Hotels, OTAs battle for guest experience
11 MARCH 2015 12:30 PM
The war between hotels and OTAs to control the guest experience has moved on property. The winner stands to benefit from the evolving customer booking experience.
The competition between hoteliers and online travel agents to control the retail customer is moving deeper into the travel experience and onto the property.
OTAs are positioning themselves as booking channels that allow guests to order food, book spa appointments and plan outings off-property. This is a costly threat to hotel companies, which are already battling to stem the level of commissions they are paying for room bookings in today’s rapidly changing distribution landscape.
Priceline Group, for example, aims to compete with hotels for on-property spending and experience. The OTA already has made acquisitions to support the strategy, including restaurant reservation website OpenTable and hotel management software company Hotel Ninjas.
Many hotel chains have been working to digitize their on-property experience by allowing guests to select and open their rooms, and book and pay for hotel amenities while on property through their mobile phones. But there is little to stop OTAs from offering their customers similar experiences as these capabilities mature.
While some hotel chains might view Priceline and its peers as threats, others consider them valuable marketing partners. In slower periods or in markets that are generally lower in demand or seasonal business, OTAs can attract millions of potential customers and help fill hotels. Some might argue Priceline’s acquisitions help hoteliers drive ancillary revenue, as well as roomnight revenue.
Still, many hotel companies are responding to the growing cost of distribution and loss of control of the retail customer at the top of the booking funnel by encouraging customers to book direct. Consulting firm Oliver Wyman estimates the U.S. hotel industry is paying between $4 billion to $8 billion a year in transaction fees and commissions, and this figure could grow to $14 billion to $20 billion in the next decade.
The OTA share of bookings continues to grow at a rate far faster than hotels are reducing commission levels. The role of Google and metamediaries as referral channels for the hotels’ own website bookings is reaching an inflection point that could quickly evolve into a more costly fee structure for hotels. Mobile’s growth is exploding and exposing more bookings to these referral fees, as property direct business naturally shifts from phone and walk-up to mobile. Even group business, historically a costly source of leads from traditional intermediaries, is shifting to online channels, particularly for smaller, less complex events.
Hoteliers fight back
Hotel companies have made a wave of announcements about boosting benefits to those who book through direct channels. Starwood Hotels & Resorts Worldwide will offer free Wi-Fi to guests who book direct, and the hotel chain is deploying mobile check-in capability. Marriott International also is deploying mobile check-in capability and testing proximity-based marketing using technology that follows a guest around the property, suggesting add-on services or ways to interact with the loyalty program.
And Carlson Rezidor Hotel Group launched its lifestyle select brand, Radisson Red, which will recognize the increasingly important role technology plays in facilitating everyday life. Radisson Red will include a mobile application to allow a guest to skip reception for check-in; order a drink in the bar, food from the restaurant, flowers through an online concierge or a taxi for the airport; manage a personal profile and preferences; and manage the environment within a Radisson Red room.
Armed with the knowledge and data about how frequently loyalty members use direct booking channels rather than OTAs, hotel companies also are increasing the value of their loyalty programs by offering exclusive experiences to members that, in many cases, cannot be purchased in retail channels.
However, OTAs might have similar ambitions for their best customers. TripAdvisor’s purchase of Viator will strengthen its position in the attractions and activities space. Long term, the company could use the acquisition to create a benefit system for its best customers, similar to hotel loyalty programs.
To effectively compete and enable their book-direct strategies, hotel companies must take a more holistic view of their property technology strategies. As programs to book direct mature, and as hoteliers further differentiate experiences on property, infrastructure systems such as key locks, high-speed Internet access and in-room technology will becoming increasingly important. And these systems will require greater standardization and more frequent refresh cycles by owners.
The role of the property management system will expand as the definition of fulfillment on property grows to include both rooms and amenities. No longer will special requests be sufficient; customers will want guarantees that their requests for adjacent rooms, amenities and services will be delivered on a timely basis. The point-of-sale system also will become important customer-touch-point technology that recognizes customer preferences and accepts forms of payment such as loyalty points, mobile payments and even bitcoin.
These property technology improvements will take time, investment and strong relationships between owners and hotel companies. Hoteliers will have to make a strong business case to owners, who will bear much of the costs. If hotel companies do not broaden their standards and offer better economic terms for their property technology, OTAs might step in. OTAs could draw on their access to capital to create incentives for hoteliers to use their technology.
Time will tell whether these programs will change the booking behavior of the retail customer and generate the returns required by owners.
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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