OTAs: The pros and cons of working with them

Many travellers these days use online travel agencies (OTAs) when they search for accommodation. In fact, sites like Expedia and Booking.com are some of the most visited websites in the world. Promoting your hotel through an OTA can therefore be a great way to build your hotel’s brand presence and reputation. However, although there can be a lot of benefits to working with OTAs, there are also some downsides.

In today’s post, we are going to explore the pros and cons of working with OTAs. We will also explain how to create an effective distribution strategy that helps you generate maximum revenue for your hotel.

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What are OTAs?

OTAs are online travel agencies where travellers can organise every logistical aspect of their trips. This includes flights, hotels, tours, and car rentals. They can find offers, compare deals, and confirm bookings straight through an OTA, which is both convenient and time efficient. What’s more, travellers can view reviews on most OTAs which reassures them that they are paying a fair price and getting value for their money.

From the perspective of a hotel, these sites can help properties reach a larger market and build consumer trust, especially in the case of smaller, boutique hotels with less established reputations. In exchange, these OTAs usually deduct a commission from the rate paid by a booking guest. Hotels can also pay a premium to appear at the top of listed search results.

Pros OTAs

Working with OTAs can go a long way to enhance your revenue management and distribution channel strategies. However, although there can be many advantages, these need to be weighed up against the disadvantages. It’s important to consider both the pros and the cons before entering into an agreement with an OTA.

Let’s start with the pros:

• Increased visibility: Partnering with OTAs can help hotels increase their visibility and reach a wider audience, including international travellers who may not be familiar with a hotel’s brand. 
• Access to a large customer base: Most OTAs have a large customer base and an established online presence, which can help hotels tap into new markets and generate additional revenue. 
• Time and cost savings: OTAs handle the marketing and advertising side of a hotel’s inventory, saving hotels valuable time and resources. Additionally, the commission-based model used by most OTAs means that hotels only pay for actual bookings, making it a cost-effective option in terms of distribution.

Cons OTAs

Here are some of the cons of working with OTAs:

• Commission fees: OTAs charge a commission on every booking made through their platform, which can be as high as 25%. This can significantly impact a hotel’s profit margins. 
• Lack of control: When working with OTAs, hotels have limited control over their brand, pricing, and customer data. Additionally, OTAs may use aggressive tactics to push other properties located in the same area, potentially causing the hotel to lose bookings. 
• Dependency: Over-reliance on OTAs can leave hotels vulnerable to sudden changes in the market, such as changes in commission rates or shifts in consumer behaviour. Additionally, hotels can lose direct bookings and customer loyalty if they rely solely on OTAs for distribution.
• Booking restrictions: OTAs might impose restrictive terms and conditions for bookings, such as automatic room reselling or guest cancellation policies.

How to create a distribution strategy for your property

Aside from weighing up the pros and cons, you also need to create a detailed distribution strategy for your hotel before you start working with an OTA. This will help you identify which distribution channels you should be working with and on what scale. 

Here’s what you need to keep in mind. 

Start by estimating the degree of coverage you want to achieve within your potential market. 

There are three possibilities here: 

• Intensive distribution: Where a hotel seeks the largest number of points of sale to ensure maximum coverage and high revenue. This strategy can help you reach a higher number of markets and potential customers. However, you can experience reduced profitability with certain channels, and you have less control over sales policies and brand image. 
• Exclusive distribution: Where a hotel uses a single distributor within a specific type of channel and/or geographical area. This strategy allows for greater distributor control, and it can be easier to differentiate your product as high quality, for example, if you are targeting the luxury segment of the market. 
• Selective distribution: This is an intermediary strategy, where a hotel selects a number of specific channels based on coverage, sales potential, and profitability. This strategy allows for greater control over prices, brand image, and costs. 

The selective distribution strategy is most commonly used in the hotel sector. It is also the strategy that we would recommend since it enables you to create a healthy distribution mix that can help you optimise your results. 

Once you’ve determined the distribution strategy that you are going to use, the next step is selecting the best distribution channels to include in your channel manager. 

Make sure you consider the following: 

• Distributor’s market positioning
• Target market
• Sales potential 
• Geographical coverage
• The cost of each channel 

Don’t forget about direct bookings!

Finally, don’t forget to include direct sales in your overall revenue management strategy. Although OTAs can improve your market positioning and help you sell more rooms, it’s important not to become too dependent on them. You still need to work on maximising your own revenue streams through your hotel’s website and loyalty programmes. 

Why? Because direct bookings are far more profitable in the long run. 

For one thing, you don’t have to pay OTA commissions. Plus, with direct bookings, you can contact guests from the moment they make a booking. This provides you with valuable upselling opportunities. It also enables you to get to know your guests sooner so that you can offer them personalised experiences and build customer loyalty.

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