There are three strategies for success as hotel marketers prepare for the next great battle over hotel distribution.
As travel agents, online distribution partners, and airlines compete to book more hotels rooms, hoteliers are maneuvering to sell a greater share of rooms directly to customers.
Today, a significant portion of hotel bookings come through third-party intermediaries as consumers use online travel agents and search engines to make price comparisons and troll for discounts. Hotel companies must win the hearts of customers by simplifying the reservation process and giving travelers more flexibility and choice.
But travel agents and search engines won’t give in easily. Expedia CEO Dara Khosrowshahi recently told Hotel News Now that the online travel giant is placing a priority on innovative technology in response to changes in the way consumers research and book travel.
“When I look at the business going forward, we see enormous opportunity,” he said. “We’ve invested very aggressively in technology, so I think the product is going to get better and better.”
The competition is intensifying at a time when the hotel room distribution industry is in flux. Aside from battling hotel chains, intermediaries are fighting each other. Online travel agents and meta-mediaries are competing to control the top of the travel funnel, where consumers enter the booking chain. The winners of these battles will determine the future hotel distribution landscape.
Despite advances, there is still significant ground for hoteliers to recover in the battle with intermediaries for the online consumer. Intermediaries offer consumers three advantages over hotel companies’ websites: price comparison across multiple brands; discounts on bundled flights and rental cars; and a compelling package of reviews, maps and details of local attractions.
Equally important, intermediaries spend millions in advertising to drive consumers to these compelling websites. Expedia increased its advertising spend 40% to $870 million in 2012, or 22% of its revenue, according to Bloomberg News. Priceline spends 25% of revenue on advertising and tripled its annual online ad budget to $1.27 billion during the last three years, Bloomberg reported. These investments come on the back of the large mark-ups the OTAs make on merchant model hotel bookings.
The major hotel chains are not standing still. They continue to invest online in an attempt to keep pace with the intermediaries. Many have been actively refining their branded websites by improving the search and price comparison features. Some hotel chains have added user-generated reviews—either collected on their own or embedded from TripAdvisor—to give the consumer one less reason to leave the site during the research process. Room Key, a hotel metasearch site that offers consumers a way to book directly across participating chains, is another counter to OTA strategies.
Can hotels win the retail consumer?
Hotel companies must be more flexible, make the reservation process simpler and give customers more choices. At the same time, the chains must avoid burdening hoteliers with time-consuming additional tasks and responsibilities. Complete strategies must reduce both customer and hotelier hassles that waste time, energy and money, while allowing distribution systems to remain nimble enough to adapt to changing competitive conditions.
The ultimate goal is to deliver tailored customer experiences through product flexibility and deep customer insight. Hotel companies have an opportunity on their direct channels to create a booking-and-stay experience that is truly differentiated from the intermediaries.
Three strategies for success
Tailored customer service. Few industries can control the customer experience more than hotel companies by providing guests with experiences they can’t get anywhere else: personalized stays based on their preferences and behavior.
Greeting guests by name is a start, but to fully differentiate from the OTAs, hotel companies must successfully deliver on the promise of a personalized stay that matches what the guests actually booked online.
Product flexibility. Hotel websites don’t allow customers to choose much beyond travel dates, price points and bedding, so the information gathered and resulting insights are limited.
Hotel companies should offer customers a way to choose more specific hotel-room attributes. Travelers should also be able to check the availability and price of ancillary products and dynamically package them with their rooms.
Customer insight. While intermediaries possess a wealth of customer booking information, hotel companies can draw on their unique ability to gather data from behavior during stays to make more meaningful individual offers.
Reaching such a level of customization is difficult. The interface must be simple and rewarding to entice users, and to combat what online agents are doing with booking data and loyalty programs of their own.
Scot Hornick is a partner with Oliver Wyman’s aviation practice, focusing on travel and transportation. Previously, Hornick was CEO of consulting boutique Fenix Partners. Earlier, he was a partner at PricewaterhouseCoopers, and he spent 10 years at Andersen Consulting. Hornick was also an adjunct professor at Northwestern University. He holds two U.S. patents in revenue management and airline seat inventory control and serves on the advisory board of the Professional Pricing Society. Hornick has a B.S. in computer engineering, an M.S. in electrical engineering, and a Ph.D., all from the University of Illinois at Urbana-Champaign.
Dan Kowalewski is an associate partner in New York focusing on the hospitality and travel-related service sectors. Prior to joining Oliver Wyman, Kowalewski was the VP of revenue management for Wyndham Hotel Group. He has worked on reservations, distribution and revenue management functions, in addition to enterprise-wide technology strategy, business process transformation and organization change. He also has a strong understanding of travel industry technology trends and has managed several post-merger integration efforts.
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