Ten Mistakes Hotels and Resorts Make That Result in Lost Money-Making Opportunities

Hospitality



Ten Mistakes Hotels and Resorts Make That Result in Lost Money-Making Opportunities

Author: Marek Zmysłowski

1: Working with only a few online travel agents

There are about fifty to two hundred online travel agents that hotels (or resorts), in most cases, can but are not taking advantage of. On the other hand, there are hotels that are not necessarily popular, nor performing well (desperate for guests), that are using as many travel agents as they can to generate revenue. However, if a hotel is not performing well with the guests it attracts on its own, then how can they expect good results through working with travel agents.

In some situations, hotels perform well and work with a small number of travel agents just to sell a few empty rooms they have left on a daily basis. This is also not necessarily an effective approach, as working with travel agents and increasing online bookings is not about increasing the number of bookings a hotel receives but rather about diversifying risk.

Imagine a situation: the market is amazing, the hotel is booked-up every day and the hotel is getting guests via telephonic, website, walk-in and travel agent reservations. Suddenly, the situation changes because of external economic factors that affects the local hospitality industry. There are then two possible scenarios that will play out.

Scenario 1:

The hotel begins to struggle and actual guests checking in are suddenly more valuable than before. The hotel expects the travel agency to charge it 5% commission on every successful booking rather than the normal 15% to 30% because the agencies should know the situation the hotel finds itself in.

Scenario 2:

The travel agencies try to take advantage of the fact that a hotel is struggling and they increase their commission rates.

Regardless, if a hotel has seen the value of travel agencies and has already diversified its booking channels to allow for such, the online travel agencies are more likely to adapt positively to the benefit of themselves and a hotel when times are tough. If they do not, then the hotel would most likely try and attract the market on its own, which would have a less than likely positive effect on its business.

Online travel agencies have various benefits for a hotel, besides making reservations on its behalf. These include the fact that a hotel is marketed by the agency at the latter’s expense. This marketing can be in the form of listings on their sites, coupled with social media and other online website promotions, which highlight the hotel (which they have a good relationship with) to prospective guests.

In addition, when a guest checks in that had reserved with an agency, the hotel has an opportunity to collect his or her data for future direct marketing. The details of the guest may never have been known to the hotel unless he or she had booked through a travel agency.

 

2: Only assessing online travel agents based on their commission rates

When a hotel works with various travel agencies, the level of commission it pays for every guest solicited by the agency, is not the only factor that the hotel must take into consideration when deciding which agency or agencies will work better for the hotel.

It is advisable that a hotel review its guest profiles and booking histories to determine the following:

  • How many reservations were no-shows?
  • How many guests paid on arrival?
  • How many guests paid in local or foreign currency?
  • Which guests spent money in the restaurant, bar, on additional services and even the mini-bar in the room (if applicable)?
  • What was the average spending per guests in the hotel?
  • How long did the guest stay for?
  • Has the same guest been back on their own or even via the travel agency on a later date?

The above would indicate the hidden value certain guests add to the hotel and what the effect was on the hotel’s performance. Only then, can a hotel make an educated decision as to which travel agency is giving it the best results.

The aim is to determine the following:

  • Has the online travel agency helped winning the hotel new guests?
  • Has the hotel then been able to retain the guests for more than one stay?

All these factors that a hotel analyses and reviews will highlight the true benefit of an online travel agency in relation to its business performance.

 

3: Giving the best available rate only to one or a few of the many online travel agencies

A partnership between a hotel and a travel agency is, for many reasons, the same as a trade-off.

When a hotel engages with a few different travel agencies, each of these agencies will always want the lowest rate and the highest commission – thus, the more money they make, the less money the hotel makes.

There are many different online travel agencies that are just one click away where potential guests can compare hotel rates. If a hotel gives one travel agency the best available rate it does not mean that they are attracting more guests to the hotel but actually implies that a hotel is helping an agency compete with the other travel agencies at the hotel’s expense.

The best solution to this is to give all the travel agencies, no matter the commission that they give you, the same rate to sell to the guest and let them compete with each other for market share. This is also called rate parity and in some agreements with agencies it is clearly a condition that they want the best rate and that the hotel is not to give other competitors a better rate than what is given them.

It should be noted that when it comes to commission, an online travel agency that usually charges the most commission has a higher marketing spend, larger network of potential clients and a better reputation with potential guests than those that do not.

When it comes to rate parity a hotel should be aware that the market out there is global and interconnected. Information is readily available and potential guests are spoilt for choice, in so far as hotels and getting the best deal possible.

To avoid financial loss and poor brand image, it is always advisable that, whether through external parties or internal practices, rate parity be applied under all conditions. For example, a hotel can have its rack rate, online rate, corporate group rate, leisure group rate and so on, but apply the same rate policy to whatever condition applies to each type of guests. When hotels play the selection game, as to who benefits or does not from special rates, and plays one party up against another, it is the hotel that loses in the end. Especially, when the guest becomes aware and starts playing the game themselves or, worse, even starts demanding their own special rates from the hotel directly.

