A recent study by Mirai shows hotel cancellation rates reaching almost 40% on OTA bookings, and near 20% on direct bookings. This unfortunate downturn has all the potential to become a huge pain for a hotelier. Online booking isn’t protected from abuse, which leaves it wide open to those who would take advantage of it. Can anything be done to reduce cancellation rates and maintain revenue while keeping your guests happy?
The almost perfect convenience of an instant and comfortable online booking process, along with carefree “Click to Cancel” policies have encouraged this flip-flop behavior. Guests are able to secure their stay at a hotel one moment, and cancel the next moment, sometimes after finding a better last-minute deal at another hotel. Obviously, providing a better experience for the guest, including easy booking and cancellations, is a win-win for the travel and hospitality industry. But did hoteliers imagine that the abuse of the system would go this far, basically turning into a common world-wide tactic?
For instance, some tourists book a reservation only to receive a traveling visa, and cancel as soon as the visa application is approved. This is an especially popular tactic in Russia, as data from the travel search company Dohop reveals. Others, due to a “zero cancellation fee” policy, pre-book rooms at multiple hotels, later cancelling all but the one which had the lowest rate the day or two before check-in.
That behavioral shift in booking has not only increased hotel cancellation rates, but has dramatically increased revenue losses for hotels. Hoteliers are now facing a big obstacle for revenue management, inventory distribution and rates optimization. As you can see in the graph below, OTAs contribute most to this problem, while cancellations from direct booking guests remain low:
Stop the Madness – 3 Strategies to Reduce Hotel Cancellation Rates
Though the situation may seem depressing for your hotel’s future, there are solutions to tackle high hotel cancellation rates. I’ll divide these strategies into 3 main categories: Structural, Influential, and CX (customer experience) Oriented.
Strategy #1: Structural
As mentioned above, high cancellation rate is a phenomenon that arose with the increase in online bookings, and is two times more common on OTA bookings. One of the main reasons for this are the “Free Cancelation” policies that OTAs are more than happy to advertise, as this strongly influences travelers to book early and cancel later. In this case the OTA will still come out ahead with one paid booking, even if five others are canceled.
A structural solution could involve updating your cancellation policies to include a 1st night deposit on 3rd party websites. It may drag down your rank in the OTA search results, but will assure better cash flow. A more radical method is to offer only non-refundable rates on 3rd party sites. These two are very practical moves that will create a structural change in the variety of your room types (refundable vs. non-refundable) and decrease cancellation rates. Although it’s a very simple and straightforward strategy, hoteliers are implementing it with successful results, as seen in these comments from tnooz.com:
A smarter implementation of the structural solution would be to adjust the cancellation policies for each booking channel depending on its cancellation rate. That way you will still maintain the volume of bookings from 3rd party sites from guests who actually intend to stay.
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Strategy #2: Influential
The Ad-tech (advertising technologies) industry has evolved dramatically during the past 10 years. Online giants like Facebook and Google have made advertising more personal for consumers and easier for advertisers. But what’s in it for hoteliers, and how can it help in reducing your hotel cancellation rates?
The answer is cookies and stories.
Advertising platforms use Internet Cookies-based technology to track website visitors as they click from one website to the next. Once a user clicks on your website, cookies-based technology makes it possible to present your advertisement on other websites the user is surfing. This is commonly known as “remarketing”. This technology has existed for more than 15 years, but only recently become available on social media sites. The format is an engaging micro-content post in the form of a story, instead of an alienating big old banner ad like it used to be.
Not only has the advertisement format evolved, the cost (no prepaid or committed budget is required), the technical setup, and the creative operation have become super easy. For instance, on Facebook’s Ads Manager (its most popular advertising platform) you will find tools such as a free image bank and image design tools. There’s also a highly advanced measurement system and the most progressive audience targeting system in the world. It basically provides you with everything you need to present your message in the right way to the right people. The most important part from a technical point of view is of course the Remarketing Pixel setup. The pixel is a piece of code provided to you by the advertising platform that is responsible for the tracking (cookies) on the user’s device. All it takes is placing it on your hotel website’s pages.
