The importance of a strong hotel brand in the age of OTA domination

Hotel owners and operators fought it out at the recent Asia-Pacific Hotel Investment forum in Bangkok during a panel discussion titled “Hotel owners bear all the risks and operators reap all the rewards”. True to its racy title, the panel drew lots of sharp breaths from the audience as two owners were pitted against two operators. The instant survey conducted immediately afterwards showed the audience was siding with the owners’ argument, albeit by a smaller margin (61% vs 39%) than expected.

Complaints about hidden management fees aside, the owners’ side quickly honed in on OTAs and loyalty programs as the culprits responsible for eroding their investment returns. It’s not surprising that owners don’t like either, but particularly the attack on OTAs sounded a bit like sour grapes. There can be no denying that the traditional hotel industry simply missed the boat and is now having a hard time getting in on the OTA action, if that is possible at all given that even Google has recently become an OTA.

The attempt by the big brands to counter the OTAs by launching their own – Roomkey.com – seems to have failed so far – there’s a great article on RoomKey.com’s misguided strategy by Vikram Singh here.

So how to counter OTAs? The response of the operator side was simple: build a brand. One of the panelists claimed that 75% of bookings at his hotel are made directly through their sales channels, rather than OTAs. His message to the owners: if you want to maximise revenues from the hotel brand occupying your property, choose an operator that is willing to build a brand that entices and thereby compels travelers to book directly through them.

I couldn’t agree more. OTAs have added another level of competitiveness to the travel sector and are fast commoditising hotel rooms. Recent research by comScore showed that online travel spending surpassed $100 billion for the first time in 2012, a 9% increase over the previous year, with OTAs such as Orbitz, Expedia, and Travelocity claiming a sizeable chunk of these revenues. Currently the OTAs dominate the market when non-branded keyword phrases are searched. For example, searching for “Hong Kong Hotels” on Google – which is what the average traveler without brand preference would do - churns out a list heavily dominated by OTAs.

While the OTA challenge seems formidable, hotels can certainly claim back some of these revenues through online strategies and paid search ads. A hotel I booked recently through Agoda offered me a promotional code at check-in that will give me 10% off my next stay if I book directly through their website. While these strategies may work, I would argue that a more effective solution would be to build a strong brand.

On Loyalty Programs

The other beef that owners had during the panel discussion was loyalty programs. Unanimously they condemned loyalty programs as “free night programs”. The argument was that if a hotel offered a unique and memorable guest experience – if they ‘got it right’ – then they did not have to offer loyalty programs in the first place as guests would flock back to them without any incentives.  

I think this is somewhat oversimplifying the loyalty concept, specifically if owners don’t believe in building a strong brand – how can you foster loyalty without it?

Courtesy Market Metrix, http://corp.marketmetrix.com/

For one, the ‘free night program’ argument no longer holds. A study by Deloitte found that travelers place more importance on factors such as value for money and past experience, rather than free room nights. This is echoed by many other surveys, including the one by Market Metrix on the right.

In other words, just like with airline programs, it’s the perks that count. The value of fast luggage delivery, waitlist preferences and increased upgrade potential to the airline high flier, is the equivalent of room upgrades, executive lounge access, internet access and late checkout to the hotel loyalty card holder.

And let’s not forget the other factor here: loyalty programs tickle the human ego by delivering something that hotels ‘getting it right’ cannot: status and the opportunity to feel valued and more important than the non member customer next to you that didn’t get an upgrade.

Unless you are a ‘one of kind’ hotel such as the Raffles in Singapore, loyalty programs in hotels across the world are ways to lock in frequent travelers by delivering a ‘rewarding’ experience which will help build a strong brand.