Sometimes we are asked why we talk so much about Booking.com and that we make them out to be the “enemy”. That is not the case and we do not share that point of view. This post will explain why.
The positive sides of Booking.com
During these last few years, Booking.com has done a splendid job providing a lot of value to hotels and accompanying them in the necessary change of distribution model that every hotel should follow with the arrival of the Internet. The main novelties and positive sides were:
- Direct payment at the hotel. Immediate availability and price update.
- Gradual elimination of quotas (it seems that they have been completely eliminated).
- More transparency. They brought us closer to the client, who was a long way away back then (we only knew something about them on arrival).
- More profitability thanks to a “reasonable” cost that Booking.com insists on -in self-interest- of 15%, although we know that Booking.com applies the commission to prices with taxes (taxes are 10% in France and Spain) increasing the final commission to 16.5% for non-preferred hotels and 18.7% for preferred ones.
- Control of the retail price (since it’s direct payment). From having no idea of how much our hotel sold we now control the price the client pays. Sadly, not many intermediaries can guarantee the same thing (or rather, none of them).
Booking.com also has an almost-perfect platform that deals with the hoteliers’ most pressing needs at just one click away, without having to send emails or make phone calls. On top of this technology, it has also added a service layer (its team of account managers) to accompany hoteliers in its use and to solve all of their queries as well as proposing new changes in a proactive manner. This combination of product and service has meant that hotels have, rightly so, fallen for them and ended up being bookingised.
The marriage between Booking.com and the hotel worked well until the former started capturing sales quota that were too high, surpassing 30% and even up to 50% of the total, something which made hotels wary -scared, even- and resulted in distribution costs shooting up, since not only did they “eat up” the rest of the online intermediaries but they also started doing the same to the direct channel (website and phone). For this reason, hotels started to make less profit despite a higher income (hence the importance of talking about the net RevPAR or GOPPAR and not just RevPAR).
However, not all hotels are going through this phase. Many of them, particularly holiday ones, are still living a honeymoon period with Booking.com, a relationship which is positive and creates value. These hotels, unbeknown to them, are very fortunate since they have the chance to not make the same mistakes others made which lead them to be bookingised.
Boosting direct sales in order to cut dependence
Facing such high OTA fees, particularly from Booking.com, hotels decide to once again boost their direct sales. In some cases, they want to take them to levels achieved in the past and, in others, they simply want to make it grow since it was residual. In any case, conflict is guaranteed. The reason is no other than the hotel website and Booking.com are competing for the same clients. In other words,
- If you want to capture a booking on your website, you have to “take it away” (I prefer calling it a “recovery”) from another channel and, more often than not, that other channel will be Booking.com
- There won’t be any client who books on your website without having also checked Booking.com (and many other OTA and price-comparison websites)
Zero-sum game
At Mirai, we defend the position for it to be a “zero-sum game”.
You cannot win a booking on your website without taking it away from another channel
This is due to a simple reason that OTAs question and that many hotels avoid, because a hotel website does NOT generate new demand and only channels the existing one. This statement has its nuances. There are actions that certainly bring new demand to a hotel (in other words, new clients that you wouldn’t have otherwise) but their impact is so limited and they imply such elevated costs (unaffordable in many cases) that their effectiveness is hugely minimised.
The best and most realistic strategy to boost your direct sales is to move sales from other channels to your website.
Comfort zone: comfortable but with limited results
We all like our “comfort zone”. It’s a psychological and very human thing. In the relation between OTAs and direct sales, the “comfort zone” has historically consisted in “playing by the rules of the OTA”, which has lead us to these levels of intermediated sales. OTAs try to make you forget about boosting your direct sales because “it’s not worth it” and it’s “very complicated” and if you choose to boost your direct channel, they want you to focus exclusively on working on and improving your website, applying measures such as SEO, SEM and other marketing actions with limited reach and growing costs (which sooner or later will become unaffordable to you).
In the “comfort or non-conflict zone”, all your actions will not bother OTAs, much less Booking.com. All it is is basically a little tickle to them.
In this hypothetical race between direct sales and OTAs, many hotels are located almost at the starting line. They have attained interesting achievements but have reached their peak and, at most, aspire to maintain their obtained quota. They are still coming to terms with the fact that growing even more inside their “comfort zone” is not feasible.
Conflict zone: uncomfortable but effective
Once you accept the fact that you have to do different things to keep growing, you are inevitably setting yourself up to leave the comfort zone. You accept that the most effective way to boost your direct channel consists in limiting sales on the rest of the channels and, therefore, getting rid of the “one-size-fits-all” policy (not all channels are the same). Welcome to the “conflict zone”. It sounds bad but don’t worry, it’s not.
In this new area, you will make decisions that OTAs are going to profoundly dislike, such as reducing the number of channels by removing those that don’t add any value -something that Booking.com loves because they’re never one of them-, fighting for the use of your brands on AdWords and price-comparison sites, breaking parity in prices and, above all, the stock parity -to which OTAs grab onto like crazy since it clearly benefits them- and, lastly, bringing out your chequebook to invest in telling the world that you have the rooms and, on top of that, at the best price -mainly price-comparison sites but also email marketing, display, etc.
All of these subjects will be a recurring topic in your negotiations with all channels, including Booking.com. Their reaction will be a discourse of fear, of contractual law -illegal in most of Europe right now- and threats, such as removing you from their preferred programme. If you are under this sort of pressure from OTAs, you must be doing something right. If your relationship with OTAs is fabulous and full of joy, that’s because you are still in the comfort zone, a zone where they win and you lose or don’t win as much as you should be.
Leaving the comfort zone is no trivial matter. It requires tools, strategy and tactics. Doing it quickly and without giving it much thought doesn’t work. However, with a good plan and roadmap, it’s perfectly feasible and risk free or low risk.
There is no permanent “conflict zone” because that wouldn’t be sustainable. After some time, you end up finding a balance with the OTAs who you’ve kept, including Booking.com, and in this new situation everyone wins, not just them.
Conclusion
Alongside TripAdvisor, Booking.com is the largest Internet showcase to search and find a hotel in a destination. It’s an essential showcase and you need it. Also, it shouldn’t worry you that Booking.com sells a lot, provided that you understand how those sales are generated and that they are helping you improve the hotel’s profitability.
However, OTAs and Booking.com, like all businesses, primarily look out for their own profit (and not yours). Many of their actions generate a clear-cut conflict of interest and in order for them to win, you need to lose. Of the many examples there are, we think that the most illustrative one is Booking Genius, a programme on which we will soon publish the reasons why we believe hotels must abandon it as soon as possible.
The combination of “comfort zone and high profitability” doesn’t exist. Finding the optimum channel mix which maximises your profitability requires work, leaving your comfort zone, consistency and negotiation in order to find balance once again. Many have already accomplished this, others are still on the subject and most of them haven’t even started.
