There isn’t, I believe, a hotel in the world that doesn’t have the goal of obtaining more direct bookings in mind. The aim of securing more direct reservations to disintermediate and consequently reduce the weight of these gentlemen’s commissions in this oligopoly that is the OTA market is always one of the primary objectives for any hotel. However, the question I wanted to pose today is: is it always worth it? In other words, does it make sense to try to secure more direct bookings at all costs, at any point in time, no matter what?
Not by chance, for several years now, I have stopped talking about disintermediation, especially total disintermediation, and have begun to adopt or embrace the concept of intelligent intermediation or Smart Intermediation. It may seem like a somewhat unappealing term to hoteliers because it clearly involves having to give up on trying to obtain more direct bookings, at least partially.
And Yes, that’s precisely what it entails: agreeing to sacrifice a portion of direct bookings. However, there’s a difference between doing so strategically versus indiscriminately. Acting strategically means understanding when to prioritize direct bookings and when to give a little leeway. Acting indiscriminately means recklessly challenging those OTA giants without recognizing that we have more to lose than gain.
And so, in today’s video, I would like to address four main reasons – not the only ones but perhaps some of the most important reasons – why wild disintermediation at all costs doesn’t always make sense.
So without further ado, let’s dig in.
Visibility when we most need it.
The first reason why it may not be entirely beneficial for hotels to prioritize direct bookings over online travel agencies (OTAs) is that OTAs can provide the visibility needed, especially when it’s most crucial. Consider low-season periods when hotel supply exceeds demand; what do you need most? Increased visibility, because more visibility offers better chances of securing bookings. Whether these reservations come directly or through OTAs is secondary, as the primary concern is filling rooms that would otherwise remain empty. And who can guarantee more visibility when it’s needed the most? OTAs, of course.
The reason behind this is that OTAs give more prominence to hotels with better conversion rates. It’s a simple business logic: imagine two hotels on booking.com, each initially generating 100,000 views in a specific month. Hotel A converts 100 reservations, while Hotel B generates 300 reservations on booking.com’s platform. Since booking.com earns from commissions, which hotel do you think will receive greater visibility now? Naturally, it would be Hotel B.
This logic isn’t hidden; it’s evident in booking.com’s documentation. The algorithm takes various factors into account, with one of the most important being the conversion rate. And it’s perfectly logical, Booking.com is a business like any other that wants to make the most out of their products. Hotel B sells better than Hotel A? Then Hotel B gets more visibility.
Therefore, if we focus on obtaining more direct bookings during low-season periods, we are essentially diminishing our possibilities to get the visibility that we so desperately need.
So, what is the number one goal during low season? Is it to obtain more direct bookings or simply more bookings in general?
I would argue that securing more bookings overall is the priority. If it means sacrificing a bit of profit margin for the sake of gaining greater visibility and consequently attracting more reservations, then so be it.
Cost-Benefit.
The second reason one might not necessarily focus on direct bookings is that, at times, the overall costs needed to boost direct bookings may not justify the risk of not getting enough volumes. Even though typically, customer acquisition costs favor direct bookings over OTA bookings, in order to obtain direct bookings there are certain costs involved: having and maintaining a high-performing website, appropriate marketing and advertising budget, effective campaigns, SEO optimizations, and conversion rate optimizations, even the Staff that needs to be paid in order to put forth all the direct-booking initiatives you might have come up with.
However the volume of bookings in low season may be unpredictable and not high enough to cover those costs. OTA commissions instead become manageable as they are variable expenses tied to revenue generation. In essence, no revenue means no commission fees – effectively reducing the associated risks.
In certain contexts and situations, focusing on direct bookings can increase risk while decreasing overall security. Ultimately, the goal is to maintain cost efficiency while bearing commission fees.
Market Insights.
The third reason why it might be advantageous to shift focus from direct reservations to online travel agencies (OTAs) is the ability to access more extensive and reliable market analysis and data. No hotel can generate the volume of data that an OTA can provide. While not all OTAs share this information, some, especially Booking.com, offer valuable analytics and reporting.
Booking.com is one of the leading OTAs globally and has an interesting analytics section that allows hotels to view market trends. If this data is examined rigorously and consistently, it can help better understand market movements, particularly during low seasons. This is when we need to identify areas for improvement.
By utilizing OTAs, we gain access to more uniform data on both searches and bookings. This wealth of information ultimately leads to better actionable insights and a superior understanding of the market compared to what we could achieve through our direct channels alone.
Social Proof.
The fourth reason why it doesn’t always make sense to seek more direct bookings over OTA bookings relates to social proof and the long-term recognition and marketing of a brand. Let me briefly explain what this means. There are two social proof-related situations where, in my opinion, it makes no sense to seek more bookings, regardless of seasonality.
The first situation is when the hotel is brand new or recently renovated. A new hotel lacks social proof, such as reviews from past customers who can attest to its quality and appeal. A new hotel typically has a more desperate need for generating volume. Lacking prior marketing, an established brand, or previous communication efforts, focusing on obtaining more bookings takes priority over securing direct reservations. This may seem trivial, but it’s important to remember.
The second situation is tied to reviews already obtained; we know that a high review score corresponds to higher conversions. As mentioned earlier, higher conversions guarantee greater visibility and more bookings. With a high review score, we capture a larger share of potential demand and so in such a situation it makes sense to focus on direct bookings. However, if our review score isn’t necessarily high, we should prioritize improving that before considering direct reservations.
What do I mean by a high review score? On a scale of 1 to 10 like Booking.com, the ideal goal would be reaching 9.0. I realize achieving a 9 might be difficult for some.
For some properties, intrinsic factors may contribute to difficulties, such as an outdated hotel unable to afford renovations, or when a hotel is located in a not so prominent spot. In these cases, they can only rely on the services offered rather than the inherent quality of the rooms and the hotel in general.
Despite these details, it is well known that higher review scores lead to increased conversions, greater visibility, and ultimately more bookings – creating a virtuous circle. When a hotel’s score falls below 9, it misses out on being filtered by a significant portion of demand. Take Booking.com as an example; one of its strengths lies in its search filters for selecting accommodations. Reviews score is among the most widely used filters, even more so than price. There are two preset filters that allow users to select properties with a certain score and exclude all others: 8 or higher, but also 9 or higher. By achieving a score of 9, hotels can access a market segment they might otherwise miss out on – making it an important milestone.
I suggest that if your score is below 8.5, the priority should be to obtain more positive reviews, both in terms of quality and quantity. When you gather numerous high-value reviews, the occasional negative review will have a lesser impact on your overall score. This allows your hotel to remain strong, particularly during challenging times.
Take, for example, the pandemic; while it undoubtedly devastated the hospitality industry, those who rebounded more effectively were hotel businesses with a solid foundation of social proof and high review scores. Even though demand was low, these establishments were better positioned to convert potential customers compared to their lower-ranked counterparts.
Conclusion.
Now, don’t get me wrong, direct is cool. I’ve preached and I will keep on preaching in favor of direct bookings, however if you think about it, the game is relatively easy to understand: we must get the most out of every dollar, euro, pound that we put on the table. And this, sometimes, means being wise enough to know when it’s fine to give up margins in favor of volumes, or the other way around.
I understand this may be quite a challenging thought for many, so feel free to share your inputs.
And I’ll see you again in the next video.
