2016, the so called “Year of Direct Bookings” is coming to its end. This year was a wake-up call for hotels to regain control over their distribution chains, rethink existing partnerships with OTAs, better plan new 3rd party distribution agreements, invest in digital marketing, booking engines and effective website design. But more than anything, it opened every single hotelier to the actionable opportunities to grow and prosper from an online direct booking channel. However, a strong direct booking channel won’t necessarily increase RevPAR.
For 2016, “direct booking” is a buzz word, but in 2017, it’s going to become the norm. Instead of only playing with the idea, more hoteliers will actually implement it. Many will practice digital marketing strategies and use new tools and software to grow their direct bookings.
However, from a revenue management point of view, a strong direct booking channel isn’t always the Holy Grail. That’s because direct bookings don’t necessarily increase hotel RevPAR (revenue per available room). For accounting, the direct booking channel is no different from any other channel – it still has a cost per acquisition/booking (CPA) and a RevPAR. The net profit per booking is the difference between the two: RevPAR – CPA.
One may think the best marketing strategy for direct booking growth is to lower the CPA as much as possible, while focusing on growing the RevPAR as a revenue management strategy. But there is a problem with this way of thinking – it takes revenue management away from direct booking practices that strongly affect RevPAR.
Let’s break down the RevPAR formula into its two main factors and see which direct booking practices can also increase RevPAR.
RevPAR Factor #1: Occupancy
Let’s start with occupancy. When you start developing your direct booking channel, occupancy is still dependent on your distribution chain. But, as long as you rely on 3rd party sites, you wouldn’t want to risk driving your distribution partners into a direct booking war. However, there are plenty of things you can try to increase RevPAR and grow your direct booking channel without getting in trouble with OTAs .
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Bid on metasearch websites:
Like it or not, these sites have infiltrated the Travel Search market. The traveler’s online search behavior has now shifted from OTAs to metasearch websites. It means is that your rank on OTAs has become less important, because now the ranking on metasearch websites has a greater impact on increasing occupancy. Why? Because metasearch websites have become a top traffic source for OTAs. This change is insanely dramatic and carries a huge opportunity for hotels.
I know it might be confusing, but let me explain. At the beginning of the online booking era, Google was the main platform for the Travel Search market. OTAs had a monopoly on Google search results – organic and paid. They had gigantic budgets to spend on paid search advertisements, outbidding all the competition. They also controlled the organic search results since they could afford the high cost of website infrastructure investment. Plus, OTAs could easily invest in a long term commitment to SEO (search engine optimization) practices. This made it even harder for hotels to compete.
But now it’s a different story. Metasearch websites want hotels in the game. This is because 1) hotels can pay for play, and 2) because metasearch sites are user experience-driven websites for which hotels provide the choices and rates that metasearch users are looking for.
So what happens when you bid on metasearch?
The obvious thing is increasing traffic to your website. There, it depends on your conversion funnel and your price competitiveness to convert the click to a booking. If you increase your bid, you’ll get more clicks. So if you achieve your ROI goals, keep doing what you’re doing and maximize clicks.
But there is an important collateral benefit by bidding higher. In order to explain that, first let me explain what happens when you bid on metasearch.
In order to reach its goals, metasearch sites use a formula to rank hotels on its search results list. The complete formula can contain many parameters and be pretty complicated. But, it consists of 2 main parameters that have the strongest impact and are easy to explain:
Remember this formula: Hotel Rank = CTR X CPC
- CTR – click through rate. Meaning, how many clicks your hotel rates generate on every time it being presented to the user.
- CPC – cost per click. Meaning, how much are you paying for every click.
The metasearch website business model is simple – they get paid for referring traffic to other websites, and the pricing model is PPC (pay per click). Some OTAs work on a CPA (cost per acquisition) model, but beneath that, it’s all based on effective CPC calculations that metasearch does (eCPC = CPA / Clicks). In order to maximize their profits, the metasearch needs to refer users to as many websites as possible from every page viewed.
This means that you have 2 ways to rank higher:
- Have a super popular hotel website that users will click on frequently. You can do this by providing very low rates, for instance, or by having a very good reviews.
- Put in a higher bid on metasearch sites.
The 1st way is a longer-term strategy, and it is definitely important to invest in, but the 2nd way will immediately achieve the goal of improving your rank. The beauty of it is that by improving your rank, you also drive more traffic to OTAs – without paying for it! You pay only for your own clicks that will convert to direct booking. With your improved ranking, your 3rd party distribution partners will receive more traffic to your hotel’s page on their website. This means more bookings for you.
