chose to charge a higher, lower, or equal amount for a room compared to the hotel’s own website.
Does anyone work with an OTA that uses the wholesale method? Maybe in Australia where hostels rely more heavily on travel agencies for bookings?
The article defends the value that OTAs provide for hoteliers, saying that without them small businesses would have to focus more time, energy and money on promoting their own hotels.
Hotels don’t have the marketing power OTAs possess so they have good reasons for paring prices with travel agencies.
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The truth is without OTAs, smaller hotels would have to spend large amounts of money just to fill up their rooms; perhaps twice what they currently pay in commission. In order for them to sustain their business they would have to invest in better marketing strategies, build better websites, get involved in social media, SEO and a multitude of internet marketing avenues.
Well said, actually. Cutting out the OTAs entirely would mean eliminating a marketing channel that is simple to implement and easy to manage. It also provides an easy revenue stream that can be reinvested into additional marketing efforts. While the author may not have intended it this way, this list of suggestions could be taken as a roadmap for hostels to develop an independent marketing strategy to supplement and overtake the revenue from OTA bookings.
Some members of this forum have written many posts emphasizing the need for hostels to take control of their own marketing and put more energy into their own websites. As a lot of us head into the slow season, it may be the perfect time to shift some of our focus onto additional marketing.
Which area of marketing would you like to develop this year?
10 years
Many of us have plan to take a break and travel the world. However, some are not aware of price fixing issue. There was a case filed against major travel deal sites and major hotel chains regarding price fixing. The suit claims such online websites, such as Travelocity and Orbitz, are getting hotels to set price floors to to keep the public from getting the actual best hotel and travel deals possible.
10 years
Yes, OTAs will keep raising their prices just because they can. It is not advisable to rely on OTAs for more than half of your bookings. The main marketing channel should be entirely yours, and OTAs should only be secondary to fill up the rest of the rooms. But now, it is usually the other way around. It would be interesting to see a statistics about the rate of direct vs OTA bookings.
To increase the direct bookings of your hostel, you can do the following steps (based on the post above):
1. Develop marketing strategies that don’t involve OTAs
- This usually means that you need a website, and guests should be able to book there.
- Try to get featured in Lonely Planet and other guidebooks. I have seen still many tourists travelling with those.
- Build a brand name for your hostel, so people will search for it in Google. Besides, it is perfect for word-of-mouth marketing.
- Have a unique value proposition. Be the biggest party hostel or the most chilled hostel in town. Differentiate yourself in a positive way.
2. Ensure that you have a quality website
- Modern design, no flash
- Responsive or a separate mobile website
- Your own booking calendar (you can use pms like Bananadesk, commission-based own booking engine like Backpakeronline, or simply a booking button from Myallocator)
- Possible to use only a form, but then you have to count on no-shows
3. Get involved in social media
- Connect your website to all the famous social sites like facebook, twitter, etc
- Use facebook like boxes, twitter feeds and tripadvisor widgets to increase credibility
- Have an active presence on the most important channels: facebook, twitter and instagram
- Create viral contests, social media coupons and competitions
- Use social media buttons on your website
- Promote your facebook page offline in the hostel
4. Focus on search engine optimization (SEO)
- Optimize your website meta-tags and create a sitemap
- Use schema.org search snippets to help Google identify and categorise your site even better
- Create a blog and update with the latest news about events in your hostel or town
- Share the posts in all of your social media accounts
- Claim and update your Google Local Page
- Build links to your website in a Google-friendly way
- Ask your business partners and restaurants, clubs, etc in your town to exchange links and flyers
5. Seek out additional internet marketing avenues
- Press release
- Sister-hostels in other towns
- Flyer exchange
- Guest blog posting
- Video marketing
- Instagram marketing
When I created insta-hostel.com, the main goal was to help hostels decrease the dependence on OTAs by having their own marketing system. We can help in all of the things mentioned above, plus more. Please add your ideas to the list as well!
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