Thursday, 3 March 2011

High Rates Hurt Direct Business - Will Google Places Help Hotels

The new PhoCusWright study on travel trends shows that Hotels lost Direct Booking to Online Travel Agents (OTAs) in 2010. The lost market share is both in head count and in hotels' ability to convert visitors into bookings. The OTAs are doing a better job by providing the systems and the pricing that travelers are looking for.


Travel Shopping is complex. Travelers aim to get the best deal at the best price, the best service, the best experience and best value, meeting their needs and fulfilling a dream. The travel product has many dimension, appealing to diverse needs, dreams, aspirations and expectations! The travel consumer has as many dimensions. 

There are many 'yous': You as an individual, as a family person, a business person, a romantic, an adventurer, a party person, quite, friendly, soulful, lost, worried, aloof, retreating, exploring, expansive, restrained, extrovert, and introvert. You may be all these things at sometime and the travel product that is right for you may change over time and by situation as you shift between 'yous' and moods.

The travel product is personal, and over the years travelers have show a desire to deal directly with hotel owners. Historically, hotels have been growing their market share, but this trend has changed in 2010, as OTAs have been more sensitive to travelers, cutting back in times of uncertainty and restraint. OTAs have been more able to offer travelers services that compare options and help in travel planning to package air and activities with a hotel room.

OTAs have gained market share at the expense of the direct channel. They have gained power and influence, increasing their merchant discounts to 35% in just a few years. Price is a huge reason for their success. OTAs often advertise 50% discounts on Hotel rooms, and have been know to sell below cost. They create the expectation that they have the best deals around, which is not hard to do when hotels publish Rack rates on their websites. Hotels have been asked to step up the game with Deals and Specials layered onto the already deep discounts, leaving many with little margin on rooms sold in the OTA channels.

In the process, travel is under threat of becoming a commodity. This very personal business is loosing its character to mass marketing and price merchandising. Loyalty and alliance are shifting from the supplier to the largest OTA, who controls and dominates distribution.

With Googles ITA acquisition and it new moves to put prices and check-in dates on its places, hotel executives are worried that Google will become a reseller of travel. 




No Rates for hotels direct
In the above map from a Google search for Barbados Hotels Maps (link), you will see check-in dates and hotel rates. As you change the check-in dates, the rates may change. The rates are gathered from OTAs. The hotel suppliers are hardly listed, and if they are, there are no rates or the wrong rates!

Many Hotels can't List in Google Places
But that is just the beginning of the problem. The bigger issue is that many hotels cannot list their hotels on Google Places. Try adding a hotel in Barbados, u have to have an address in USA or somewhere other than Barbados because Google does not have all countries enabled!. Then  there is the problem of many OTA listing a hotel by name and with the local address (they can because they are international and an authority recognized by Google. But its deceptive and is plagiarism, the OTA is trading of on the brand name and travellers often do not know where they are booking from. lastly their is the matter of what Rate. What is the point of putting Rack rate when travellers are comparing to OTA discounted rates! See Rates Management and Marketing

What Rates and at what Cost?
Google has announced it is working with Pegasus to offer rates for hotels.
Pegasus has its own database of hotel rates (ODA) that its uses to publish to the Global Distribution Systems (GDS). Many hotels add their Rack rates into this database. Its not going to match up against the discounts offered by OTAs but it is a step in the right direction.It will be interesting to see what Pegasus charges hotels for this. It used to be that you used Pegasus to get onto GDS and their are high rates to entry and in transactions fees. 10% commission are set aside for distribution, in theory that does not apply, or does it?. In any event its not free and min cost are liely to be at least 10%.

Is Google Selling Travel
While Google says it is interested in getting hotel rates, the fact is that it will be quite a challenge. Google is working with large CRS of the chains and with GDS via Pegasus, but so far it is getting most of its rates from OTAs and driving traffic to OTAs. This is very unfortunate for direct bookings.  I suspect Google knows where the bread is buttered and is perfecting a PPA (pay per action) merchandising system for large customers like Expedia.

I suspect that it will not sell direct, as that will kill its lucrative advertising business. But it may very well get payed in other ways for enabling the technology and market access. As a reseller of travel, Google will be nothing more that another OTA. Its business model is likely to involve building new business partnerships with travel members and that can including hotels and tourism operators. If so, the move has the capacity to change travel shopping and boost direct sales with suppliers. It may not do so, but it can.

Google's advertising model is morphing into a shopping experience that can facilitate and also rival OTA. It can help hotels get more exposure and direct sales, offering service that travelers need. It can bring direct sales and build hotel brands. But for this to happen, hotels must get organized with CRS and have rates readily available in a format that Google and other search engines can access and interpret.

These new pricing systems are very crude systems compared to others like our own Barbados.org's interactive Google maps, but it is a start. I am sure Google will perfect it in time. We have seen shopping carts and cost compare services similar to http://BookingsBarbados.com creep into Google shopping. We will see more bookable-map, bookable-banners and smart interactive advertising like AXSES' own http://bookable-ads.com.

Google's business is advertising, but the method of paying for ads and the process of adverting is changing. Pay Per Click may become Pay Per Action, or Pay Per Transaction. Advertising, once a distinct activity aimed at informing, influencing and "persuasion", has embraced action and bookings.

AXSES pioneered many of these ideas in our own niche markets and we have a fully interactive direct travel shopping experience. The trend of interactive ads is now being adopted across the net and is accelerating as new and merging technology becomes more accessible and expands the possibilities.  

Travel Shoppers Need 3rd Part Technology &  Services
Travelers shop at 20 sites, including social media, portals, articles, review sites and destination guides. The sites are for, the most part, unconnected and isolated. Travelers go to a hotel website but cannot add a room or a package to a wish list, and to do that have had to go to sites like Expedia or Travelocity, or to niche sites for direct shopping, such as http://BookingsBarbados.com. In our direct travel shopping sites, travelers shop and compare products, package products, adding activities and rooms to a wish list, save and book direct. 

Google may well move into doing just that, adding global reach and exposure.
It can scout the net to find best rates and display them. We hope that Google will look for content from many sources including hotel Property Management Systems and CRS systems like our own arcRes.

In the meantime, hotels and travel companies must guard their brands and regain control of direct sales. Suppliers' websites are losing ground to OTAs, and are converting less business on their sites. Carroll Rheem, director of research at PhoCusWright, suggests lack of adequate price management is the cause: “The drop in conversion rates among airline and hotel websites was likely the result of supplier-driven price increases.” See more about price management



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2 comments:

Ian R Clayton said...

Today Google and Pegasus confirmed they are working together to add hotel rates to listings. Google says they will use Pegasus price data on Google places. Dave Sjolander said Pegasus will bring the hotels that are part of their central reservation system to Google. Will this be direct bookings? Not if its GDS, the GDS may be a little less expensive that major OTA but its not a direct channel - YET!!

Hotels in Boracay said...

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