Suggestions from HeBS Direct for reducing dependence on OTAs

Here are some suggestions from HeBS Direct for increasing direct bookings and reducing reliance on OTAs.  

How Hospitality Can Heal Its Self-Inflicted Wound and Decrease OTA Dependency

The year of 2016 will be the first in which OTA revenues in the U.S. will surpass brand.com revenues in hospitality. The OTA vs. brand.com (direct online channel) ratio will dip to 51:49, compared to 46:54 back in 2012 (PhoCusWright).
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In addition, the above hospitality sector average is heavily skewed by the major hotel brands. For independent hotels – where the OTAs already control over 60% of online bookings, I would not be surprised if the OTA share increases to 70% in the next few years.

This trend isn’t promising. With the recent addition of new OTA-type services such as “Book on TripAdvisor” and “Book on Google,” brand.com vs. OTA ratios will likely shift even further into negative territory.

The situation sounds pretty bleak, but also sounds about right for many (if not most) hostels.

In my view, one of the main reasons for why hospitality has allowed and continues to allow the OTAs to triumph over brand.com and to keep increasing their market share is the way the industry accounts for distribution costs from the OTA vs. the direct online channels.
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Mike Harris, an industry veteran and VP of Ledgestone Hospitality, explains the current situation in very simple terms: “Currently our industry measures the average price per rented room, the number of rooms we rent compared to how many we have, and the revenue generated per room at the property. But NOWHERE do we measure how much each booking is actually worth.”

Simply put, a reservation through an OTA has a high cost to you, and therefore makes you less money than a direct booking at the same price.  And yet we continue to ignore this while we invest more money and put a higher value on the less-profitable business.

Harris identifies a problem that OTA commissions are calculated as a Cost of Goods Sold and essentially ignored when evaluating the business, allowing them to grow without limits.  On the flipside, he says that the costs of acquiring direct bookings are calculated as part of the Sales and Marketing budgets, and all too frequently capped at levels well below what is accepted from OTA commissions.  This, despite the fact that direct bookings are more profitable.

So how does he suggest we stop shooting ourselves in the foot and fix the problem?

1) The industry should adopt an overarching bottom line benchmark: Profit per Available Room (ProPAR) that trumps all of the accepted and widely-used top-line benchmarks such as ADR, Occupancy Rate and RevPAR.

2) Cost of distribution via brand.com should be treated in exactly the same manner as OTA commissions i.e. as COGS…

Recognizing brand.com distribution costs as COGS will unleash the property’s ability to adequately fund the direct online channel efforts, boost bookings via the property website and drastically decrease OTA dependency.  Lowering overall distribution costs will allow the property to fund renovations and product/services improvements, invest in human resources, and add a hefty chunk to the bottom line.

3) Adopt a “Direct is Better” top-down corporate strategy, with the primary goal of generating more direct online bookings. Without such a strategy, the property ends up with under-staffed and under-budgeted direct online marketing efforts, bandwidth and focus.

For more explanation of the suggestions and how they should work, check out the full article.