But why does the rate structure play a crucial role especially on Trivago, Google & Co.
...Traditional sales are decreasing, online bookings are increasing!
Electronic bookings via online booking platforms (OTAs), e-mails, booking systems or contact forms on hotel websites are becoming more and more popular every year, as the following figure shows. Distribution is shifting from offline to online sales.
OTAs in particular are on the upturn: within ten years their market share has risen to 20.9% in 2012. The direct business is suffering noticeably from the growing dominance of online booking portals.
Why are online booking portals so popular?
The main reason is that hotels have not managed to get online in time and that business and contract models have changed. As a result, prices have been transferred from traditional sales channels to the online world, where they provide more transparency. If prices are lower on such channels, travellers naturally choose these channels to book at reduced prices.
How are prices displayed in different channels?
Traditionally, hotels give their prices to tour operators, wholesalers, OTAs & Co. where these prices are then sold within those channels. However, this creates the following problem: the price is often not sold exclusively through this one channel, but is distributed online to other channels. This has a direct impact on the profitability of a hotel. Here is a practical example:
A hotel gives an OTA a room valued at 100,- EUR and 15% commission. She thus receives 15,- EUR when she sells for 100,- EUR. However, if the OTA receives availability for the same hotel and room from the tour operator or wholesaler, e.g. at a net price of €70, the OTA for example adds €25 and sells the room for €95. This makes it €5 cheaper than the hotel itself. This results in a margin of €25 on top of the €15 on the hotel. In total, this makes 10,- EUR more profit for the online travel agency. In the end, the hotel earns only 60,- EUR instead of 85,- EUR, because the tour operator or wholesaler also wants to get his share of the business.
Such serious price differences occur both with classic wholesalers and with OTAs, when a hotel issues special prices for certain markets. As a hotelier, you cannot rely on technical control in the background. Rather, it is important that you understand the interrelationships and partnerships of major providers and know which channels they serve. Therefore always read your contracts with them carefully to avoid risks!
What are the problems with the best price policy?
- Lower net rates: Wholesalers, OTAs & Co. sell their rooms at lower rates via online channels.
- Tour operators often sell your rooms, even if your hotel is already fully booked on other channels.
- OTAs are sometimes cheaper than your own hotel website, because they do not charge their own margin or commission and thus undercut you as a hotel.
- OTAs offer their customers a cashback system (discounts, vouchers) for room rates if they pay for their stay at the hotel (e.g. "11th night free").
- Price differences on several channels, e.g. because the rate exchange via the Channel Manager does not work properly or because of tax differences in foreign hotels.
Which impact does this have on your hotel and what measures should you take?
#1: Your reliability suffers
Pay attention to a clear pricing policy and make sure that, for example, a room on one day is not offered on four different channels at four different prices.
#2: Less control over your own visibility on Google & Co.
Manage your visibility by yourself, for example by offering a lower price on your own website than on other channels. If you give the lower price to other providers, these platforms control your visibility. So take action and control your visibility on the metasearches by yourself.
#3: More click costs for your metasearch campaigns
Offer the cheapest price on your own and pay a significantly lower Cost per Click (CPC), which means for example, for a room rate that is 5% cheaper than OTAs on average a 20-25% lower click price.
#4: Massively less profit
Increase your profit by selling rooms through your own website, because here you save the commission costs that you would otherwise pay to an OTA. The following example shows you how much more you can earn by increasing your own sales:
Booking.com sells your room for 62 EUR per day. You pay a commission of 18 %. A net price of 50 EUR remains. But your actual room price would be 67 EUR, which you offer on your own website, without commission, but with an average of 13% cost in the search engines. The net price would then be €58. This is a difference of €8 and a significant loss for you, because you not only offer your room on Booking.com for €5 less, but also pay 5% more commission (18%). This means that if you have 5 rooms, for example, your loss adds up to 40 EUR per day (5 x 8 EUR) or 14,600 EUR per year.
How important is having the best price on your website?
Now you are surely asking yourself, is it really worth offering the best price on your hotel website? Yes! The following example of a German hotel chain, for which we conducted an evaluation, makes it clear:
3 of the 12 hotels had the lowest price on their websites. This ensured a significantly higher visibility in the search engines, so that from the invested 4.500€ a turnover of about 30.000€ could be generated at a low cost ratio of 10-12%. In contrast, 7 hotels never offered the best price on their websites. The result: a cost ratio of 47%, because travellers who saw these hotels in the search engines booked the hotel room at a cheaper price at other providers. With a best price these hotels could have achieved a much higher turnover, similar to their competitors.
The analysis shows clearly that with the best price you can gain much more: less marketing expenditure, better performance and more profitability of the website.
Breaking your own dependence on the OTAs
With the lowest price on your website on the various metasearch platforms, you can increase direct sales and thus step by step free yourself from the reliance on Booking.com & Co.
Conclusion: What should you keep in mind with the best price policy?
Our recommendations are:
- Do not work with net rates or contingents and make sure that you have strong control over prepaid rates.
- Ideally, only work via two-way interfaces with OTAs on a commission basis.
- Offer the best price in any case! Don't leave the virtually secure bookings to tour operators or online booking portals
- In general: Strengthen your own visibility, the number of website visitors and thus your direct bookings and establish your hotel website as a successful distribution channel in the long term.
Ullrich Kastner gives more information on the topic of best price in our online seminar. However, we would also be happy to look at your individual situation and support you in generating more bookings on your own website and strengthening your independence. Get in touch with us, we are at your side with our experience and know-how!