Hotels and Online Travel Agents (OTAs) need to work together to reach a collaborative approach that maximises revenues, builds brand confidence and rewards consumer loyalty, according to a panel of experts speaking at Arabian Travel Market (ATM).
According to a report published on Monday by Colliers International on ATM’s Global Stage, rate parity agreements have led to a turbulent relationship between hotels and OTAs in recent years.
The findings of the report entitled ‘Alternative Accommodation – Driving Growth for Destinations or Disruption’ were discussed by a panel of experts from Wego, AccorHotels, Expedia Group and Colliers International.
The essence of rate parity is to have the same rate for the same product across all distribution channels. However, rate undercutting has created issues between hotels and OTAs and as a result, significantly reduced consumer confidence in brands.
“Consumers are comparative shoppers, so when they see that the rate on a hotel website is higher than an OTA for the same product, this creates a negative sentiment about the brand in their minds. As the undercut rate percentage by OTAs increases, there is a drop in the booking conversion on the hotel’s website.” Filippo Sona, Director, Head of Hotels MENA of Colliers International, said.
“Today’s consumers have a more sophisticated mindset and level of needs, and as a result, rate parity is hindering the ability of OTAs to make more money and hotel companies to offer higher average room rates. If we removed the rate parity mechanism, we would be able to more effectively fulfil the needs of OTAs and hotels, while providing a more personalised product to consumers.” Sona added.
With continuous technological advancements in the online travel market such as metasearch engines, blockchain and augmented analytics, new strategies need to be devised to win back consumer confidence and increase their brand loyalty.
“With the consumer in mind, blockchain technology provides services such as secured payment, identification and security, simplified loyalty programmes and baggage tracking.” Paula De Keijer, Senior Director of Market Management Middle East, Africa, Greece, and Turkey of Expedia Group, said.
“As we look to the future, augmented analytics will provide consumers with the power to make more informed choices. Considering the vast amount of data that hotels and OTAs accumulate, this technology is the perfect tool to understand consumer behaviour, preferences and booking patterns. Combining algorithms, artificial intelligence and machine learning will lead to providing better recommendations to customers and matching them to the properties best suited to their needs.” Keijer added.
Hotels and OTAs have their own competitive advantages and limitations. While hotels have the micro information, OTAs have the purchasing and booking habits of consumers.
In the evolving landscape, it is crucial that hotels understand direct bookings do not matter like they did in the past. Instead, establishing a collaborative approach, with the help of technological advances, that maximises revenues should be the focus.
Sona, said: “The first emerging tool will be dynamic commissioning. This will enable hotels to set a hurdle rate for OTAs, in turn incentivising OTAs to sell above that rate to earn a higher commission. Based on our research, we suggest for every $10 above the hurdle rate OTAs earn an extra 5 percent, with the maximum amount of possible commission capped at 35 percent.”
“The second approach is nano pricing which provides consumers with the power of choice and added confidence in brands. Today, hotel room prices are based on three factors: room view, room type and number of occupants. However, nano pricing is calculated by combining base price (room inclusive of limited amenities) with the cost of any requested extras (for example upgraded toiletries).”
In recent years, competition in the market has further increased with the rise of alternative accommodation such as Airbnb. The success of this type of accommodation stems from their ability to create a more local and personal experience for consumers.
“Alternative accommodation should not be viewed by hotels and OTAs as a threat or disruptor.” Flavio Leoni, Vice President of Sales, Distribution, Loyalty, and Marketing at AccorHotels Middle East and Egypt, said.
“It is just another tool that provides additional choice to the consumer and also presents hotels and OTAs with the option to explore new ideas and expand their brands.” Leoni added.
“If we break down the needs of both business and leisure travellers, as well as individual and family travel, it is possible for alternative accommodation to exist peacefully in the market alongside more traditional forms of accommodation.”