Unique Challenges and Opportunities for Independent Hotels
By Kelly Robb
Last updated January 04, 2018
4 min read
It's an exciting time for independent hotels. While they face more competitive pressure than they ever have, independents now have a wealth of technology solutions and analytics at their fingertips, if they're willing to invest strategically. Independents are also in a unique position versus larger brands to deliver outstanding service levels as they continue to build up their guest databases.
OTAs dominate online sales When you look at the market by room supply, according to Phocuswright, independent hotels make up about 1/3 of total room capacity in the U.S. and about 2/3 of room supply in Europe. There are many regional nuances, but an important trend across all markets is that OTAs continue to dominate online sales. In 2015, OTAs represented 71% and 52% of online sales in Europe and the U.S., respectively.
And, according to recent research from Kalibri Labs, this trend is accelerating. Distribution costs are rising 2x the rate of room revenue, and OTA share of bookings is growing across all segments. At the same time, the distribution space is getting even more crowded with new entrants like TripAdvisor and Google, with similar high cost commission-based models.
The influence of Meta sites and OTAs also extends into search. New research from L2 shows that TripAdvisor dominates in search, as it appears on the first page of organic search results for 99% of unbranded search terms. The site also owns 7% of all organic real estate in brand term searches, which is significant considering the dominance of brand sites in search. This competition makes it even more difficult for independent hotels to show up prominently on Google.
Perception versus reality For independent hotels, there is a disconnect between what they say they want (more direct bookings) and the actions they take (limited investments in the tools to make that happen). Lorraine Sileo led a very informative session at Phocuswright Europe 2016 on independent hotel market dynamics. For example, she shared data showing that the majority of independents say their direct website is their most important online channel, despite the reality of OTA dominance highlighted above.
In other words, independents overestimate the importance of their own website in their distribution mix and could be doing more to drive direct bookings. In addition, we find that many independents aren't taking full advantage of the opportunity to convert loyal repeat guests to direct bookings.
Part of this is cost-driven, as independents naturally have smaller budgets. According to Peter O'Connor, Phocuswright's senior market analyst, "Although most independents would like to drive an increased percentage of bookings directly, many are limited by tight budgets. While they devote the majority of their marketing budget to online channels, its effectiveness is clearly limited."
However, cost should not be the only criteria, but rather any decision should incorporate value and ROI considerations. Among independents, we're also seeing less awareness and investment in technologies beyond internet booking engines. For example, the Phocuswright research goes on to say that across both Europe and the U.S., less than 10% of independents have implemented a customer relationship management (CRM) system or a revenue management system (RMS).
Overall, independents assert that they want to reduce reliance on OTAs and other intermediaries, but they're not capturing the full opportunity of investing in the necessary tools, analytics, and resources to enable such a shift.
The power of technology solutions and service Beyond much larger budgets, the major brands have other assets to leverage to compete against OTAs, like their loyalty programs. For example, IHG, Hilton, Marriott, and Hyatt have all introduced members-only rates over the past several months, driving further breakdown in rate parity. Independents don't have the same luxury, as many lack a loyalty program. The programs that do exist tend to be more informal and ad-hoc in nature.
While a points-based loyalty program doesn't make sense for an independent, or even a small to medium sized brand, we've seen the use of a CRM and marketing automation system in conjunction with revenue management insights dramatically increase the proportion of direct bookings a hotel receives, especially from its loyal, repeat customer base.
"There's common misconception that independent hotels are all dependent on using antiquated spreadsheet-based methods to manage and measure inventory and pricing, while the chains and brands are the only ones able to exploit automated revenue and channel management capabilities," says Neil Corr, Senior Advisor EMEA at IDeaS.
"In truth independent hotels are just as predisposed to unlocking the potential of an RMS as their branded counterparts. New innovations, such as reputation pricing, dynamic group evaluations and room type forecasting, are important for the independent sector to combat the market share threat of the established brands," he adds.
Additionally, Revinate Marketing„¢ customers have found that a targeted email marketing program, sent specifically to guests who have previously stayed with the hotel, has shown a direct booking 20:1 ROI with just two email campaigns per month. And, that's just an average number. For example, this Revinate customer drove $135,960 in direct bookings revenue with just one email campaign.
Beyond technology, another important differentiator is service, as independent hotels are in a unique position versus larger brands to deliver an outstanding guest experience. Above and beyond the physical assets of a hotel, the long term asset that hotels can uniquely build is individual guest-hotel relationships over time.
"Technology and increased automation are becoming invaluable to hotels looking to deliver outstanding customer service, something that independent hotels and smaller brands are in a unique position to provide," says James Gagnon, Director of Communications at B Hotels and Resorts. "With the right technology, smaller brands are poised to respond to guests' needs quicker and more efficiently, resulting in a better experience and a more loyal customer," he adds.
Retaining loyalty amongst guests has other benefits too. Repeat guests have a much lower total cost of acquisition versus new guests”almost 10% lower”according to more research from Kalibri Labs. They also may spend more on property, making them up to 18% more profitable than OTA bookers, given the potential for targeted upgrades, offers, and the higher level of service you can deliver with what you may already know about their preferences and propensities.
In summary, OTAs, both established and emerging, are not going away. The double-edged sword is that they are (and will continue to be) an important way for independents to generate incremental demand and capture new bookings. But, the time is now for independent hotels to invest in the resources that will allow them to drive repeat bookings and capture what is uniquely theirs to own”a one-to-one relationship with each of their guests that results in increased loyalty and revenue.