Mr. Koestler

Revenue Management

The Role of OTAs in Revenue Management: The Only Constant is Change

By Christian Koestler, President & CEO, Lixto, Inc.

The practice and profession of revenue management in the hotel industry is a relatively new phenomenon. While the first hotels probably began catering to the pleasure traveler during the Roman Empire - and records show the first inn in the United States opened the year Jamestown was founded - it was not until the 1980s that hotels, hotel schools and academic institutions started to seriously examine and quantify the field of yield and revenue management.

Not until even more recently have hotels begun to implement formal revenue management policies, programs and systems. Fueled by technology, the field is now a true science. Increasingly powerful computer systems can handle many tasks essential for revenue management. The growth and proliferation of the Internet has changed core communications for travelers and hotels alike.

Amid these developments, the online travel agency (OTA) has arisen, changing the rules of revenue management - and the professionals who practice it - on an almost-continuous basis.

Leveling the Playing Field

OTAs have, at their base, added another layer of complexity into the mix of sales channels in the hotel industry. In a positive sense, hotels of all sizes can leverage OTAs to increase and enhance marketing efforts and sales revenues. For hotels without a strong brand presence and technology tools, OTAs - even with their sometimes-onerous commission structure - can level the playing field, and often make the difference between success and failure, surviving and thriving.

At the same time, OTAs constitute only one distribution channel. Hotels realize that they cannot depend solely, or even primarily, on OTAs. They need to find ways to be their own primary booking channels. Today, in the United States, about 45 percent of booking revenues derive from hotels' own websites. As advanced price intelligence systems help hotels assure their own rate parity strategy, the trend - and that percent - will continue to edge upward.

This does not mean that OTAs no longer occupy a critical spot in the revenue management mix. It does mean that their role is changing in some key ways, and that the future will likely bring changes the industry cannot yet imagine.

Dynamic Pricing

Dynamic pricing, which is based on response to market fluctuations or data gathered from hoteliers' guest databases, allows OTAs to adjust rates to correspond to a customer's willingness to pay. OTAs are already starting to work more closely with hotel chains to provide them with individual pricing support. At the same time, however, many hotels would prefer to move away from OTAs, taking initiative to drive more traffic to their own websites, avoid OTA fees, and add more to their own margins.

The reality is that the market provides room for both OTAs and the individual hotel/hotel chain's marketing. Understanding that OTAs will provide information based on their own needs, larger chains can use advanced revenue management and price intelligence systems to derive their own demographics. Smaller hotels may need to rely more on OTAs for this service for now. In the near future, more cost-effective revenue management and price intelligence systems for individual properties and smaller chains will be coming available, further equalizing the relationships with OTAs.

Marketing and Communications

The demographics data that OTAs now can provide from consumer bookings can change the way hotels market and communicate with their guests and prospects. For the revenue manager, this creates both an opportunity and a challenge to create a new paradigm of communications.

Managers now can create individualized promotions, packages or specials for individual travelers, based on their needs, interests, time and frequency of stays. Creating such individualized communications is an art in and of itself, requiring more time, talent and/or resources, and often, automated programs. In some ways, the OTA creates more costs for a hotel between commission and the requirements resulting from individualized information. Yet in the big picture, the OTAs still provide what most revenue managers need to stay competitive.

Rate Parity

One of the most important - and controversial - areas in which OTAs are affecting revenue management is in rate parity. For an OTA to remain competitive, it must retain the ability to negotiate best rates with providers, and ensure "best price" guarantees across the web. Since OTAs are dependent on their providers for the most competitive prices, lack of solid information is a real threat to the OTA's long-term business.

As a result, OTAs themselves rely on advanced revenue management and price intelligence systems to monitor thousands of properties, rates, reviews and rankings online. OTAs can see exactly what properties are offering what rates. By systematically catching each rate parity violation, an OTA can actually help hoteliers manage their rates more conscientiously - and lessen or eliminate risk of losing preferred status, which eliminates the risk of losing substantial revenue. For one European-based OTA, for example, time savings and productivity gains have resulted in savings of 12-15 percent in total operating costs each year.

Mobility

There's no question that mobile devices, apps and usage are here to stay when it comes to booking travel. They are changing the field of revenue management dramatically for OTAs and hotels. Industry statistics portray a clear picture.