Professor Robert Cialdini, a world famous psychologist who specializes in researching persuasion tactics for marketing and advertising, refers to several key principles of influence in his bestselling book “Influence”. We’ll look at two of his principles and apply them to a remarketing campaign on social networks. How can this reduce hotel cancellation rates? By influencing guests to respect their reservation. By the way, Twitter has similar capabilities as Facebook to conduct a targeted remarketing campaign. Here’s how Cialdini’s principles work:
- Cialdini Principle #1 – Liking: Cialdini shows that people are more likely to buy from someone they like, and a familiar person will be more likable than a stranger. Therefore, a good practice would be to run ads with a more intimate creative copy that presents the hotel’s crew, facilities or amenities. This can make the hotel itself more familiar and likable.
- Cialdini Principle #2 -Reciprocity: A more progressive, but costly, alternative is to offer coupons for nearby restaurants or attractions to incentivize early bookers to stay at the hotel. Professor Cialdini found that people tend to return a favor, meaning that giving something for free or at an unexpected good value will motivate the guests to “give back” by staying at your hotel.
Although this practice of remarketing is very common with eCommerce marketers, there is an issue when it comes to companies that heavily rely on 3rd party sales, such as affiliates and of course – OTAs. That happens because online distribution contracts usually won’t have a pixel implementation section. If OTAs would embed your remarketing pixel on the reservation confirmation page, it would lead to a very positive impact on your cancellation rate. Hotels should start negotiating with OTAs about remarketing pixels as soon as possible, because the value for the hotel can be huge, and the cost for the OTA is almost zero.
Meanwhile, as I mentioned on an earlier post, guests will search for your hotel website even if they book on an OTA. Therefore, I’d recommend the Influence strategy and social media remarketing for all your website visitors arriving from the following sources: organic search, branded paid search, metasearch and direct traffic. This will allow you to cover the maximum amount of guests who booked a reservation at your hotel on 3rd party websites but had also visited your website in between.
Strategy #3: Customer Experience (CX) Oriented
Although the structural strategy seems to work effectively for some hoteliers, there’s a potential side-effect – an unhappy or angry guest. OTAs have re-educated travelers to think booking 5 reservations they don’t need, then cancelling them at the last minute is totally okay. When a guest cancels and is charged for the 1st night or even the entire reservation, the response might be extremely negative. This can be the case even when guests know in advance about the cancellation policy for that particular reservation.
Of course customer satisfaction is a crucial factor in every business success, especially hospitality. It’s become even more important in the social media era when people complain publicly about every bad experience. So what can you do to survive financially while strengthening your cash flow, but also provide a better customer experience?
You begin by acknowledging that life can happen to your guests just like it can happen to you.
Imagine this: A guest books a room at a non-refundable rate and is happy about all the money saved. An urgent situation arises. Suddenly their plans change, but instead of being out the money, they are entitled to a refund. This isn’t your ordinary refund, however. This is a refund which a 3rd party will pay for through an automated “one click cancellation” process. If needed, the customer also has access to a high quality of customer experience from a professional and dedicated team.
Now imagine all that at zero cost for you. I know you may think it’s too good to be true. So let’s elaborate a little.
Life Happens provides simple cancellation protection for hotels as well as for travelers. That’s right – both sides are protected. It allows you to offer more non-refundable rates on your hotel website. In addition, it will help you drive more direct traffic and grow your direct booking channel.
So how does Life Happens work?
When offering a non-refundable rate, your guests receive the opportunity to pay a small commission of the price per night. Then in case of cancellation for any reason, they receive 80% of the money back. Remember, the cost for your hotel is $0.
But there’s more. Not only does Life Happens refund the guests, but it also splits the revenue of the commission with the hotel. This will actually increase your hotel’s revenue per available room.
In other words – using Life Happens reduces hotel cancellation rates by giving you the opportunity to offer more non-refundable reservations while keeping your guests happy. In addition, it will increase RevPAR and help you grow your direct booking channel.
Life Happens is also available for OTAs. When you negotiate with new OTAs or re-negotiate existing contracts, simply ask them to implement Life Happens on their booking engine. Explain that it will provide them with more (and better) non-refundable rates, because with Life Happens, you are both covered. Win-Win-Win.
As usual we created a short slides presentation of this blog post just to give you one more way to share it with your colleagues who usually can’t read as much as you.
Provide guests the flexibility to cancel without the risk of losing revenue. It’s easy so let’s get started!
Related blog post: How to Increase RevPAR in 2017
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