Travel Distribution is an interesting, complex animal. Shoppers are incredibly fickle and they love to compare prices. And travel suppliers love to fill their airplanes, rooms, cruise ships, etc., at the highest possible rate of course!
There is an ongoing debate that is playing out in the marketplace about the value of third party distributors, as well as the role of search and metasearch in consumer decision making.
As a published author and noted authority on the topic of global distribution, I have written extensively about the value of the offline travel
agent, particularly in the increased average daily room rate that they
bring in for hoteliers.
Today, I want to write about the value of third party online travel agents and the search ecosystem for the hospitality community.
In PhoCusWright’s most recent report on US Online Travel, they report the following consumer behavior. Online travel agencies are used 61% of the time to shop for travel. Search engines are chosen 54% of the time (which of course can then direct traffic to any number of sites selling the desired product or service). Travel provider sites are the preference just 36% of the time, followed by metasearch and review sites at 33% and 32% of the time respectively.
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| @ Copyright 2012 PhoCusWright U.S. Online Travel Overview 12th Edition All Rights Reserved |
Most hoteliers have a policy that they will sell their products through a broad range of intermediaries, including traditional and online travel agencies/OTAs (nearly 50,000 worldwide and just under 14,000 here in the US), as well as wholesalers and tour operators. And of course, their call center, front desk and their website. Although it is advisable to open up all room types and rates to as many channels as possible, it is not mandatory.
Ultimately it is the hotel (or the chain) that decides what they will sell, through whom and at what rate and conditions. For larger OTAs, hotels will negotiate a special wholesale rate, known as merchant model rates. This rate is extended because the hotel knows the track record of the partner and the number of rooms per year that they can count on through the OTA (and their affiliates that use their inventory through their own sites).
This is no different than Tommy Bahama electing to sell some or all of their clothing and accessories in their own stores, online, through their catalog and in stores such as Nordstrom and Macy’s, as well as on Amazon and Zappos. Very few major brands from clothing to electronics to travel suppliers preclude third parties from advertising their products.
A key part of the debate is whether third party distributors should be allowed to embed brand names in keyword buys with Google and Bing and other search engines. As stated in the PCW study, 54% of travel shoppers start here.
In keeping with the Tommy Bahamas story, here is what a consumer searching for Tommy Bahama will see. I live in Tampa, so that is impacting the results. We do have two stores here locally.
Here are the arguments FOR utilization of third parties to sell your products and allowing them to pay for ads that include your brand name.
1. The more the merrier – fill those seats, rooms and cabins (or sell those shirts, pants and dresses)! Consumers are used to having choice of where they buy products and services. They want to be in control and they want to be able to compare and ensure they are getting the best overall value. And since many sites offer a best rate guarantee and will match the rate for the same type of room and date/duration of stay, consumers often make the choice to shop with that retailer even over the brand directly.
2. It saves me money – If a third party sells for me, then they pay the bank transaction fees, which lowers my cost of sales. Many of them also offer travel insurance as an option, which can also include a cancel for any reason policy, which is good for the customer.
3. They provide the service – If you [third party provider] have loyal customers, and they need my service [hotel room, cabin, airline seat], I want to make sure that they can book me instead of my competitor. If I pull my inventory off your site entirely, I know that they would surely book my competitor. Plus, providing service, even online is expensive and each call that the third party takes is one call that my call center or front desk doesn’t have to take.
4. I can focus on my core business AND it saves me money – They pay for the cost of acquiring and servicing the customer. All I have to do is provide high caliber service once they arrive.
Here are the arguments AGAINST using third parties:
1. I [the hotelier, cruise line, airline]want to be the only one that uses my brand name online. Period.
2. I want everyone to buy from me directly.
3. They are my customer and I can service them best without a third party intervening.
In a perfect world, Tommy Bahama would be the only one selling their line of clothing and accessories. But like most retailers, they have found that having distribution partners of all shapes and sizes makes economic and business sense.
Southwest is a great case in point in the travel industry of a company that used to only sell on swa.com, but now have expanded their distribution network. And ask your friends at IAC what happened when they shut off the Expedia sales spigot.
Selling online is NOT free for travel suppliers. It costs money to build and maintain a website, to run a call center and to remarket to customers to get them to come back.
Distributors are your friends and more importantly it is the customer that is in control today, not the supplier. There is SO much choice and like it or not, the travel product is largely a commodity.
I’m not suggesting that suppliers shut off their websites, but instead take a big breath and figure out what it would cost you to reach the combined unique visitors of the top online travel companies. If they can deliver guests to your front door and reduce your costs, then isn’t it worth a sales commission?
Before you can make a rational decision, make sure you know your cost to acquire a customer, the cost to service each customer (calls per booking), the conversion rate for your website and your call center and that you know precisely where your bookings are coming from today.
If your customers are coming from Expedia, Priceline, Orbitz and Travelocity, it is wise to be aware that those OTAs have hundreds and even thousands of affiliates that are also representatives of your inventory.
I welcome debate.
Stay tuned.