OTAs vs. direct bookings:

February 2020

Emilie Kroner, senior vice president of retail & commerce

It's an understatement to say that online travel agencies (OTAs) have changed the way people book travel. They not only streamlined the way travelers shop for hotels, airlines, car rentals, and more, but they have permanently altered customer expectations and forced travel companies to update and evolve their business strategies to remain competitive.

OTAs have taken a significant role in the travel industry, currently accounting for 39% of U.S. digital bookings, driven largely by the hotel sector. The rise of OTAs is due partly to the fact that customers prefer the ease of comparing thousands of options in one place, but also because OTAs provide a marketing platform to hotels with access to hard-to-reach consumer segments.

Why OTAs are here to stay

When hotels collaborate effectively with OTAs, they reduce their inventories of un-booked rooms and boost revenue, especially during off-peak periods. They're able to reinforce brand awareness and they still benefit if travelers use OTAs for research before switching over to direct booking sites.

Hotels also rely on the extra distribution and marketing power they get from partnering with popular online travel agencies such as Priceline and Hotels.com. Those OTA views and commissioned bookings are great for business, maybe even crucial, but they come at a price. With most major OTAs charging high commission fees and the need to maintain competitive prices, hotels are increasingly looking to augment their OTA engagement strategies with programs aimed at driving direct bookings. This is especially critical for hotels, as hotels pay OTAs higher fees for booking compared to airlines, whereas airlines pay the equivalent of a travel agent fee.

An artful approach

Considering the extra distribution power and reach, OTAs are oftentimes considered a necessary, although expensive, marketing and distribution platform. To nurture and grow their share of the market, hotels are capitalizing on their differentiated direct booking offerings by focusing on the things that OTAs aren't able to provide, such as access to on-site amenities and loyalty program perks.

Well-designed travel loyalty programs with enticing rewards not only encourage customers to book directly, but are beneficial for long-term customer retention. This is particularly true for hotels, as customers cannot access loyalty program rewards or perks through an OTA booking the same way customers with airline bookings can log frequent flyer miles for a flight they booked via an OTA. Hotels can also provide differentiated access to pools, free breakfast, and other amenities to guests who book direct.

Traveling is one of life's greatest adventures, but it also comes with late nights, layovers, and sometimes stressful situations. To stand out from the competition, a strong loyalty program should address travelers' needs and create frictionless interactions through the use of smart technology. The Hilton Honors program offers a number of perks, including free Wi-Fi, late check out and points toward free nights. While those are fairly standard offerings, their app allows customers to check-in and doubles as a digital key, providing weary travelers with a quick and easy way to get into their rooms faster.

This tangible benefit allows them to connect with their customers and underscore the value of booking directly for hotels. Hotel guests cannot add their loyalty number to a reservation and enjoy the same benefits if they book through an OTA. In this way, hotels are incentivizing customers to book direct for the optimal experience. However, it's a delicate balance for hotels between building a strong relationship with all customers, regardless of how they book, and incentivizing direct booking to avoid expensive OTA fees.

Great brand storytelling encourages direct booking

When it comes to driving direct bookings, hotels should consider how a powerful story can tip the balance. Once customers using an OTA site to decide on a hotel, it's not unusual that they'll then visit the brand's website. Completed, engaging profile content on the OTA site is both a competitive advantage and a hook to encourage visitors to check out the brand website to complete the purchase.

Most OTAs require partner hotels to showcase all available properties and rooms on their website, and high-quality photographs are a must. In today's digital world, customers expect brands to have a strong visual identity.

Combined with a clear description of amenities and available options, that story can pay off in multiple ways. It helps create a price/value equation that justifies market pricing, which in turn can help win the booking from a competitor. It can also nudge a potential guest to visit the property's direct booking site and click around, potentially leading them to make restaurant or spa reservations or learn more about the hotel's loyalty program, whether or not they book direct.

The combination of compelling incentives through loyalty programs and broader distribution via OTAs provides a two-pronged strategic approach for hotels to maximize direct bookings and maintain strategic relationships with OTAs.