Put bluntly, an industry, which prides itself on hospitality, began its relationship with the internet by producing some seriously inhospitable websites. Not recognising the Internet as powerful new distribution channel, hotel websites in the 1990s often became mere electronic versions of corporate brochures with minimal functionality. This almost total failure to appreciate the immense opportunities inherent in the web still puzzles observers.
“Historically, hoteliers have been one of the best direct sellers of their products, traditionally selling 75% of their rooms to end consumers,” says Max Starkov, a principal at Hospitality eBusiness Strategies Inc (HeBS). “Then all of a sudden, when the Internet appeared, they lost their touch. While the intermediaries came to dominate the bookings market, hoovering up 54% of all reservations, hoteliers looked on helplessly. They simply could not figure out what to do with the Internet.”
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IHG was the first hotel group to establish an internet presence with online booking. “But for five years,” says Starkov, “when you went on their site, the rates you saw were $50–150 higher than those you could find for the same inventory on an intermediary like hotels.com.”
BOOKINGS SLIPPING AWAY TO INTERMEDIARIES
All major hotel groups, according to Starkov, featured their rack rates while they had sold the same rooms to online intermediaries at group rates. In doing so, they somehow imagined that their customers would still book through the hotel website. The reality was that booking slipped away to the intermediaries. Starkov cites 2003 research undertaken by Smith Travel Research and PricewaterhouseCoopers, which found that that year, an estimated 6% or fully $1bn of US hotel industry profits were being absorbed by third-party merchant websites. No wonder that an aggressive intermediary such as hotels.com has grown from a two-man operation in 1995 to the $3bn company it is today.
“It was only in 2003,” says Starkov, “that hotels first began to introduce rate parity, so that the price a consumer would find on an intermediary was likely to be the same as on the site of the hotel that owned that inventory. However, when the intermediaries then introduced best rate guarantees, it again took hotels time to catch up. Yet as chains have introduced their own best rate guarantees, they have seen dramatic increases in booking rates on their own sites,” as Dr Bonny Brown, director of research and public services at Keynote Systems, a specialist in e-business performance management systems, points out.
“The challenge,” explains Brown, “is making hotel websites so user-friendly that they enhance the brand and acquire and retain customers. One key change necessary is to abandon the hassle of registration before a customer gets to see a final price. The time to take the customers’ details is when they wish to make a purchase. Thereafter, they can be invited to register at a future visit.”
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By GlobalDataBrown believes there should be no data-gathering formalities before a user can have the full access to the booking site, because this degrades the experience of the visit. It may well mean that visitors will click off in search of an easier way of finding out the information they require.
HOTEL WEB PORTALS
As hotel groups have become more web-adept, they have combined the inventory of all their different property brands onto a single site, creating a web portal. Thus a visitor looking for a hotel in Boston could visit the Marriott site and call up all the Marriott group hotels in the city and their prices. Originally managements feared that posting the cheaper priced inventory would rob them of higher priced rooms sales, but according to analysts such as Starkov, this has not happened.
In fact, the opposite, up-selling, has occurred. “A visitor to the Marriott portal who normally stays at a Courtyard may spot a Marriott in a better location for just $30 a night more and will be glad to pay the extra to be closer to where he wants to be, and also have that extra Marriott experience,” he says.
The group portal is the best way that hotel groups can answer the Expedias of this world, providing, says Brown, “the user’s experience is satisfactory. That means that customers feel they are being given a full selection of rooms and clear price comparison. The key word that comes up regularly among analysts is ‘trust’.”
On paper, the intermediaries have the advantage of a much wider selection and they can also package car hire and air bookings. They also have only a single basic task, which is to consolidate as much inventory as quickly and efficiently as possible. The impact of Expedia, whose booking engine is rated by many as the best in the industry, is reflected by its consistent top ratings for user-friendliness in surveys, such as that carried out by Keystone Systems in its Customer Experience Rankings for the Lodging Industry, the latest of which is due to be published this March.
Hotels, however, do enjoy their own advantages in the battle to win back business from the intermediaries. They can add value with loyalty programmes and, compared with intermediaries, the hotel chains have a smaller inventory, so search results for bookings ought to come faster.
“They also have a much more direct ownership of customer support,” says Brown. “So, if a customer has a problem, such as wanting to bring their dog, it will seem easier for them to go directly to the hotel and check rather than go through Expedia, who are not directly responsible for answering that query.” She also notes a trend where people undertake initial research on intermediary sites before going directly to a hotel site to book.
While the big chains try to claw back booking share from the intermediaries, independents and medium-sized chains welcome the additional distribution, though not always the commercial terms. Settlement can be up to two months after a room sale, though Priceline may have started a move towards earlier payment, generally on booking.
BECOME A GLOBAL PLAYER OVERNIGHT
While the big groups fight it out with the intermediaries, the Internet could have been invented for the small, independent boutique hotel, says Starkov. “Now, you can become a global player overnight, whereas this used to be simply impossible,” he says. “At HeBS, we have a very determined client in New York who, after four years hard work, is selling 70% of their rooms directly through their website. They are not affiliated to any brand, they are not even on a travel agency GDS (Global Distribution System).”
The small hotel can now easily run a real-time booking system Online booking modules have become commodity items, available as modules to property management programmes. In Europe, booking engines can be bought inexpensively from companies such as Fastbooking.com. These can be set up quickly for minimal investment since the provider is paid via a small fee per transaction.
“It is not a question of money, but the realisation that the Internet is a huge tool that you can use to your advantage,” says Starkov. By his calculations a good website, created according to best practices, could be up and running for $10,000. Website hosting costs a nugatory $30 a month and the only other investment is $2000 a month on search marketing. In his estimate for a top figure of $35,000 a year, any hotel could carve itself a successful marketing presence via the Internet. He compares this investment with the $30,000 cost of a single corporate brochure, with the additional costs enveloping and mailing it to a vaguely targeted audience, many of whom may place it straight in the bin when it arrives.
COMBATING THE SANDBOX EFFECT
Starkov admits, however, that it is not quite as simple as paying the money. There is the so-called ‘sandbox effect’ where Google and other search engines will not start listing a site for months until it begins to prove itself. Much work needs to be done on paid search marketing and building link popularity. In addition, the website content has to be built in such a way that the search engines will spot enough keywords (keyword density) so that when, for instance, somebody taps in ‘weddings in Lausanne’, they will be taken directly to the specific weddings page on a local hotel site. Starkov points to HeBS research suggesting that 40% of all visits to hotel websites are direct referrals from search engines.
Internet distribution channels go further still. Hotels with specialities, such as golf or spa resorts, need to link to, and if possible sponsor, every possible online publication or directory dealing with that discrete area. This not only pitches the hotel’s message into a pre-selected captive audience but also boosts the link popularity. This element is now a key driver for the way that search engines, including the increasingly popular local search engines in the USA, rate and present their results.
Given the sandbox effect, Starkov believes that a new independent hotel should have registered its domain and have as much of a website as possible running before even the foundations of the building are dug. Two years on, that site, which could have covered the construction as part of its message, will already be established with search engines. Indeed, as he will tell the Economy Hotel World Conference this June in London, Starkov believes that the quality of a hotel’s website now has a direct impact on its sale value. A property with a good web presence commands a premium.
The value added by good e-marketing demonstrates the fact that the industry has undergone a revolution over the past decade, sparked by the internet. However much the big chains may secretly resent the present dominance of the intermediaries, they owe their own internet strategies in large part to the successful exploitation by a few imaginative entrepreneurs of an overlooked market opportunity. What is extraordinary is that they were unable to achieve this for themselves.