Late last year, Google released data showing that year-on-year, mobile searches for hotels had risen by 7,000 percent(1). Specifically, searches for travel-related terms have risen by a factor of 12. Hotel-specific terms are up 30 times(2). Another industry leader, Priceline, sees similar trends in mobile device use. The company has reported that more than 80 percent of its mobile app customers booked hotel rooms within one day of arrival, compared with 45 percent name-your-own-price customers online. Almost 60 percent of customers on Priceline's mobile app were within 20 miles of a hotel at the time of booking; 35 percent were within one mile(3).

What do these figures mean for the field of revenue management? They show that consumers using mobile apps are booking hotels differently than those doing so from a desktop. Prospective guests often are searching OTAs and booking places to stay within a day of arrival at their destinations, or even once they've reached their destination area. Revenue managers will increasingly find that individualized communications and dynamic pricing integrate closely with these trends. They will need to find unique, value-packed ways to get the attention of prospective guests through their own websites as well as compete strongly on OTA sites.

Individual hotels are seeing similar trends. Choice Hotels International Inc., which operates through franchisees more than 10 brands and 6,000 hotels across the globe, says its mobile sales reach well into the seven figures each month, and account for more than 1 percent of all online sales. Mobile revenue is up 250 percent year over year, reservations are up 205 percent, mobile page views 130 percent, and mobile conversion 106 percent. Mobile traffic to the site has grown an average of 190 percent each month since the company introduced its mobile site in 2008(4).

Besides a booming mobile business, the mobility trend means that hotels and chains that want to compete in the mobile world will need to invest in custom mobile apps. Asking a consumer to view a website designed for a PC on a mobile device will not work. To go mobile with travel booking, consumers need very easy-to-use, fast apps designed specifically for their devices. Fortunately, development of these apps is coming down in price with good options available even for individual properties. With the ability to work with their own content management systems, revenue managers can create, edit and publish their own content, posting special offers and news updates as often as they wish.

The Future of OTAs in Revenue Management

In a field fraught with change since its inception, trying to predict the future is difficult at best. But there are some things we do know:

  • Proliferation of sales channels: Additional sales channels will emerge through new OTAs as well as social media outlets, mobile apps and other methods. Revenue management professionals, and systems, will need to be flexible and scalable enough to handle the increasing numbers and types of sales channels, and learn to use OTAs as one element in their revenue mix - vs. rely solely on them.

  • The mobile world: The mobile world is fast emerging as a major channel of choice for consumers to make reservations and conduct travel business. Strong (and ultimately, the surviving) OTAs will be investing heavily into dedicated apps for mobile transactions while still maintaining capability to handle traditional online bookings. Revenue management systems will need to be able to handle traditional online information as well as pull data from mobile sources.

  • Dynamic pricing: The work that OTAs are doing now in the area of dynamic pricing will ripple outward to smaller chains and individual properties. New price intelligence systems will be coming on the market for the small and independent hotels and chains, making it possible for these properties to compete even more strongly with larger counterparts, and have the means to create even more tailored guest programs.

  • Multi-channel support: Hotels and OTAs alike will need to support both mobile and traditional web channels. Guests today are becoming more accustomed to practicing the new "shopping art" of multi-channel booking. They may start the booking process at home on their personal computer, discuss options the next day with friends at work, and then finally book the hotel on a mobile device during the ride home. This requires that hotel chains and OTAs need to support each channel to ensure the exact same rates and booking processes across each - and ensure guest ability to access saved, not-yet-completed itinerary and price information on is/her device of choice.

Fulfilling the job of revenue manager has never been easy. As technology advances, more OTAs come on the market, and the sales distribution channel picture becomes increasingly more complex, this fact will not change. Revenue management will need to be at once more rigorous and more flexible, working in parallel with the changing nature of OTAs.

