With 2012 Budgets in full swing Hotel Revenue Management and Distribution professionals are refocusing on driving business direct to their website. However, they are starting at a disadvantage due to the way channel costs are recognized.
Goal: Drive more business direct through the property website.
It would make sense then that the web direct channel would consistently grow year over year. In the e-Trak Report that TravelCLICK produces on major brands it shows that the trend toward consumers’ use of the internet for booking continues. Good news for hoteliers with the goal of driving business direct to the web.
The balance of direct versus 3rd party channel continues to be a challenge for our business; this is partially due to the way each channel is accounted for. While reviewing production numbers of several properties along with the costs of each channel it hit me. The comparison to of the costs of driving direct Web revenue and Online Travel Agent revenue as an example is not apples to apples and disadvantages hoteliers who are working to drive business direct..
Have a look….
When accounting is done for Web Direct, GDS and Voice channels there are hard costs associated to each; when calculating the OTA channel there is no cost that hits the books. That’s right there are no expenses booked for OTA.
It’s brilliant actually the OTA removes the expense from the hotel’s books taking away the internal debate of where to spend funds. They simply put it on a cost per transaction model, delivering revenue at a perceived $0 cost.
If the model was to change and the OTA margin was considered an expense the decision of where to spend resources would be clear.
From a return on investment stand point the Web Direct channel delivers 27 to 1 while the OTA at 25% delivers 3 to 1.
This is not a debate around the value of the OTA; it is about tactics to support the goal of driving Web Direct business and profitability.
Tactic #1: Create a Web Direct Marketing Fund:
- Take a percentage of the total OTA margin paid and add it to the fund.
- Book it as an expense against OTA and a credit to Web Direct Marketing.
- In the above example there OTA1 had an expense of $5,000; take 25% or $1,250 of the expense and add it to the fund.
Radical?…not if the goal is truly to drive business direct to the hotel’s own site.
The cycle is on the move again; it is a perfect time to get serious about breaking the same old trends.
If you enjoyed this article get email updates. Enter your email & click “Get Updates”