4: A hotel does not convert online travel agency bookings into direct bookings

The amount of commission that a hotel pays online travel agencies is one of the highest in the travel and online sector but the guest’s lifetime value is also pretty high. It makes sense then to utilize online travel agencies and pay those high commissions, but … to do so in a smart way.

For example, if a guest returns to a hotel every few months and books their stay through the same website, every time they do so, a hotel would be foolish if it does not remind or encourage the guest to rather make a direct booking with the hotel in future. The hotel would have to then pay commission every time for a repeat guest which in effect means it loses money every time the guest stays.

There are a few actions that a hotel can do to ensure that a repeat guest books directly with the hotel:

  • Record all necessary guest information and build a database of all guests. In this way the guest can be contacted directly and encouraged to deal with the hotel on a one-on-one basis, rather than through and online travel agency.
  • Add value to the guest when he or she chooses to book directly with a hotel, as this highlights the additional benefit the guest receives when making direct bookings. Some added value to the guest may include:
    • The guest is assured that they are given the best, guaranteed, rate. This could possibly be a special discount only for those types of guests.
    • Offer the guest a late check-out (of an hour or so) or even a special discount on their meals and or beverages when compared to menu pricing.
    • Provide the guest with exclusive extras such as a free snack and cocktail at check-in or an enhanced experience through additional services (i.e. free laundry or massage (where applicable)). It is about making the direct booking guests feel special.

The overall objective is to keep in touch with guests after their stay. It is about building a relationship with them, which will endear them to keep the hotel in mind whenever they have any future accommodation requirements.

 

5: Partnering with an online travel agent versus simply being listed as a hotel

Often, a hotel forgets to check that it’s listed on an online travel agency website, especially when it has no partnership agreement with them. This can negatively impact a hotel’s sales.

Some online travel agencies might have a hotel listed purely as bait, indicating the hotel’s rates but not allowing the guest to book the hotel through its platform. They simply state that the hotel isn’t available for bookings, or worse, has no room availability. When the guest clicks on the hotel to get more information or attempts to make a booking, the online travel agency directs them to a competitor or most likely matched alternative, where the online agency has a partnership agreement in place with such a competitor. This is also true if a hotel has worked with a few different travel agencies before and then decided to terminate a partnership with one of them.

In some countries it may be easy to force the online travel agency to remove the listing but in others they would simply ignore the hotel’s request. Then again, if an online agency removes the listing, they may simply put it back on at a later date, … and so it continues.

One can argue that this is unfair business practice or even against the law in some countries, as it is in effect stealing potential guests from one hotel for another. However, it is the reality and until online travel agencies can be taken to task or even sued for these kind of practices, it is most likely that it wouldn’t be an option anytime soon. Especially, for smaller hotel chains or independent hotels. For example, how can a hotel prove that a potential guest had been referred to another hotel when they had clicked on the hotel’s listing, and, does the hotel have the means and resources to take on an online travel agency in a legal dispute?

Very difficult indeed. Thus, the best option is to be listed with all the travel agencies on equal terms with a special online rate applicable to all of them.

 

6: Not protecting a hotel’s branded keywords

A branded keyword refers to what people use to search for something on Google and how the latter’s referencing mechanism works.

If a hotel has been on the market for a good number of years it will have an established brand and an established group of loyal guests, which in turn should afford it the opportunity to attract new ones.

For example, when someone recommends a hotel, they will probably go to Google and search for the hotel by using its name and possibly its location. The search results will show the hotel’s website, as well as the online travel agencies that have listed the hotel on their own platforms. Easy enough, but …

In some instances, an online travel agency may pay Google more, in order to be visible above the hotel’s own name (website) on Google, causing the hotel to lose customers that were already searching for the hotel’s website to begin with. It may then seem as if the online travel agency will then be sending the hotel a good number of guests but, in reality, the agency is hijacking what would have been the hotel’s direct customers and ensuring they go through their own platform to book, or worse, be shown possible special deals or alternative hotels for the potential guest to choose from. As is often the case, people want convenience and would thus click on the first link that refers to the hotel’s name, in order to expedite their intentions, which may be to have a look at some details of the hotel and its rates or even make a reservation. Either way, there is a great likelihood that the potential guest would be lost to the hotel.

7: Having full control over reservation confirmations or declining booking requests

When working with small, local, online, or even traditional travel agencies, where often they don’t have an automated connection with a hotel’s property management system, a hotel prefers to have control on whether to confirm or decline a booking that an agency sends them.

This may seem convenient for a hotel, as it doesn’t have to update its room availability and rates on a daily basis with travel agencies, but simply then reviews each booking requests it receives and then either confirms or declines such a request.

