Zen and the Art of Managing your Distributors

F.A.O. Max Starkov, author of ‘How terrorists infiltrated the travel industry’ and other fiction.

Max, whilst I’d be the first to agree with you that O.T.A.’s are becoming a threat to hotels, I question your economics. And you appear to be pitting O.T.A.s against hotels which is dangerous and unhelpful – they’re on the same side. When you start seeing your distributors as competitors, there’s something seriously wrong.

No hotels, whether small independents or international chains, can rely on direct business. Think about it – how does The Utopia Hotel in Paradise market itself over and above the 20 other 4 star hotels in downtown Paradise? Yeah, it’s built up a small loyal customer base over the years but what about the other 90% of their unsold rooms. Do you really think that they’ll fill them with your web 2.0 techniques and so on?

The fact is, travellers want to compare competing hotels side by side before booking. Hotel websites can’t (or certainly don’t) offer that possibility so, for that reason alone, hotels need O.T.A.’s so they can appear among their rivals.

There are other significant hidden benefits of working with O.T.A.s. Hotels most likely get a huge amount of their online business piggy-backing off O.T.A.s.¬†Travellers¬†see the hotel on Expedia and then go and book it at the hotel directly. The O.T.A.s have paid all of the marketing costs. It’s a guess but I reckon the average hotel gets a large part of it’s so called ‘direct’ business as referrals from O.T.A.s. Try getting a hotel to drop all O.T.A.s for a while and see how much direct business they lose. I didn’t see you include that in your marketing costs.

Then, this 25% you refer to doesn’t all go to the O.T.A.s. O.T.A.s also get a huge amount of their business through their affiliated sites. They have endless tie-ins with everything from phone companies to individual home websites. As such they make sure your hotel appears everywhere a customer might be looking. How is a hotel going to make sure that it appears in all the right places? As I say, drop the O.T.A.s and find out.

These tie-ins cost a lot. Affiliates can command up to 15% of the O.T.A.s commission. Your headline figure of 25% is quite misleading – the cost of marketing for O.T.A.s is huge. You seem to suggest that it’s squandered on Google. No, that’s the O.T.A. bidding on Google for you – try it yourself – it’s not cheap but you need to be there.

25% doesn’t sound outrageous to me. If you think a hotel can market itself online for less than 25% of its revenue, then you know something about marketing which you’re keeping secret. Companies have tried to go alone. Dell is the biggest household name in PCs and it still didn’t manage to exist as a direct only website. I don’t fancy the chances of the Utopia Hotel in Paradise.

Why you’re still pushing rate parity I don’t know. Apart from the questionable legality of price maintenance (as currently being reviewed by the O.F.T.) it’s of no benefit to the hotel whatsoever. It’s playing right into the hands of the O.T.A.s. You’re allowing the O.T.A. to guarantee to their visitors that they won’t get a better deal cheaper anywhere, even at the hotel directly, ensuring that they don’t need to jump over to the hotel’s site to book directly. Have you not noticed that the largest O.T.A.s are not only accepting rate parity – they’re insisting on it. Did you never wonder why?

And price parity induces hotels to offer all sorts of other weird and wonderful deals to distribute excess stock like ‘opaque pricing’. I don’t see that being in anyone’s interests other than the O.T.A.s.

What’s the alternative to rate parity? That customers can book rooms at lower rates on O.T.A.s than if they book direct with the hotel? Is that shocking? I don’t think so. It’s basic market economics. You give your distributors every opportunity to sell on your behalf. They’re not a threat, They’re not competitors. They’re your sales people. Your job is to make sure everyone who stays at your hotel loves it. You want to talk about leakage? Talk about that girl on reception who offers your guests the welcome of a wet mackerel. That’s leakage. That’s two pissed off customers then and there, with no intention of coming back, and another hundred customers deterred by the shocking review on Tripadvisor.

I don’t like to see the O.T.A.s bullying hotels any more than you. I want hotels to receive a fair price as much as you. What we need to see is a better understanding between O.T.A.s and hotels so they’re not battling each other to sell the same product. Sorry to go all Zen on you but that’s a waste of energy. ‘Leakage’ of energy, if you prefer.

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