Last updated on 19 Jan 2023
So, recently I had to plan a trip to Bangalore. Being the end of the month, I was facing a bit of a cash crunch, which strengthened my resolve to make this trip as cost-effective as possible. With that determination, I flipped open my laptop and started wandering around the convoluted streets of the World Wide Web. What I found was pleasantly surprising. I noticed that besides the TAJs, HYATTs and the ITCs, a lot more options were now available on the hotel meta-search engines than just a year ago. It wasn't that these smaller properties hadn't existed then but rather that a lot of these hotels were finally realizing the power of the internet. Soon I digressed from my search of an affordable accommodation and instead decided to put out a post that built upon our earlier post "Democratization of travel and the return of the small hotel".
The past few years have seen a marked rise in the number of OTAs (Online Travel Agencies). They have largely proved to be popular owing to the following:
- For the first time consumers were able to compare a variety of accommodation options and choose what best fit their needs and budget.
- Ease of booking travel along with the accommodation.
- Detailed ratings, descriptions and reviews on hotels all in one location.
- A little bit of marketing magic, such as the thumbs-up icon at the end of transactions, to constantly reassure consumers that they have got the deal of a lifetime. Do not pass it off as trivial. Consumers love to be told that they have struck a bargain.
Armed with these four manoeuvres, it is no wonder that the OTAs have recorded a meteoric rise. While great for the consumers, it does not bode well for the hotels' marketing programs and revenue projections. How so? For the answer to this, we need to dive into…
Rate Parity and OTAs
The devil lies in the details, they say. In this case, to be specific, it is the details of the contracts between the OTAs and the hotels. A commission is definitely due to the OTAs for distributing your hotels to thousands of people every day. Pretty straightforward. But it gets complicated when the OTAs also demand Rate Parity from the hotels. Simply put, Rate Parity means that the hotel cannot undercut the price charged by the OTA either on its own website or in dealing with a competitive OTA.
The rate parity usually applies to a specific room-night and keeps fluctuating. This not only means that the planning and forecasts go awry in the already volatile hospitality market but also indicates that a hotel may have to relinquish some revenues that could have easily come its way had it got an opportunity to sell itself directly from its own website.
This effect is further compounded when other OTAs follow suit and slash down the prices on their own websites. The price war that ensues between the OTAs cripples the hotels' price strategy. The OTAs argue that even if the price war was waging, any difference in the net rates, passed on by the hotel, and the final selling price on their own websites is absorbed by them.
The travellers are willing to spend time and effort to compare prices across websites in order to maximize their savings. So, any insouciant attempt to establish cost leadership by even a single OTA ends up putting tremendous pressure on the revenue stream of the hotels.
Hotels have been attempting to dissuade OTAs from indulging in such price wars, by removing entire base categories completely from the OTA listings. However, such tactics by hotels fail to make a dent owing to the superior capability of the OTAs in distributing rooms combined with a surplus of room nights from the ever-growing travel accommodation industry.
So, while the GOLIATHs of the hotel industry are able to keep up with their large budgets, the DAVIDs are not quite able to take a stand. What the DAVIDs need is a sling and a rock. Cue entry, Travel Meta Search Engines.
Travel Meta Search Engines Level the Playing Field
The OTAs' claim to fame has been the ease of comparing that they offer. But with increase in the number of OTAs, consumers are once again left in search of the best deal and have started comparing the offers of the OTAs. A recent study conducted by a web analytic firm ascertained that travellers visit up to 21 sites before booking hotels for their travel itinerary.
In a world where time is money, several companies swooped in on the opportunity to provide even greater value to the users. Travel Meta Search Engines began popping up on the internet that allowed one to compare the OTAs themselves.
Once again, while the value provided by these Meta Search Engines to the consumers is undeniable, an indirect benefit is also made available to the small independent hotels. They finally found a place to showcase their brand and focus on direct-response sales, rather than helplessly depending on large OTAs.
In the previous year, we saw Priceline acquiring KAYAK, Expedia acquiring the German meta-search engine Trivago and purchasing stakes in Room77, TripAdvisor deciding to go full Meta and here in India, MakeMyTrip.com acquiring a 19.9% stake in Ixigo, an Indian Meta-search. This behaviour of OTAs more than validates the significance of meta-search engines in the travel and accommodation industry.
For most meta-search engines, the preferred revenue-generation model is that of advertising as opposed to commissions. This allows the hotels to better integrate their digital marketing strategies with their distribution strategies, while retaining a greater control over their room rates.
Rather than paying to feature more prominently on OTAs as well as losing money on commissions, independent hotels can now shift their marketing spend on featuring prominently on hotel meta-search engines, enabling them to lower the cost of distribution.
The inability of hotels to barricade themselves in an OTA price war is also overcome by effective use of marketing oneself on hotel meta-search engines. That way the hotels hold the power to let go of an OTA that is not willing to come to terms.
How Meta Search Engines Benefit Small Hotels
More pertinently, hotel meta-search engines are able to provide additional value to the end users as well, which will prove beneficial to the smaller independent hotels in a number of ways:
- Compared to OTAs, Meta Search Engines such as Google Hotel Finder and TripAdvisor offer more information about the hotel. An extensive photo album on these Travel Meta Search Engines would do more to assure the consumer of their choice and may even convince a guest to extend their budget. TripAdvisor even lets users upload photographs, which lends more credibility to the claims.
- Listings on OTAs tend not to showcase your entire range of offerings, packages and deals. Users may consider even simple things like free Wi-Fi, complimentary spa sessions and pool access while sealing the deal. But now every hotel has the opportunity to exhibit its entire range on meta-search engines.
- These Travel Meta Search Engines provide reviews for hotels which consumers tend to trust slightly more because they are operating in an informative environment instead of a sales environment.
- Google Hotel Finder provides the option of creating exterior and interior virtual tours — a 360-degree view of the hotel compound to showcase not just what is inside the hotel but also what is around it.
- Meta Search Engines act as semi-social networks and provide a greater incentive to users to upload photographs and post positive reviews.
- Most importantly, consumers can choose from a range of OTAs and your own website. As consumers, one would definitely think that the best information and deals are bound to come directly from the source itself. The more you can manage to divert traffic towards the direct booking engine on your website from meta-search engines, the broader your margins become on each booking.
The Road Ahead
The pace at which technology is changing, it is hard to exactly predict what the future holds. But one thing that we can be certain of is that more and more channels are going to open up for independent hotels for shifting inventory at lower costs. Both OTAs and Meta Search Engines are going to move towards providing the end-users a richer and more personalized experience. Ultimately, it all boils down to using all these channels in an effective manner to create a highly integrated marketing strategy which results in maximum conversions. The need of the hour is for independent hotels to be more responsive to these new technological offerings and adopt the ones which result in converting clicks into bookings.
Summary
The OTAs were quickly able to dominate and establish monopoly in the travel market because they offered unparalleled convenience to the end-users that did not exist prior to their conception. This monopoly allowed them to charge high commissions and insist on Rate Parity. The lack of alternatives forced the smaller accommodation providers to compromise on both these counts. But with the introduction of Hotel Meta Search Engines and the superior value they provide to the consumers — richer information from an unbiased standpoint — small operators finally have a chance to give tough competition even to the larger hotel chains.
Technology is finally proving to be the David's sling. The question that remains for the accommodation providers is whether they learn to use it effectively or not.
