Direct Sales vs OTAs


Reading Time: 4 mins. 25/10/2017

We all know that OTAs offer a very wide showcase, which for many hoteliers becomes a tempting attribute when it comes to bed distribution, as it seems an easy way to get a high number of reservations. But let’s not fool ourselves, this channel can become very expensive at the end, for we put in third hands the viability of our business. Today, we want to show you the reality of selling through OTA versus selling through your direct channel.
The classic process of booking a room with a traveller doing a search on an OTA or metasearch engine. There, they can select which hotels they find more interesting and suitable and, after that, they check whether they have an official website or not. Users become frustrated when they come up with different room types, images and cancellation policies. This frustration makes the user leave the hotel website and go back to the OTA; the hotel just lost a direct sale.
 
According to a recent study conducted by Google, 52% of travellers will visit a hotel’s website after having seen it through an OTA. At the same time, 20% of direct sales come from users who discovered the hotel on an OTA. This indicates that the presence on an OTA can increase our direct sales. This same study states that OTA users visit an average of 5,6 hotel sites and stays there an average time of 6 minutes.
 
Many hotels feel satisfied by the increase in number of visits and the time within that session, but this is not the most important. What’s essential is that users find easy answers to their doubts, that they feel the brand is offering trust when making a reservation and that they find the best conditions in order to finish the transaction.
 
The relation between direct sales and the ones from OTA will vary depending on the type of hotel, the destination, but mostly on the strategy chosen by the hotelier. According to numerous studies and based on our experience, direct sales should account for between 30% and 40% of total sales, but there are always cases such as Premier Inn, where the 87% of sales come from the direct channel.
 
But we must bear in mind that OTAs will always look for their benefits. They don’t really mind if they sell hotel A or hotel B on the same destination; for what is above these hotels is their brand.
 
Moreover, what OTAs seek is customer loyalty, not with your hotel, but  with their brand. To this day, OTAs don’t miss their chance and, once your customer checks out of your hotel, they send fidelity emails, not so they come back to your hotel, but any available hotel on their website. Their priority is their brand loyalty, not yours. OTA know the importance of information and customers data, and they won’t share it with hoteliers easily.


But what’s really important and we really need to bear in mind is how OTA sales affect the hotelier’s income account.  At the end, however much sales increase, if the cost for the hotelier also increases, the net profit will be reduced.
 
If we analyse both thypes of sales (direct vs. through OTA) we can see that the difference between net profit can reach the 14%, which goes directly to the income account.
 
If a room is sold for 200€, VAT represents 20€. If this room is sold through an OTA, the commission will depend on the platform where the booking has been made, that is, between 17% and 20%. On the other hand, if the booking is made through a direct channel and using the BookingCore solution, the commission will be of 4%.  To this we should add the marketing strategies carried out to attract the user to the website, whose cost can vary between 2% and 4%.
 
If we look at the chart below we can see how, from a 200€ sale, the difference in net profit would be between 18€ and 28€. A difference on profit from 9% and 14% that goes directly to the income account.


It is clear that hotels have no chance to compete with OTA in terms of investment, technology and brand awareness. But here is something that some hoteliers still can’t see, that is without their rooms, OTAs lose their core business.  That’s why nowadays having price parity is not enough, we need to decide how much to sell through each one of the distribution channels.
 
Finding the balance in the distribution that will optimise profitability is not easy, but it’s the only choice to take back control. It involves making difficult decisions and being determined before intermediaries. It depends on the distribution model chosen by the hotelier, the weight of the OTA sales, the brand strategy, the positioning in metasearch engines such as Tripadvisor, the loyalty strategy… many variables that depend only on the hotelier.

At the end, what booking.com and the rest of OTA is trying to avoid at all costs is that the hotelier realises that he needs their services much less than he thinks.