Years into an ongoing tug-of-war over direct bookings, it’s fair to say that online travel agencies (OTAs), like Priceline, Expedia and Hotels.com, still stir up a lot of angst within the hotel marketing community. OTAs, after all, charge a substantial commission on each booking — generally in the 20% range — which eats into a hotel’s profit margin.
What often goes unsaid in the debate, however, is that a booking made directly through a hotel’s own website isn’t exactly cost-free either. You’re not paying a commission, per se, but you are paying a cost of sale — that is, the budget you spend on advertising channels or digital marketing acquisition.
Generally speaking, the price of winning a direct booking is considerably less than an OTA, especially when cultivated through earned acquisition channels like SEO, content marketing or email. But in some cases, depending on your market, audience and hotel type, the difference is not quite as black and white.
Here are three cases when biting the OTA bullet might be worth your consideration:
1. Metasearch In A Competitive Urban Market
If your hotel is competing in a highly saturated hotel market where consumers tend to shop for the best price — let’s say New York — the costs of running a metasearch campaign can quickly get out of hand. Google can charge you up to 6% of your nightly rate simply for a click to your website, and that’s before even converting the booking. Over the course of a month — including successful clicks that do lead to bookings — it’s certainly not out of the question to pay a cost of sale somewhere in the 50%-60% range.
Compared to this number, the 20% OTA commission certainly looks appealing and makes sense for a lot of hotels. A word of caution, though: Make sure to consider the fact that OTAs don’t provide you with an email address for the booking. It might not make a huge difference for midscale or upscale city hotels that primarily target new guests, but for luxury properties that bank on future loyalty, it still might not be worth the cost savings.
2. Hotels In A Low-Traffic Market
For all the criticism they face, OTAs do a great job of distributing your hotel to consumers who previously were unaware of your brand. This is especially important for hotels in less high-profile destinations, where most of the marketing battle involves distribution and visibility. Some forms of advertising can still be very effective for these types of hotels, especially retargeting (when the guest is already familiar with you), but the volume simply isn’t there to warrant heavy investment in pay-per-click. You might not pay much for the ad placements themselves, but given the lack of search traffic for those keywords, chances are you wouldn’t see much return on the money you spent anyway.
For instance, if you’re a beach resort in a less-known Florida tourist destination, you’re likely better off attracting new eyeballs through OTAs than you are spending money on low-traffic ads — or competing for high-traffic ads that you wouldn’t geographically qualify for. But again, given the limited future value and loyalty of OTA bookings, I still wouldn’t allocate too much budget to the OTA channel. It’s a better alternative than other forms of advertising in this case, but in the grand scheme of online acquisition, campaigns like SEO and content marketing ideally should still gain priority (given their ability to provide long-term ROI through future marketing).
3. Overpriced Display Ads
For hotels with deep enough pockets to compete for high-traffic placements, display ads can be worthwhile as an acquisition channel that generates direct bookings (and thus personal email addresses that can be used for future marketing). For smaller hotels, however, the cost of sale can be hard to swallow: Not only are you competing for prime advertising space with higher-converting retargeting ads (which results in low ROI), but the price can easily top the 20% collected by OTAs.
Take a small boutique hotel in West Hollywood, for instance. You’re in a supremely competitive hotel market where your competitors have vastly higher advertising budgets, and your average daily rate (ADR) is on par with average urban lifestyle hotels (i.e., somewhere in the $200-$300 per night range). Even with the limitations of OTAs, the need to fill rooms means you wouldn’t be crazy to supplement your display ad budget with equal or higher investment in OTAs.
Don’t get me wrong: OTA bookings are inefficient for many hotels, and my recommendation here is certainly not to consider them as your go-to marketing channel. Rather, it’s to consider them as a sensible alternative to other high-cost digital channels. Is the 20% commission ideal? Far from it, but it all comes down to cost of sale and how you can most efficiently fill rooms at your hotel. Even with a high ROI, some acquisition channels can have a higher cost of sale than an OTA. At that point, you have to make your decisions based on what’s most important for your brand. There’s nothing wrong with limiting OTA bookings as much as possible but still using them to boost your occupancy during low periods.