References:

(1) http://www.htrends.com/article50791.html
(2) http://adage.com/article/digital/mobile-marketing-travel-related-searches-dominate/147362/
(3) http://adage.com/article/digital/mobile-marketing-travel-related-searches-dominate/147362/
(4) http://www.internetretailer.com/2010/12/01/mobile-sales-grow-250-choice-hotelshttp://www.internetretailer.com/2010/12/01/mobile-sales-grow-250-choice-hotels

Christian Koestler is president and CEO of Lixto, Inc., a global leader in web data extraction and analysis for the hotel, retail and consumer products industries. He also holds the position of managing director for sales and marketing at Lixto Software GmbH, the company’s headquarters, in Vienna. Mr. Koestler brings a broad background in software technology to his work in the hotel industry. He previously served as vice president of manufacturing for Lixto Software GmbH in Vienna. He has held sales and sales management positions in Europe with Agile Software, Eigner Inc., and Siemens AG Austria. Mr. Koestler can be contacted at 408-952-9200 or christian.koestler@lixto.com Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.

Receive our daily newsletter with the latest breaking news and hotel management best practices.
Hotel Business Review on Facebook
RESOURCE CENTER - SEARCH ARCHIVES
General Search:

OCTOBER: Revenue Management: Measuring All Hotel Revenue Streams

Dan Berger

A decade ago futurists and armchair analysts were convinced that the internet would move face-to-face interactions online and therefore kill the meetings & events industry as we know it. Instead of joining together under one roof, we’d educate ourselves via webinars, make new connections exclusively over LinkedIn, and swap catered lunches for granola bars and iced-coffee at the office. So, what happened to this dystopia? Today, it’s evident that technology is having the opposite effect on events. We’re actually seeing that modern connectivity and social networking is driving higher demand for face-to-face interactions. In the past, we predicted that broadband would make in-person meetings redundant. READ MORE

Ben Premack

Meetings and events need not be designed around stuffy, windowless rooms involving information overload and ten-minute stretch breaks. These types of gatherings are neither engaging nor fun for anyone. Today, meeting planners want more than just a location; they want a flexible venue in a desirable destination which offers an array of amenities and add-ons for groups looking to make their out-of-office gathering one to remember, and even envied. Well thought-out and customized corporate meetings and events that feel more like a retreat can create new opportunities for employee growth, networking, and creative-thinking – all while boosting productivity and morale. READ MORE

Jim Vandevender

As hotels head into the fourth and final quarter of 2016, sales operations and revenue management teams are beginning to look toward next year. Budgets and marketing plans are beginning to be developed that hope to capture the lucrative high demand group market, drive RevPar and meet occupancy and ADR forecasts. But questions loom. Which segments will remain robust and fruitful? Will the high demand within corporate, for example, begin to ebb with the hotel construction pipeline in full swing supplying more and more inventory in most cities? What subsets within corporate group will continue to drive demand and which ones will be the new emerging provider of group room night opportunities? READ MORE

John Hess

Social responsibility enables a culture of caring within organizations in all sectors of business, including the financial services, manufacturing, and retail industries. At organizations of all sizes, from large Fortune 500 companies to small startups, individual team members find satisfaction in helping others and often appreciate the opportunity to do so, because acting with purpose provides a shared experience that is positive and contagious. As the groups business continues to evolve and sales professionals and corporate planners explore the latest bells and whistles, such as 3-D Selfie Stations, to get meetings attendees engaged and excited. READ MORE

Coming Up In The November Online Hotel Business Review


Feature Focus
Architecture & Design: Original, Authentic and Localized
Corporate hotel developers once believed that their customers appreciated a homogenous design experience; that regardless of their physical location, they would be reassured and comforted by a similar look, feel and design in all their brand properties. Inevitably this led to a sense of impersonality, predictability and boredom in their guests who ultimately rejected this notion. Today's hotel customer is expecting an experience that is far more original and authentic - an experience that features a design aesthetic that is more location-oriented, inspired by local cultures, attractions, food and art. Architects and designers are investing more time to engage the local culture, and to integrate the unique qualities of each location into their hotel design. Expression of this design principle can take many shapes and forms. One trend is the adaptive reuse of existing facilities - from factories to office buildings - as a strategic way to preserve and affirm local culture. Many of these projects are not necessarily conversions of historic properties into grand, five-star landmark hotels, but rather a complete transformation of historic structures into mixed-use, residential, and hotel projects that take full advantage of their existing location. Another trend is the addition of local art into a hotel's design scheme. From small sculptures and photography to large-scale installations, integrating local art is an effective means to elevate and enhance a guest's perception and experience of the hotel. These are just a few of the current trends in the fields of hotel architecture and design that will be examined in the November issue of the Hotel Business Review.