Offer more non-refundable rates:
High cancellation rates are a huge pain for hotels. In a previous post, I offered 3 strategies a hotel can act upon to reduce these numbers. One of the strategies involved changing the mix of refundable/non-refundable inventory while offering more non-refundable rates on your website as well as on 3rd party websites. Offering more non-refundable reservations doesn’t require changing your cancellation policy (as in the case of changing your refundable policy to include a 1st night deposit). This may decrease ranking on OTA search results. However, we just saw how this impact is reduced in recent years thanks to hotels’ ability to bid on metasearch websites.
Offering more non-refundable reservations will simply increase occupancy by reducing cancellation rates. But what about the customer experience?
Many are worried about angry customers who booked a non-refundable reservation and demand a refund despite of that. Fortunately, this problem is solvable by the Life Happens add-on. Life Happens gives your guest the option of adding a small fee to a non-refundable reservation. This enables them to get an instant refund for any reason while still enjoying a discounted non-refundable rate. For the hotel, Life Happens costs nothing ($0). In fact, the extra fee increases the ADR (more on ADR will follow), which is shared with the hotel. Yes, you get paid for this!
Use Digital Marketing:
Digital marketing tools can help grow the volume of your direct booking transactions. It can also improve the conversion rate of your website and the look-to-book ratio of your distribution partners.
How does a better conversion rate/look-to-book ratio increase your occupancy?
For a hotel, especially an independent hotel, it takes time to grow a brand. It takes a huge budget for a brick and mortar business to become an online sensation that everybody talks about. Unless a unique event or a city/regional tourism campaign drives lots of new visitors to your area, demand will be relatively stable and will grow slowly.
While anyone can easily increase occupancy by reducing rates and thus biting off a bigger portion of the market share, it will have a negative effect on the ADR (average daily rate). If the demand for hotel rooms is stable, we can assume the interest in hotel rooms is stable. Under these assumptions, you will get the same amount of potential guests viewing offers on your website and on 3rd party websites. The question is – how can you persuade a higher percentage of these web surfers to book at your hotel?
Whether you have a strong direct channel, or if you rely on OTAs, you can use the same tools to influence your potential guests. The goals and measurement metrics change, but the process is the same.
Research has shown that the road to an online booking may take up to 45 days, during which a potential guest compares different destinations and different offers. During that time, you have the opportunity to influence them with a marketing message. The current technology allows you to effectively target only those who show interest in your hotel. Then you can broadcast your marketing message to them on social media, on Google paid search and Google’s huge display network of websites.
That strategy is called (you’ve probably heard it before) remarketing. Its advantage lies in letting you show a specific message to the most relevant audience – those who showed interest in your offer.
Potential guests who visit your website will be in different stages of their purchase process. Some are comparing prices or checking reviews. Others are coming from an OTA/metasearch to look for more information about the hotel, while are ready to book. Use a remarketing pixel (from Facebook/Twitter/Google) that tracks your website visitors across those platforms to deliver your marketing message. And voila! You’ve just influenced their decision-making in your favor.
RevPAR Factor #2: ADR
Increase ADR of non-refundable reservations with Life Happens:
You can receive an extra fee from every booking made with a Life Happens protection plan. While protecting both the guest and the hotel from cancellation and refund payment, Life Happens also increases the ADR. Every time your guests choose to book a non-refundable reservation with a Life Happens protection plan, you receive a commission. That will increase your ADR by an average of 3% per every room booked with this added protection.
Use Digital Marketing to boost ADR and increase RevPAR:
Similar to the previous implementation of a digital marketing campaign to improve your conversion rate (and look-to-book ratio), digital marketing also targets potential guests who are interested in more expensive rooms or extras. Offer them exactly what they’re looking for, and they’re less likely to go somewhere else to find it.
For instance, a branded Google search campaign would let you know when someone looks for a spa at your hotel. But instead of making them click through your website to find more info, your ad will show them an offer for a room with spa, instead of showing a general message. Time is a huge asset for people, and we will always look for the fastest way to get the details we want. Don’t let your competition reach your potential guests with their solutions before you do.
RLSA (Remarketing Lists for Search Ads) is a more advanced tool. It allows you to go even further and be able to target people who visited your website when they were searching Google for something else. Let’s say you are a hotel in NYC that also offers guided tour service and someone visited your website. The next day the same visitor searches Google for “guided tour in nyc” – and here your ad jumps in with information about your tours service and a competitive offer.
We created a 9 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: 3 ways to reduce your hotel cancellation rate
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