And you know why? We had our guesses, but tracked down Kelly Robb for the real answers. Revinate’s Director of Market Intelligence shared her insights on the challenges hoteliers are facing today, and what can be done to increase direct bookings.
Just like our chat with Kelly’s colleague Kenny Lee (Vice President of Marketing), we weren’t disappointed with what she had to share.
TRIPTEASE: Who are you and what do you do?
KR: My name is Kelly Robb, Director of Market Intelligence for Revinate, a leading guest feedback and engagement platform based in San Francisco. One of the most rewarding parts of my job is getting to spend a lot of time learning from our 30,000+ hotel customers about their top challenges and initiatives in this dynamic industry.
TRIPTEASE: What is the single biggest problem independent hoteliers face today?
KR: In my experience, generally speaking, independent hoteliers face a huge distribution challenge. OTAs continue to dominate online sales, and the trend is only accelerating. At the same time, the distribution space is getting even more crowded with new entrants like TripAdvisor and Google.
Not only do independents have more limited budgets than larger brands, they end up paying more in commissions. According to recent U.S. OTA commission rate data from Kalibri Labs (cited by Evercore ISI Research, June 2016), independents and small chains have higher OTA commissions (~20%) than their big brand counterparts (~16%) given less scale and leverage. Recent consolidation will give mega brands (e.g., Marriott-Starwood) even more leverage going forward. This is why some independent hotels are even now turning to Airbnb as a distribution channel, with a much more attractive commission structure than other OTAs.”
TRIPTEASE: What is the number one thing an independent hotelier can do to get more direct bookings?
KR: At the root of this distribution challenge is how hotels analyze their cost of guest acquisition. Recent research by Kalibri Labs suggests that the true cost of guest acquisition (i.e., percentage of what a guest pays) is 15-25% in the US and 20-30% in Europe. Some of our customers see even higher percentages.
The challenge starts with the hotel financial statement (P&L), where some expenses don’t show up at all, such as merchant-model OTA commissions. For example, if a consumer books a merchant rate on Expedia, the consumer pays Expedia and then Expedia cuts a check to the hotel. So instead of the commission showing up as cost of goods sold (COGS) or sales & marketing expense, the net is simply recognized as top-line revenue.
Hotels also have no visibility into whether these commissions are increasing or decreasing over time. On the other hand, agency-model OTA commissions are accounted for as COGS but often not analyzed closely and rather just accepted as the cost of doing business.
Another complication is that hotels often recognize direct distribution costs (i.e., any marketing spend for driving direct bookings) as a sales & marketing expense, and therefore are limited by this budget. I’d encourage hotels to start thinking about direct distribution costs in the same manner as OTA commissions to adequately fund direct efforts, decrease OTA reliance, and ultimately drive profitability. With an apples-to-apples comparison, investments in driving more direct bookings and taking control of more of their inventory look incredibly attractive.
TRIPTEASE: Is it really as easy as it looks?
KR: Driving profitability is never easy, but there are proactive, short-term actions hotels can take now. One step is to actively understand and manage your acquisition costs as mentioned above. It’s also going to take time and investment in the right software solutions to bring hospitality up to speed with today’s technology. That means engaging in newer practices like CRM and targeted marketing, which will allow hotels to build a base of loyal repeat guests who book direct, further reducing spend on OTA commissions.
TRIPTEASE: What is Revinate's biggest success story?
KR: Our customers have seen tremendous success once they’ve been able to analyze and leverage their guest data. For example, The Dictionary Hostel in London went up over 200 places on TripAdvisor once they were able to figure out specifically what people liked and disliked about their guest experience. They made data-driven strategic changes in specific areas that were impacting their guest satisfaction. Another independent property, the Morning Star Express Hotel in Pretoria, South Africa, recently reached #1 in its market on TripAdvisor, even ahead of some big brands in its geographical location.
TRIPTEASE: Where do you see the industry in 1, 3 and 5 years' time?
KR: It’s an exciting time for the hospitality tech space. In terms of what’s on the horizon, we have to keep in mind that the hotel industry doesn’t move as rapidly as some other industries. Best Western CEO David Kong put it well: “The hotel industry doesn’t move at that [quick a] speed. However, our thinking needs to move at that kind of speed. It’s not about the product or service, but it’s about our thinking, how that needs to rapidly evolve.”
Given this context, in one year, I’d expect to see acceleration of the trends we’re seeing today: new Meta players like TripAdvisor and Google pushing instant booking, OTAs trying to vertically integrate and extend into in-stay services, and larger hotel brands trying to achieve scale through M&A and circumvent rate parity with member-only rates. And at the same time, you have the strong emergence of alternatives like sharing economy models and time-based OTAs (e.g., HotelTonight).
In 3-5 years, I think the biggest shift will be felt with guest-facing technologies. The way guests experience hotels will be much more digital, with technologies ranging from keyless entry, virtual reality, virtual assistants, and other smart technologies (e.g., smart thermostats in guest rooms). In terms of distribution, I also think we’re going to see Airbnb effectively become an OTA, and this is already starting to happen. Like I said, an exciting time to be in hospitality!