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Hotel Technology

Are We Really Siding With the OTAs On This One?

Are We Really Siding With the OTAs On This One?

Are We Really Siding With the OTAs On This One?

Hotel Technology

Expedia could be setting an important precedent for OTAs to start aligning with hotels. Here's our rebuttal to skeptics of the new program, and why we think this is a good opportunity for hotels.

This post was originally published on Hospitality Net.

Since starting our ALICE newsletter, we've attempted to cover everything we think matters in hospitality technology. In writing the newsletter, we like to take questions and discussion points from our readers, and often we're asked by our readers how to compete with the OTAs and reclaim guest ownership.

As such, Expedia's recent maneuvers supporting hotel loyalty caught our eye. With their new program, Expedia will be the first online travel intermediary to display a hotel chain's discounted loyalty rates next to standard rates.

The first chain to participate in Expedia's program is Red Lion, a 114-property brand in the US and Canada. For the past month, the chain has been offering its cheaper loyalty rates alongside its standard rates on Expedia.com and Hotels.com.

Now that an OTA is promoting a hotel's loyalty program for the first time and not just its rooms, we expect a lot of industry chatter and much skepticism - something we've already seen in a very well articulated article by Net Affinity's Taylor Smariga on this very website.

At the risk of irking a few, I'd like to help hoteliers see the opposite side of the argument Taylor makes. Indeed, I see this move by Expedia as an opportunity. My rebuttal to her argument comes not from a lack of empathy with the plight of hotels against the OTAs (I'm empathetic), but instead comes from a different interpretation of the reality of hotel booking dynamics.

Taylor argues hotels should be cautious when approaching this kind of partnership with Expedia because:

  1. This arrangement misses the point of a loyalty program in the first place
  2. Signing up places your loyalty program in direct competition with Expedia's
  3. Signing up just increases the cost of booking
  4. This is a exploitation of hotel pain points for Expedia's gain

1) From Taylor: "Offering membership, points and benefits through a third party, then, would seem to slightly miss the point of having a loyalty programme."

… a fair point, as yes, the ultimate point of a loyalty program is repeat guests, but I would also like to add that OTAs traditionally offer hotels very little repetitive business. As the former CEO of Booking.com, Darren Huston, said at ITB Berlin this year, "less than 2% of Booking.com customers stay at the same hotel twice." What this tells me is that OTA customers were never there to be loyal to a specific hotel, but instead are on the OTAs to discover new hotels. By placing your hotel in this program, you are not only willingly making yourself more discoverable, but you are also, for the first time, getting emails and names into your loyalty program.

Taylor goes on to argue that Red Lion did not do as good of a job as Expedia did with the loyalty member information provided by guests, but Expedia can't be faulted for that. If you get the emails and names, it is then up to you as the hotel to use them proactively and try to turn the guest into a repeat direct booking customer.

2) Expedia is stepping in to offer a solution by saying they have a happy alternative for hoteliers looking to quickly grow their membership programme. In reality, however, Red Lion are now competing with Expedia's loyalty programme.

Let's be honest with ourselves here about the true realities that predated this new loyalty play. Red Lion was already competing with Expedia's loyalty program, as are all hotels, and have been in a losing battle since Hotels.com implemented their "for every 10 nights get 1 night free (at any hotel)" program.

Once you have the guest in your loyalty program you get their emails and contact information, it is your hotel's responsibility to maximize the given opportunity. I recall reading about Hilton making a loyalty signup push through a partnership with Uber earlier this year. Would Uber be at fault if Hilton didn't use these emails effectively?

3) While customers are getting their best rates and loyalty perks, Red Lion is still paying the commission fee to Expedia.

Yes, there is no doubt this customer comes at a higher cost than a loyalty customer booking direct would, but is that not the point of this experiment?

Hotels have long been asking the OTAs for their guests emails, and while perhaps they should be given freely (not the point of today's argument), they are not currently distributed. Here is an opportunity for a hotel chain to at least "buy" the email addresses (through offering best rate guarantees to Expedia). Once you've bought the email addresses, then your revenue managers and loyalty programmers can have the opportunity to try to convert these guests to rebook direct.

This becomes a simple math equation for ROI. Can you convert more of these guests to book direct? If so, does that increase in revenue cover the cost of a slightly lower rate on Expedia? If you are also in turn getting more guests from Expedia does that even out any losses? These are simple questions any revenue manager could answer to assess the ROI of joining such a program and then make an informed decision as to whether this increased loyalty base improves your business more than the slight rate reduction you are offering the OTA to participate.

And if it doesn't work out, at least you bumped your "loyalty" numbers. From what I've read Millennials aren't that loyal anyway.

4) This is an exploitation of a hotel's pain points for Expedia's gain.

Is that not the point of every company? Not to exploit… but to see a pain point and fix it and in turn make revenue from doing so…?

Is ALICE exploiting the fact that it is incredibly hard to deliver consistent service in a hotel across multiple departments (pain point) by providing a platform that solves this to deliver better service for a monthly software fee (gain)?

Seems to me that Expedia is really innovating to protect and improve its relationship with hotels by aligning with them more closely, and this argument is more based on the fear of a past relationship with hotels than the alignment that this could create.

To Conclude

I know that there are always going to be a majority of readers that will decry every move an OTA makes, because the OTAs have caused many pain points in the hotel booking space. But at the very end of the day, what industries have not evolved through technology? If this specific innovation works at scale, we can assume every other OTA will start doing it, and the fight will no longer be about who owns the guests, but will be simply about returning to lower commissions again.

Let us remember that before OTAs there were travel agents who also charged commission. No one seemed to argue then about these commissions, it was only once the question of how much commission and who owns the guest arose that OTAs stole a march on hotels. As competition increases for bookings and Expedia adapts to their new environment, if this move is successful across the industry it could effectively turn the OTAs back into discovery platforms and have them earn commissions no differently than to how a travel agent did before online bookings.

Thank you and I welcome your comments.

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