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Hotels - You're Losing to Shatner and a Gnome

The major hotel companies need to rethink their online strategy to stay competitive against smarter, savvier OTAs.

Thursday, December 03, 2009
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There’s a constant struggle bubbling just below the surface in the hospitality business, a push-pull relationship of strange bedfellows that sometimes becomes quite cross. Recently that tenuous partnership was frayed, causing some of those bubbles to pop loudly enough for the entire business to hear. That’s because the relationship between the major hotel brands and Online Travel Agencies (OTAs) is not always symbiotic.

And in what amounted to a much-watched proxy fight for the entire hotel industry, Choice Hotels International and Expedia had a major falling out over the terms of their agreement to work together. Choice yanked their inventory for two weeks before the parties came to an agreement and signed a new three-year deal a couple of weeks back.

Problem is, this agreement has done nothing to solve the larger issue: that major hotel companies have been unable to break the habits of consumers from visiting OTAs in favor of looking and booking at the brand’s proprietary sites.

The end result is millions upon millions of dollars being funneled away from individual hotels and into the pockets of the smarter, faster and better marketed OTAs.

It’s a crisis that reached critical proportions during the last industry downturn that followed the terrorist attacks in 2001, but was then summarily ignored by the industry’s biggest players during the halcyon days between 2005 and 2007.

Now that hotel rates have tanked during the last year, the hotel companies are once again awakening and realizing that these sites, while they serve a purpose, are effectively torpedoing their profit potential while lining the pockets of companies such as the aforementioned Expedia and others, such as Hotels.com, Orbitz, Travelocity and Priceline.com.

“This is an interesting dilemma the hotel brands are facing. It’s really tough for hoteliers when RevPAR is down 20 percent,” said Bill Carroll, Ph.D., Senior Lecturer, Cornell School of Hotel Administration, who referred to the Choice-Expedia conflict as “acrimonious.”

But the larger looming issue is consumers have been well trained to visit these sites, which puts the one hotel company that does not participate in a major OTA at a significant disadvantage against its competitive set.

“The reality is, these travel agencies provide the customer with what they want. Online Travel Agencies will continue to meet the expectations of discounting for several years,” said Carroll.

So that leaves the hotel companies hamstrung if they cannot effectively pull out of these relationships…unless they can do it all at once, which is of course completely unrealistic. The hotel brands must now each take the necessary steps to make their sites even more sticky, interesting and dynamic as the major OTAs have become.

For its part, industry leader Marriott just unveiled a new website that attempts to keep consumers more engaged than ever before. The ability to book packages (including airfare) is more prominent, as is a section for booking meetings. It’s moves like this which could bring more equilibrium to the situation.

Paul J. Brown, President, Global Brands and Commercial Services with Hilton Worldwide, feels it’s critical to have rate integrity across all distribution channels. Without that, ever-savvier consumers know a better rate can always be found just a few clicks away.

“At the core of this is channel and rate integrity for any published rate that is available in any channel you choose to participate in,” said Brown last month at a Cornell University breakfast event. “Having different rates in different channels leads to long-term, and short-term, bad behavior. We are training [our customers] to shop around and that works solidly against rate integrity. You can knock yourself out of that considerations set.”

Brown said, however, that Hilton does more than five times more business through direct channels than all OTAs combined.

Yet, people attending meetings are also getting better rates than group negotiated rates. “The group business customer is abandoning the negotiated rate and going with an OTA rate,” said Steve Swope, Chairman and CEIO, Rubicon.

We recently spoke with one general manager who was attending a meeting, who chose not to book the group rate at the hotel. Instead, he went to an opaque site and figured out he could book the same hotel at a considerable discount. While that was good for his pocketbook, the ability for travelers to circumvent group rates will continue to negatively affect rate integrity.

The brands simply must get smarter and engage and delight customers through their own websites. Now is the time for action. If not, more market share and profits will be ceded to companies that don’t own a single hotel.

If that’s not enough to motivate the big brands from making smart proactive change, then maybe this thought will: Do you really want to lose out to a traveling gnome? I didn‘t think so.
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RE: Hotels - You're Losing to Shatner and a Gnome article link
This is NOT the time to stir this sleeping nest of OTA bees, it is arrogant to think that Choice decided to act so selfishly when they have so many owners of their products suffering from the loss of production they relied on from Expedia. The OTAs and Expedia in point report 17% year over year gains, Hotel RevPAR across the nation is down 17%, conclusions are obvious. If we step out of the industry for a moment and look back at history, nobody attacked ROME when Rome was strong. Likewise no hotel or hotel company should ignore the momentum the OTA's have generated "in these market conditions" and foolishly run at them with a sword. Instead join them, use them to draft off of for the time being, “WE HAVE NO CHOICE” (no pun intended). The reason in part the industry is dependent on OTAs and for that matter travel agents is, the HOTEL INDUSTRY failed it’s customers big-time, we have lied to them! How? By not providing realistic pricing to negotiated accounts as demand drifted, by not providing realistic pricing for our group and leisure transient travelers when demand lessened. This has lead the hotel industry to becoming a commodity like the airline industry. Another impetus the industry is being commoditized is the lack of WOW, The lack of hmmm that is cool. All the Brands are so similar and their service is so rarely genuine, honest like innkeeper, with a genuine “Good Morning MR. X how are you? This makes our customers think of buying a hotel room just like buying a air ticket. All airlines are kinda rude and all seats are just as uncomfortable as the seat on another airline so which ever is cheaper is best. Can you say that about all the big brands….I think we can. The only way out of this is to be unique and stand apart, like Virgin, like Jet Blue, like South West “originally”.

Summation…be honest with pricing, be unique, or fall in line with the rest of the hotels on your block, get in line behind the next taxi cab in front of you and get your commoditized fare from the OTA’s

Strato Hotel Consultants
Posted by: stephen a Beck
Email: sbeck@stratohc.com

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