Should the OTA-Hotel Relationship Vary as per the Economic Conditions?
Starwood’s Devdutta Banerjee on the role of OTAs in India - Suppliers acknowledge that online-direct can turn out to be more expensive than traditional GDS distribution if not properly controlled.
In a market like India, OTAs have heavily focused on air products but over the last couple of years, such intermediaries have been trying to work on their hotel inventory and booking platforms.
From a hotelier’s perspective, Devdutta Banerjee, regional director - revenue management, India, Bangladesh and Nepal, Starwood Hotels and Resorts, says OTAs can be leveraged to increase the hotels marketing as well as sales net.
“In the current economic scenario, it becomes even more important to widen your distribution network. Also it helps your positioning and visibility on the online arena as OTAs focus on generic searches,” said Banerjee.
Banerjee says hotel chains that don’t have a strong brand presence and backing in terms of technology and know how, can make the most of existing online developed presence of the OTAs as besides commission there are no other so called logistics and financials that essentially need to be taken care of.
“OTAs have contributed positively to a hotel’s distribution strategy in today’s environment by providing the option of paying a higher commission for capturing demand generated by dollar heavy marketing campaigns,” he said.
Banerjee spoke about price parity, the hotel-OTA relationship and other issues. Excerpts:
Price parity is an important element, and plays a key role in today´s revenue management and hotel distribution strategy. The concept of profit parity disregards that there are varying levels of value and increment in demand depending on the distribution channel. In this context, how does the online channel offer unique benefits?
As is evident by most of the researches many people often search online before making a buy decision, therefore it is important for a hotel to be on these channels and drive incremental revenues. Also by giving a level playing field, the hotel increases convertibility not only on spheres and geographies which are its strengths but also where the OTAs have a strong presence.
Lack of parity and that of rate variances will reflect badly on the hotel. Rate parity became a major topic of discussion when OTAs switched from GDS powered rates to merchant model, extranet powered rates. However, at the end of the day it is important for hotels to differentiate between self-owned channels and third parties and realise that if for whatever reason they need to run a promotion or a rate which is below the BAR on all other channels they should rightfully do so on their brand website.
The OTAs of course have made attempts to counter this by monitoring such disparities and imposing harsh penalties for hotels that undercut them on their own websites, they implemented new clauses into their contracts that obligated hotels to provide them with the best available rate. The OTAs seem to have convinced the hotel industry that the burden of rate parity lies on the shoulders of the hotels, the hotel must adjust their net rates in order to ensure the competitiveness of the OTA against other agencies.
OTAs say that they offer services to hotels that are very much tailored to market demand factors. The key factor is that prices and promotions can be created, adapted, in real time for real customers. Rates are not set seasonally, but rather daily. How do you assess the utility and efficacy of this channel in today’s environment?
Hotels that play more aggressively with OTAs and drop rates in an effort to steal market share damage the market conditions for their entire destination and it will take them years to build the rate back up to normal levels. The role of OTAs (and wholesalers) should not change according to economic conditions.
Due to limitations in terms of technology, it is important to leverage the OTA system, more and more travellers are now looking for a one-stop shop for their purchases. This is where some OTAs can play a crucial role.
Do OTAs share their rate research with hotel partners so that hotels can be aware of how their rates are being sold online?
In India, OTAs don’t essentially share rate research and other MIS for confidentiality of data and market share figures amongst their competitors. However, various rate shopping tools are being used by hotels to monitor rates sold on various TPS amongst the hotels comp. set. Also OTAs such as Expedia share weekly city wise production rankings for hotels to be aware of who is eating their market share. I think it depends upon the individual relationship with the hotels. How closely do the both work on a daily basis and how mutual the benefits and understanding is.
The nature of the lodging business is that there are always peaks and troughs of demand related to the supply available in any given market. This can be seasonal, development-related, or economic, which we’re seeing most acutely right now. Do you believe that the best partnerships between companies are those that can flex to the varying demands and needs of each party across time?
Devdutta Banerjee: Change is the one true constant of just about everything, Change is perpetual, inevitable and, as seen of late in our economic downturn, outright challenging for businesses at all levels. When it comes to succeeding and often just surviving in the face of changing market conditions, it’s the suppliers ability to adapt that will prove their worth to their business partners , their competition and, perhaps most importantly to their customers .
Yes, and this in turn takes us back to the fact that the hotels need to work closely with the OTAs on a daily basis and pick up information and trends well in advance and design strategies together to benefit.
Overall, a hotel-OTA relationship should not change due to changes in the market demand supply and economic conditions. Hotels need to identify these changing trends and invest their marketing money accordingly. With consumers shifting their spending toward lower-cost alternatives, it makes sense that marketers would be shifting their ad spending accordingly to achieve better marketing ROI.