I’ve addressed the OTA issue a few times in the past, but it’s time to get down to brass tacks. Not all OTAs are created equal, and in my opinion one of them is due for a comeuppance by the hotel industry. At least, by those hotels that are not part of the big five.
I am referring to our friends at Expedia. I’m not being facetious, the market managers I work with are great people. But it’s time to get real. I don’t know what your agreement says, but the ones I’ve seen lately are ridiculous. Demands for 10% block space AND last room availability. In other words, “we have rooms as long as you have rooms, and then we still have rooms after you don’t!”
There’s also Expedia’s facist regime that monitors your every promotion and hauls you onto the carpet whenever you have the audacity to give a rate to anyone else. This week, they crossed the line as far as I’m concerned.
I’m working with a hotel that ran a private sale. By private sale, I mean just that. The hotel’s offer appears nowhere on any publicly available website. Even the website of the sale itself does not reveal the hotel offer until after you have logged in with your membership. And you can’t just sign up and become a member in seconds like you can with something like Travelzoo. You have to request membership, then wait for days to be accepted. My request took five days. After you are accepted as a member (presuming they didn’t find out about that questionable overseas trip you took back in ‘84), you can sign into the website and view the sale offer. Which, by the way, requires full prepayment and is non-refundable. And has probably already expired since the sale itself only ran for five days during which you were waiting for membership approval.
What part of the above would indicate to Expedia that this is a public rate? Who knows. But within an hour of the sale being launched, Expedia notified the hotel it would be pulled from their site for the duration of the sale if they didn’t receive the same sale rate given to the private website. Which Expedia would of course immediately blast publicly to every person on the planet, since Expedia has no membership requirements.
Most mysteriously, I know of other hotels who ran the same sale on the same private website and heard nothing from Expedia. Apparently interpretation of the law is not an exact science over in Bellevue, WA.
While chatting (okay, venting) with another revenue management consultant about this, he told me of an experience he’s having with one of his current clients. He calls it “WWED”. What Would Expedia Do? That is the first question this particular hotel asks before making any pricing decision. Are you kidding me? This is what it’s come to?
Let’s do the math.
Unless your property belongs to a massive chain with considerable clout, you’re probably living with an Expedia agreement with a margin of around 25%. Now, the mathematicians among us can quickly ascertain that means Expedia receives $1 for every $3 they send us. But I’m not that swift, so I did the whole spread using one hotel’s data, calculating Expedia revenues per annum, total transient revenues per annum, ADRs, Expedia’s cut, etc. No big surprise, Expedia’s ADR was 75% of the total transient ADR. Even I could have figured that out based on a 25% margin. But that 1 to 3 ratio thing really jumped off the page. Expedia earns just over $100,000 annually in margins from business sent to the hotel, for which the hotel pockets just over $300,000 in bookings annually.
That’s a payoff to the hotel of $3 for every $1 sacrificed. In other words, a very low return on investment. I have to believe we could use that $100,000 Expedia is making off the hotel each year to generate far more than $300,000 in revenue if it was invested in other marketing efforts.
Right off the bat, what would the other OTAs provide in exchange for pulling out of Expedia? Show me the positioning! Since other OTAs don’t require both block space and last room availability, nor do they demand parity with non-public rates, I’m thinking we can work together to recoup some of those lost Expedia revenues. Toss into that all the promotions and pricing strategies we could employ if we weren’t under Expedia’s oppressive thumb, and the ADR lift we could get by reducing the number of rooms sold at a 25% margin, which would mean we don’t even have to recoup the same number of room nights we get from Expedia in order to recoup the same profit….
If your property is suffering from WWED, may I suggest a new approach? WWUD with all the money you are currently paying in margins to Expedia? A marketing payoff of a minimum $5 for every $1 spent is generally considered a conservative expectation.
Now, this is not a call to cut Expedia off at the knees. If you can negotiate a deal with Expedia that clearly defines parity and what constitutes a publicly available rate, and includes either block space or last room availability but not both, you might want to keep playing. Expedia, and all OTAs, for that matter, are a good short term solution when times are bad. But times are not going to get better if you’re sacrificing marketing dollars to Expedia that need to be deployed towards the segments that will determine your future success. Put some thought into it, now is the time to plan for your 2011 – 2013 transient mix.
WWUD?
Life is never that straight forward…
The eyeballs that the hotel gets for participating also drives business to the hotels web site. The billboard affect is a reality and needs to be factored into any decision to pull out. It obviously depends on the hotel’s location as to the severity of pulling out of Expedia. Using OTAs as “media” to drive business to the hotels’ web site is the key objective and there are lots of tactics that help hotels to achieve that.
Cheers
John
While I agree that the WWED pandemic we are currently seeing is a bit concerncing, making the assumption that Expedia only provides a 3 to 1 return is a bit off base. While the direct return from Expedia can be measured as 3 to 1, this does not account for travelers who initially begin researching hotels through Expedia but end up booking with the hotel directly via the hotel website or phone. While the Expedia margin is high, one could argue that the return on investment is significantly higher then 3-1.
I suppose the only real way to effectively determine Expedia’s real value is to take a property off of the site and see how it affects the pick up.
Great point, in fact the marketing side of Expedia is in my opinion where the real value is. So that 3 – 1 is admittedly a little off. But reinvesting those margin dollars into other marketing channels would presumably have at least the same (ideally better) marketing impact. I’m talking to one of my marketing guru friends at the moment to feel out where he would put the money if he was looking for a 6 – 1 return. He doesn’t appear to be at all stumped.
I agree that a 6-1 return is not difficult by any means. Most online marketing companies I am aware of strive for at least a 7-1 return. But I think you are still understimating the return Expedia provides. I get as frustrated by the mark up as anyone but with the right strategies in place to use Expedia as a marketing avenue which leads to direct website bookings, I would not be surprised at all if the return is higher then 6-1
Fair enough. But we’ve been buying that story for years, and as you say, there’s only one way to find out. With Expedia, it’s literally fear of the unknown. How much would we really lose by investing that funding in other marketing efforts ? And more importantly in my mind, what do we need to do now to determine our results in the years to come? For the properties I work with, building brand loyalty and becoming less dependent on OTAs is a big part of future success.
I know a hotel that pulled out of one of those boutique marketing brands a few years back despite dire warnings of how much that brand was generating for it. Turns out the truth was “not very much.” It could just as easily been “much more than they thought”, in which case they likely would have had a change of heart. But they’re glad they tested for themselves rather than listen to the vague warnings.
In negotiating with Expedia, all I’d be looking for is either LRA or block space, not both, and an agreement that rates that aren’t available to the general public are not “public rates.” It doesn’t sound like that much to me, but if it’s a deal breaker for Expedia, that would be another sign that someone other than the hotel is trying to dictate the hotel’s selling strategy.