Fighting The OTA’s – Start By Using Trigger Points
We all know that we have all been guilty in the past of giving too much control to the OTA’s. We panicked at the start of the last recession and contracts were being signed with little thought to the long term damage 25% commission and a 5 room allocation on a 24 hour release might do to our business. We are all taking control back – slowly and I do understand what a risky strategy this is but I thought it might be an idea to give some tips that have worked for me and the hotels I work with and I hope they work for you too:
Before you implement any strategy to combat OTA dominance, do you actually understand the impact that these channels are having on your business now. Do you for example know:
- how many channels you are actually on?
- how many rooms you allocate to each?
- which room types you promote on each channel?
- how much revenue each OTA brings you?
- the commission you pay each channel each month?
- the incremental spend each channel adds to your business?
With some analysis, you should be able to establish the overall impact of each channel and their true cost of sale.
One of the easiest and most basic ways to manage the OTA’s from an availability point of view, is to establish Trigger Points. By that I mean:
- Ideally you would set your Trigger Points by room type but for now lets just think of Whole House. You could for example say that Mon-Thu in November I close my OTA channels when I reach 80% occupancy. On a Friday close when I am 75% occupied. On a Saturday close when I am 70% occupied and on a Sunday, don’t close until I reach 90%.
- This could be completely different in July as your direct business is much stronger but at the very minimum, you should have Trigger Points in place that trigger an action when a certain occupancy is reached.
What this doesn’t take into consideration is your lead time and your booking pace.
- If we look at Booking Pace for example, most revenue managers or better still, revenue systems, will use pace from the same period last year as an indicator of how this year is performing. But lets look at this scenario:
Last Year on 01 November for an arrival date of 10 November (10 days lead time), you had 10 rooms sold from Booking.com to arrive on the 10th. This year however you have 20 rooms sold. This may be a 100% increase but the pace could be exactly the same i.e.
Last Year 30 days in advance 2 rooms / 20 days in advance 5 rooms / 10 days in advance 10 rooms
This Year 30 days in advance 4 rooms / 20 days in advance 10 rooms / 10 days in advance 20 rooms
So although we have more rooms on the books this year, the pace is still the same. These metrics should help you work out the expected number of rooms you will end up with on the 10th and should Trigger actions to help you make more informed decisions like when to close-out this channel.
Lead Time is also a really important metric to measure. You should understand when each channel books – so for example – you will probably find that due to customer demographics, Expedia customers will book much further in advance, so therefore closing this channel closer to the date of arrival will have little impact on your business. For your property, when do Booking.com customers book? What is the lead time of your own site? What are the booking patterns of the corporate market that book via the GDS? Understanding these metrics will again help you make better revenue decisions.
We also all know the pain of the massive percentage of cancellations we get through the OTA channels, so how are we managing this? Can you or do you want to add cancellation restrictions to the rates that you give the OTA’s? What is the risk to your business if you do apply restrictions? What is the risk if you don’t! At the very least we need to be measuring:
- when did a customer book and when did they plan to stay?
- that will give you their booking window or lead time
- was it midweek with single occupancy – pointing to Corporate or weekend with double occupancy pointing to Leisure?
- what was their room type and their price point?
- when did they cancel and what was the price point of your competitors v your price point when they cancelled? Was that an influencer?
Again having these key metrics will help you establish a Trigger Point for what could be a very effective over-booking policy. We all want to minimise the impact these OTA cancellations have on our bottom line but before we do, we need to understand when and why they happen. We also need to be aware that these cancellations impact not only availability but our rate strategy. If we are forecasting to have more rooms sold than we actually end up, then we might have been too aggressive in our rate strategy, moving our rates too quickly and basically over-forecasting. These cancellations influence more than just rooms and I would urge you to really dig deep and understand their influence on your own business.
Go back today if you can and look at each of your OTA channels. See which room types you have online. We have all gone past understanding the importance of rate parity so we need to be a little more clever. Ensure that you are selling what YOU want to sell. In some hotels this might be the more expensive room types so they leave the cheapest rooms available on their own site. Others might release only the lowest graded rooms so that they pay less commission per room night and leave the very best room options on their own site.
Whatever you decide to do, I ask you not to give everything away. Like every good poker player, keep your cards close to your chest and don’t show your hand too readily… Use the OTA’s to your advantage. Know where you are. Audit each site. Take back control. I promise you this will pay off.