Why OTAs are getting it 'booking' right

31st July 2015

In Germany and Italy, the horse has already bolted. Yes…..a larger share of chain hotel stays made by German and Italian consumers over the last 12 months have been booked via online intermediary websites than through hotel chain websites, according to the most recent wave of BVA BDRC’s Western Europe Hotel Guest Survey (HGS).

In Britain and France, the greater clout of the major budget hotel chains has ensured that the direct hotel channels have retained the upper hand - but even in these markets we are seeing a shift in volume from hotels to intermediaries. Furthermore, the shift is not confined to leisure demand. Albeit from a fairly low starting point, intermediary websites increased their share of the British business market by 10% year-on-year between Q1 2014 and Q1 2015. Click on the chart below to see the figures in more detail.

Why are the OTAs (Online Travel Agents) gaining ground so quickly? Here are just three factors:

Structure of hotel demand is changing

Much of the growth being driven by international (outbound) rather than domestic travel - particularly for leisure. The lower customer effort involved in booking travel and hotel through one site leaves the OTAs better placed to capitalise on the new demand. This is born out by HGS data which shows that hotels are significantly less likely to secure the booking direct (via their website) when it is an international stay.

Consolidation of the OTA market

The consolidation of the OTA market has resulted in the emergence of two formidable players in Priceline (the owner of booking.com) and Expedia, with marketing dollars beyond the reach of most hotel companies. booking.com in particular has bootstrapped its way to a position of dominance across much of the continent. In the Italian leisure market, for example, three times as many people booked a chain hotel room through its website than through the top-performing hotel brand’s website (Best Western) last year. In Britain, it appears only a matter of time before booking.com overtakes Premier Inn, just as it has already overtaken Ibis in France.

OTAs are getting better at engaging with customers

In our opinion, the leading OTA brands are having some success in engaging with the emotional drivers and triggers for travel (particularly international leisure) in a way which, on the whole, has eluded many hotel brands. One of the findings of BVA BDRC’s recently released Social Media Impact report was that while consumers engage with hotel brands via social media to share experiences and say something positive about them, hotels struggle to convert interactions into future usage, delivering content that is useful rather than entertaining or inspiring. OTAs do much better on this.

Apart from embracing the opportunity presented by the greater distribution of the leading OTAs (in combination with drastically diminished margins), what are the poor old hotel chains to do? They can’t do much about the duopolistic nature of the OTA market, nor the long term shift in demand from domestic to international. Some may be contemplating the radical option of white labelling the market-leading OTA websites for certain markets, but for hotel owners and franchisees this risks raising a fundamental question mark over whether they are better off working with a hotel brand or an OTA.

For hotel brands, developing a brand positioning, communications strategy and an online booking experience that is aligned with the needs and emotional triggers of international travellers has to be a priority. Building partnerships with airlines and other travel service providers in order to offer an equivalent ‘one stop shop’ may have been filed in the ‘too difficult’ box in the past by many hotel companies, but ignoring the need to optimise customer convenience and reduce customer effort may be more costly in the longer term.

In addition, in many cases the challenge for hotels is not so much driving traffic to their websites, but rather improving the ‘looking to booking ratio’. Here, persuading consumers that they can get the best rate by booking directly and having a compelling call to action is critical if brands are to take the fight to the intermediaries.

Finally, while the intermediaries may hold many of the aces, it is the hotel chain that arguably has the greatest opportunity to influence the future loyalty of the hotel guest - and that comes back to the guest experience.