What is the Optimal Mix between OTA vs Direct Bookings

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For hoteliers, a successful marketing strategy relies on striking the right balance between OTA (Online Travel Agencies) and direct bookings. By understanding how to navigate the pros and cons of each type of booking, a hotel can create an optimal mix that will give their business the best chance for success. Let’s look at the pros and cons of OTA vs direct bookings and then talk about what the optimal mix looks like to find that sweet spot between the two.

The Pros and Cons of OTA Bookings

OTAs (Online Travel Agencies) are websites like Expedia, Booking.com, and Airbnb that specialise in travel services. To gauge whether or not this option is something to hone in on, let’s talk about the pros and cons of OTA Bookings.

Pros of OTAs:

OTAs have become a staple presence in the hospitality industry. With their streamlined approach comes a variety of advantages that hoteliers can explore:

Wider Reach – OTAs have a large customer base and can make it easier for potential guests to discover and book properties.
Valuable Insights – an OTA can also provide valuable insights into market demand and traveller preferences, which can help a hotel optimise its pricing and marketing strategy.
Convenience – They provide a convenient booking experience for guests, with a range of payment options and the ability to compare prices and review options from multiple properties.
Trust – Some travellers may feel more comfortable booking through an OTA due to the added security and trust that comes with using a well-known platform.

Cons of OTAs:

Despite the convenience of OTAs for customers, there are many drawbacks associated with them as well. It’s important for hospitality professionals to understand both the advantages and disadvantages that OTAs can bring in order to make informed decisions about their operational and marketing strategies.

Commissions – OTAs typically charge commissions for bookings made through their platform (from 15% to 25%), which can eat into a hotel’s profits. Meaning that for a $1,000 room booked from an OTA, the hotel pockets only $750-850$.
Limited Control – With OTA bookings, hotels have less control over the booking process and the guest experience. This can make it harder to provide a personalised service and build a strong relationship with guests.
Limited Data – Hotels may not have access to as much data about their guests with OTA bookings, which can make it harder to optimise marketing efforts and guest experiences.
Limited Flexibility – OTAs may have strict policies and procedures in place that limit a hotel’s ability to offer promotions, discounts, or other incentives to guests.

The Pros and Cons of Direct Bookings

Direct bookings refer to reservations made directly through a hotel, vacation rental, or other accommodation provider’s website or Booking Engine. These bookings are made directly with the property, rather than through Online Travel Agencies (OTAs). To better understand the perfect balance between OTA vs direct bookings, let’s now look at the pros and cons of direct bookings.

Pros of Direct Bookings:

Direct bookings provide hoteliers with a range of advantages that can help them to reach their objectives. Here are some of the key perks of investing in direct bookings:

Higher Profit Margins – Direct bookings often result in higher profit margins because the hotel doesn’t have to pay commissions to OTAs (as mentioned, typically between 15% to 25%).
More Control over the Guest Experience – With direct bookings, hotels have more control over the booking process and the guest experience, allowing them to provide personalised service and build a stronger relationship with their guests.
Better Data and Insights – Direct bookings allow hotels to collect more data about their guests, which can be used to improve their marketing and guest experience.
Greater Flexibility – With direct bookings, hotels have more flexibility in terms of pricing, promotions, and policies.

Cons of Direct Bookings:

Though direct bookings really have the potential to yield bigger profits, there also can be downsides to focusing solely on this approach:

More Effort Required – It can be more challenging to drive direct bookings, especially for small or independently-owned properties. This may require more direct investment in terms of marketing, sales, and customer service.
Limited Reach – Direct bookings rely on a hotel’s own website and marketing efforts to reach potential guests. This may be less effective than the wider reach provided by OTAs.
Limited Exposure – Direct bookings may not provide the same level of exposure as OTAs, which can make it harder for potential guests to discover a property.
Payment Challenges – Travellers may not feel comfortable making payments via the hotel’s website or Booking Engine versus those made through OTAs. The payment process may also be cumbersome.

Finding the Optimal Mix Between OTA vs Direct Bookings

There is no single approach to find the optimal mix between OTAs versus direct bookings. For example, global or even national hotel chains have different options open to them versus independent accommodations. Small properties have different challenges compared to large properties. Accommodations in highly competitive areas have different options compared to those in areas with little or no competition, and newly launching properties are different to established sites, and so on.

Large Chain Hotels vs Independent Properties

To drive more direct sales, the large chains have some advantages compared to independents. Firstly, they can leverage the large customer base and a multi-property footprint to run loyalty programs, nationally or even globally. Their size also allows them to meet the needs of large business clients and tour groups. Finally, larger chain hotels can usually afford a professional digital marketing team to help drive both B2C and B2B sales. Not surprisingly, the above benefits, plus having a recognised brand means most large groups and hotel chains have a relatively low dependence on OTA channels for sales.

Small Properties vs Large

Some very small properties opt to have no website or Booking Engine at all and instead rely entirely on sales via one or two OTA channels. They have looked at the cost of setting up and maintaining a website and Booking Engine and come to the conclusion that it’s not something they wish to do. Fact is, most small properties do not have the resources to become experts in online sales & marketing and even those who do invest in this area may still find that 70-80% of bookings come via OTAs.

More or Less Competition

Some destinations have limited accommodation available, and in these cases, the few that are there, provided they have a decent website and traveller feedback, will likely capture a good share of the available audience. It is more a question in these cases to the quantum of inbound travellers which determines occupancy levels and pricing …. not competitive pressures. Hence direct bookings could represent a big share of total booking income in these cases. It is still recommended to have availability displayed via selected OTAs.

Newly Launched (or Relaunched) Properties vs Established Properties

Here, OTAS are a must to get initial traction, leveraging their special promotion deals for newly launched properties. Commissions are high but since there is no brand awareness established yet, OTAs could be the best way to go. Plus, people can leave positive feedback on OTAs, which further help build reputation and brand awareness. Once good ratings are established, newly launched or relaunched properties can ease back on specials promotions/deals and concentrate on building profits.

Finally a couple of general tips, it’s best to go for more OTAS (5-10 or more even) rather than just 1 or 2. It’s safer and it’s essentially free advertising. Second, love it or hate it, traveller feedback is a brand’s best long term bet to build more direct bookings and profitability!