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August 22, 2012

What Every Hotelier Needs to Know: OTA Direct Connects

August 2012 – By Michael Miller, Chief Technology Officer, EZYield, a TravelClick Company

Michael MillerThe distribution landscape is getting more complex every day, with everyone having an opinion on what channels are the best and why. One of the hottest topics is the use of online travel agencies, or OTAs, and how they’ve emerged with creative strategies such as connecting potential guests directly to booking engines. One point is undisputed — OTAs provide a strong marketing channel for a spectrum of operations, including independent brands and smaller properties. One of the real questions hoteliers are asking is if their operations can benefit from OTA direct connects and what the cost will be. The answer isn’t always clear, and a few options need to be considered going forward.

First, let’s define what exactly an OTA direct connection is. OTA direct connections provide a direct interface between the hotel supplier and the OTA booking websites such as Hotels.com, Expedia, Travelocity, Booking.com, and others. The integration provides a simple streamlined process for all distribution updates so hoteliers can minimize errors and labor costs for channel management.

One of the true key benefits of a direct connect is speed to market. Your freshest rates reach the market and are up for sale in the fastest and most accurate method possible. It provides the ability to be dynamic in the marketplace, and puts you in the position to be competitive at all times. Direct connects also provide the opportunity to process bookings in an automated fashion. This allows direct booking delivery to the integrated Property Management System or Central Reservations System (PMS/CRS), or technology partner, so hotels can yield their properties for maximum revenue. As a hotelier, you need to know exactly how many rooms are sold and available, and then adjust the rate based on that information. Without the direct connect automation, there may be reservations that need to be manually input from a number of sources, resulting in incorrect inventory assumptions and less than optimal rates.

Optimal Scenario for a Successful OTA Direct Connect
The circumstances that make an OTA direct connect a good choice can vary broadly depending on factors from the PMS/CRS provider to the in-house IT staff. Here are some factors that position your OTA direct connect for success:

• PMS/CRS Track Record
If the hotel is using an established PMS/CRS with a proven connection to the OTA, you’re positioned for a revenue-generating connection. The implementation team will work through issues that arise which result in less of a chance for bugs or delays.

• Revenue Management Expertise
The availability of an experienced Revenue Management team in-house to support the direct connect will help maximize the opportunity for success. They can facilitate change management processes, monitor changes and identify any anomalies that might arise.

• In-House IT Staff
The availability of strong in-house IT resources to help manage and maintain your direct connect will help support the operational and technical success of automating distribution updates.

• Successful Partnerships
Having the support of a proven technology partner will be helpful to bridge the gap for multiple OTAs – as it won’t be cost effective to use direct connects for all of your distribution channels. The economy and efficiency of a consolidation tool delivers bookings across a broader range of channels rather than direct connects alone. It’s important to maintain sound working relationships with business partners and be able to work together efficiently to resolve issues, and restore the connection quickly if problems arise.

Red Flags That May Hinder Your Success
In a few situations, a direct connect might not be the right solution for your operation. Having a less than optimal implementation may actually result in booking errors, higher IT costs and reduced guest satisfaction. Potential red flags to take into consideration when you evaluate the possibility of an OTA direct connect are:

• Proprietary PMS/CRS
The implementation of a connection to a proprietary system can be difficult. Unless you drive development from your own in-house IT staff, the OTA won’t have the expertise to customise to your specifications. Additionally, it is also difficult to justify the resources to support such a limited connection, and can become expensive on both sides for development and support.

• Low Booking Volume
If the property has a limited number of bookings or changes required, a direct connect will not be the best use of resources until booking volume increases.

• Limited Access to Revenue Management Expertise
If the IT and Revenue Management staff are not frequently readily available, delays could result where revenue-affecting issues go unnoticed for extended periods of time. For this level of automation, you need to have expert resources monitoring the impact of changes in real time.

How to Manage Rate Parity In Third-Party Channels
Increasing your property’s online presence by utilizing a myriad of sales channels, including the use of direct connects with select OTAs, can have significant benefits to the hotel bottom line. The question of which platforms to promote your hotel on and the varying fees and commissions — along with the issue of rate parity–make it harder for hoteliers to understand the most effective way to approach and work with OTAs. Channel management systems are designed to deal directly with issues involving the delivery of consistent and profitable room rates, despite differing OTA commissions, by having built-in markup algorithms. These algorithms calculate each channel’s commission or fee structure automatically so that revenue managers always know what their net rate is — versus the sell rate — they’re pushing out to OTAs.

One of the most fundamental mistakes that hoteliers can make when it comes to implementing channel management strategies for their property is failing to establish price continuity across all channels – through direct connects or channel management software. Not presenting consistent room rates across all booking channels can undermine guest trust, and in some cases, brand value. If a guest books a room in a hotel at one rate from an OTA, only to find the same room for the same date offered at a cheaper rate through another site, they are likely to come away from the transaction feeling taken advantage of. It is also likely that their opinion and trust in a hotel will be affected, along with their inclination to stay at the property again in the future.

The challenge for hoteliers in achieving room rate consistency, or rate parity, is managing the varying commissions and transaction fees associated with the various booking channels. In addition, pricing strategy must take into account any special offers, different room types or features, and seasonal rates that change monthly or daily throughout the year. Therefore, the management of rates and the allocation of inventory to contracted distribution channels must be monitored on a continuous basis in order to achieve rate parity.

While rate parity is of paramount importance when trying to attract bookings across a variety of different channels, hoteliers shouldn’t look to offer exclusive discounts to one channel over another. This doesn’t mean that smart hospitality industry professionals can’t ‘sweeten the deal’ to try and attract bookings through particular channels, but the right balance needs to be reached to ensure rate continuity while still providing value. It can be beneficial to make a potential guest feel like they will receive additional value in terms of extra amenities by booking a specific channel over the other. Potential sweeteners that hoteliers could consider might be spa vouchers for booking through an OTA, or a free breakfast for mobile bookings.

Always Look to the Bottom-line
Remember to do the numbers. Regardless of how the above indicators play out, you need to see the cost and benefit of the direct connect relationship. Partnerships through an OTA direct connect are usually different than a standard interface. As you build a business case for it, remember to consider your margin, the costs of integration, connectivity, customer service and maintenance. Knowing how much manual labor you are saving equates easily to quantifiable dollars and it’s important to understand the value lost from not having a direct connect relationship. How can you increase profit by being more competitive to the minute? What is the figure behind knowing you are not out of parity? What extra revenue is made by being able to yield your property more aggressively? By answering these questions, you can understand the benefits that can make the justification for the expense easier and help compare all options based on your long term booking plan in order to make an informed decision.

OTA direct connects can add substantial value – particularly when you are pushing a high volume of standard bookings through a major PMS/CRS. Additionally, your partners will want to provide the information you need to make an informed decision if they are committed to working with you for the long term. The right decision, implemented well, will drive incremental revenue and higher profit for your business.

Michael Miller is a technology innovator with over 20 years of experience in advanced solution development across a variety of industries and platforms. He joined EZYield, a TravelClick company, as part of the leadership team in October 2010 and is responsible for the development and global implementation of its advanced enterprise-level infrastructure. Under Mr. Miller’s technical direction, EZYield expanded its leadership role beyond being the pioneer of the world’s first automated channel management technology. Its groundbreaking software-as-a-service solution has quickly become the hotel connectivity standard for revenue managers around the world. EZYield solutions significantly improve the revenue potential of hotel properties by offering integrated connectivity solutions that boost revenue and increase efficiencies by streamlining connections between hotel systems and booking channels. Mr. Miller can be contacted at [email protected]

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