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Is your hospitality business heavily reliant on OTAs? Yes, it may seem like a blessing in terms of the widespread benefits that are visible on paper. However, it can quietly drain your profits if you aren’t careful!
You may have depended on online travel agencies (OTAs), going by the broader visibility that you stand to gain. However, using them solely as hotel booking engines may come with a silent drain via commission fees, loss of direct relationships with your customer base, devaluation of your brand due to aggressive discounting, and vulnerability to OTA algorithm changes and policy transitions. You’ll also witness a glaring lack of control while your profit margins will be eroded in the long haul.
A little about OTAs:
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They are online platforms for booking hotels and other accommodation in one place like Booking.com or Expedia.
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Hotels may depend on them to gain more visibility and customers, where OTAs function as hotel channel managers.
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OTAs may offer higher initial reach and help fill up rooms during low seasons, while offering various insights and tools to help with marketing and customer targeting.
Yet, however compelling it sounds, i.e. the fact that you don’t have to build a vast marketing infrastructure yourself, it comes with major risks in the long term. Let’s unearth more about the same below.
The Benefits That Hook Hotels In
There are multiple benefits that may hook you initially, when it comes to considering OTAs as your primary channel managers.
| Key Benefit | What It Entails |
|---|---|
| Higher reach & visibility | OTAs may help you connect with millions of potential guests who may not find you otherwise. You can gain exposure to a wider audience as a result. |
| Easier booking management | OTAs automate your booking procedure, offering secure payment gateways, and streamlining reservations and cancellations. |
| Access to global markets | You can access markets that would otherwise be costly or tough to reach independently. There’s also a pre-qualified audience of guests who’re actively planning trips. |
| Trust and credibility for smaller properties | Listing on a reputable OTA will build instant trust among prospective customers, particularly for smaller properties that may not have higher brand recognition. Reviews and ratings on OTAs may considerably boost your property’s reputation as well. |
The Hidden Downsides of OTA Dependence
As you’ll discover, there are several concealed downsides of over-dependence on OTAs. Let’s look at them briefly below.
Challenges of Relying on OTAs
High Commission Fees
You’ll usually pay 15-30% per booking to OTAs. The cumulative impact of commissions can lead to a huge financial drain, particularly in the peak seasons.
Loss of Direct Customer Relationships
You miss out on relationship benefits from hotel direct bookings. Customer loyalty will be to the OTA, reducing your control over pre-stay communication and up-selling chances.
Limited Control Over Branding
OTA listings prioritize their own design and not your brand template. Outdated or inconsistent data can also impact your brand perception.
Price Wars & Rate Parity Clauses
Many OTAs have a rate parity system. This limits direct discounting and leads to lower pricing flexibility.
Data Ownership Issues
You’ll have limited access to the massive guest data collected by OTAs. This leads to missing chances to personalize guest experiences, market, or retarget customers.
Overdependence Risk
You’ll always be at the mercy of OTA algorithm and policy changes. Delisting can also reduce your bookings significantly.
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The Long-Term Impact on Hotel Business
Here is the long-term impact on your hotel business that comes from overdependence on OTAs.
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Shrinking profit margins over time- When you’re paying 15-30% per booking to OTAs, you’re naturally leaking revenues over the long term. This may drastically cut into your profitability and how you invest for the future. What also happens is that the rate parity clauses hinder you from offering discounts or lower rates on your websites. Your ancillary revenues also go down in turn, while you’ll have to deal with higher cancellation rates alongside.
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Reduced brand recognition- Depending heavily on OTAs will dilute your brand identity in the long haul, making it hard to build customer loyalty. You’ll find it hard to convert OTA customers into repeat guests, while OTAs function as intermediaries, restricting your ability to directly engage with guests before, after, and during the stay. Limited data access is another sore point.
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Higher vulnerability to OTA rules and policies- You’ll always be vulnerable to sudden algorithm changes, which may lead to bookings eroding overnight. The same happens when there are policy changes and you’ll also have limited control over various aspects.
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Stagnant growth due to lack of direct marketing- OTAs will hinder your ability to build a robust direct booking channel. This is where the OTA vs direct booking debate comes into play. OTAs may hijack your direct traffic and hinder your ability to invest in future marketing and loyalty programs (due to the high commissions you pay).
How to Reduce OTA Dependence (Actionable Solutions)
Are you now wondering how to lower your OTA dependence, going by the long-term risks that you see? Here are some actionable solutions worth embracing in this regard.
Direct Booking Strategies
Offer exclusive perks for direct bookings
Discounted rates, complimentary breakfast, flexible check-in/check-outs, free room upgrades, and loyalty programs with packages, reward points, and exclusive deals.
Invest in user-friendly booking engines and PMS
Fast, mobile-friendly, and secure website booking engine. Advanced PMS suite like aPerfectStay for booking, operations, budgeting, reporting, housekeeping, and other management functions.
Strong digital marketing
PPC and SEO campaigns, email marketing, and targeted campaigns to drive direct bookings and increase brand visibility.
Leverage loyalty programs and personalized communication
Use guest data to personalize communication and experiences, build direct relationships, and provide exclusive benefits to increase trust and repeat bookings.
Concluding Notes
Does it seem clear to you now? OTAs may give you some initial benefits and valuable tools to start with. However, they lose their sustainability when overused. You have to find the right balance between independent operations and higher visibility. While you can leverage OTAs, you can simultaneously invest in the right PMS from aPerfectStay and build up your independent framework. Own your bookings. Own your guests. Build a brand that doesn’t rely on algorithms.