Travel agencies that communicate with the customers requesting a booking always send a pre-confirmation email to the customers with a booking reference or may even do so via text or a telephone call. Then the travel agency contacts the hotel to see if the room is in fact available and if the hotel declines the booking, the travel agency doesn’t always contact the customer stating that there is no availability or that the advertised rate has changed, but rather informs them that the hotel has simply declined (rejected) the booking. At this point the customer is upset and is referred by the agency to a competitor to appease them. The potential guest is lost, without the hotel even knowing about it, and such a customer will most likely not consider the hotel as an option in future.

The only solution for a hotel in this instance is to ensure that the online travel agency is automatically linked to its property management system (reservations module only), where it would be easy enough for a potential guest to, either successfully or unsuccessfully, make a reservation with a reason given by the hotel as to why the reservation could not occur, if applicable. The potential guest is immediately aware of the reason and there is no ambiguity. Often such a potential guest may change their plans and choose another date or then book elsewhere. The point is there is no animosity against the brand or name of the hotel and the guest would have no reason as to not try and book with the hotel in future.

 

8: Allowing online travel agencies access your systems and software

When a travel agency has market information about a hotel they can use this information for or against it.

It is very important to scrutinize a hotel’s online partner, its system provider, its software provider and or its technology provider.

For example, what if Google decided to invest in hotels or in a company that provides hotels with property management systems in future? It would then have access to the hotel’s revenue information, expense lines, room availability, as well as its rates. Worse, should it decide to start operating or investing in its own online travel agency, and thus approaches the hotel to sign up, it will have the power when negotiating its commission rate with the hotel. It wouldn’t be the optimal situation because they would have a lot of information about the hotel’s operating performance which they can use to strengthen their negotiation position or even sway potential guests away from the hotel.

Unfortunately, similar situations already exist in some parts of the world, for example, in the Nigerian and East African markets, some online travel agencies also develop and sell property management systems. This is why it is very important for a hotel to ensure that its system and technology providers are in fact just that, and that, where automated reservations are allowed between an online travel agency and the hotel’s property management system, such an automation is limited only to the reservations module of the hotel’s system.

 

9: Double tax charges

Various online travel agencies that have a commission partnership deal signed with a hotel, often charge the commission based on the net rate of booking value.

On the other hand, some online travel agencies charge the gross booking value and then they also charge a hotel their own tax on top of that commission. That results in a hotel being taxed twice.

For example, a hotel includes taxes in its room rates and the online travel agency sell the given room rate to its clients when they make a booking. The hotel is then billed a percentage as commission on the rate paid by the guest but then is also charged value added or sales tax on said commission. This, in effect, means that the hotel is paying its own tax liability and sponsoring the tax due by the online travel agency to the respective country’s government.

A hotel should always scrutinize its online travel agency invoices carefully and ensure that it isn’t being taxed in addition to paying its own tax liability.

 

10: Not seeing the value or harm of TripAdvisor

For a hotel it is important to realise that a hotel’s rating is different from its ranking on TripAdvisor.

Guests rate a hotel based on their experience at such a hotel and when all review are combined, a hotel is given an overall TripAdvisor rating out of five stars. TripAdvisor then automatically compares the hotel’s rating to all other hotels in the area and then ranks the hotels from best to worst. The better a hotel’s ratings, coupled with how recent they are, the higher a hotel’s ranking can potentially be on TripAdvisor.

Then there are the actual ratings, where at most times, there is also a written review given by the guest with said rating. Often, hotels prefer to ignore or hide negative reviews but in actual fact it would be a mistake to do so.

First off, when the hotel’s management writes a response to a negative review (it’s good to respond to positive ones as well), it shows the guest that their feedback is valued and assures them that the hotel aims to appease and retain its customers at all times.

Secondly, negative reviews enable a hotel to make operational improvements, where a hotel otherwise would not have noticed or even thought something was important enough to give it attention.

The point is that each review is an opportunity the see the hotel through the guest’s experience and to make it even more beneficial, the information is given freely. An unhappy guest that leaves and communicates nothing with a hotel, only to never be seen again, is more dangerous for a hotel than one that takes the time to post a review.

TripAdvisor is also one of the most underestimated platforms when it comes to increasing the number of online bookings and revenue growth for a hotel.

When someone wants to book a hotel through TripAdvisor, they most likely book through an online travel agency and not directly through the hotel’s website. This is because TripAdvisor has marketing agreements with various online travel agencies that are then allowed to use its platform for soliciting potential guests.

Unfortunately, a hotel cannot do much about this and it is important to ensure that the hotel’s TripAdvisor listing, responses to reviews and relationships with online travel agencies are in good standing, as to not lose potential guests that may go elsewhere when using TripAdvisor as their preferred port-of-call when making decision on where to stay.

When recalling and earlier mistake (5), keep in mind that when a guest clicks on a link to an online travel agency on TripAdvisor, they are then at the mercy of wherever such an agency leads them. A hotel, without an agreement in place with such an agency, may thus find itself losing a potential guest to a competitor.

ABOUT THE AUTHOR



Marek Zmysłowski

I build companies outside the First World, so it becomes First.

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