Hotels which attempt to boost direct bookings at the expense of agencies and online travel agents (OTAs) risk having lower occupancy rates with “no measurable” savings on costs, according to a report published this week.
The findings led the European Technology and Travel Services Association (ETTSA), which sponsored the report, to suggest the main reason for hoteliers to push direct sales “is to reduce transparency for consumers”.
The study by economics consultancy Infrata, summarised in a report entitled Hotel Distribution Costs, suggests direct distribution is no cheaper for hotels than indirect.
Infrata found a mere 0.03% difference in “net profit contribution” between direct and indirect channels, based on an average daily room rate in Europe of €112.
The study looked not just at headline costs such as agents and OTAs’ commission, but also at the costs of customer acquisition, customer services and technology development
Report author Ian Lowden said: “When cost, revenue and consumer behaviour dynamics are accurately modelled, it’s clear the cost of moving indirect bookings to ‘direct’ is marginal and possibly negative for the hotel.”
When “the billboard effect” of hotels being displayed on OTA sites is added, the report concluded: “Hotels benefit from being listed on OTAs.”
The study was commissioned by ETTSA, which represents leading OTAs and global distribution systems (GDSs).
ETTSA secretary general Christoph Klenner said: “The widely held belief that direct distribution is cheaper than indirect distribution has been debunked once and for all in this study.
“It seems the major incentive for hoteliers to push direct sales is to reduce transparency and comparability for consumers, reducing competition between hotels.”
Klenner said: “Customers must be given the choice of which channels best suits their needs.”
The authors of the study reviewed more than 25 academic and industry reports on the sector and interviewed hotels, technology providers, industry bodies and agents.
They note claims that direct hotel distribution is “considerably cheaper” than indirect and suggest: “The average net contribution of all the direct distribution channels is €4.59 per booking greater than the average of all the indirect channels.”
But the report concludes: “Were a hotel to shift their entire inventory (away from OTA channels) there would be a statistically insignificant change in the overall net contribution.
“However, a hotel is likely to face a significant drop in occupancy which would require a material increase in spend in the areas of customer acquisition, online marketing, technology development and customer services.
“When selling indirectly, these costs are usually borne by the intermediary from commission proceeds.”
The report calls this “the billboard effect”. It argues: “Hotels benefit significantly from being displayed on OTA websites. Up to 35% of hotel bookings can be attributed to guests finding out about a particular hotel, then booking directly with that hotel.”
Without this ‘billboard effect’, the study suggests hotels would need to increase their spending on search engine optimisation (SEO) “by €7-€10 per booking”.
The authors note: “OTAs outspend hotel chains on non-branded hotel search by ‘orders of magnitude’. This means higher visibility in the web search which translates into bookings.”
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