In this article, the Managing Director of Travel Consultancy Strategize Revenue and former Director of Revenue Strategy for Starwood Hotels & Resorts, Vikram Pradhan, breaks down why this Phocuswright's popular chart has flawed conclusions.
A couple of weeks ago I wrote an article on the numerous studies published on hotel distribution and revenue management that hit the air waves daily. It's an incessant effort by all players in the hospitality distribution space - metasearches, OTAs, digital marketing companies, connectivity partners, hotel associations, and analytics companies - to own the conversation and benchmark their conclusions as the industry's as a whole. Conspicuously absent from this cacophony of conflicting sound bites is a take from the one part of this equation who designs, manufactures, provides, and services the product - hotels themselves. Hotel companies have been mostly publicly silent about their take on distribution. However, from experience, I know there is much turmoil internally; within the organization itself, and between hotel owners and operators.
So when a chart like this (header photo of this article) is published by a respectable company like Phocuswright, it drew attention to it immediately. It spread widely on social media, Twitter, Facebook and LinkedIn.
Other players picked it up and began tweeting about it too, like DHISCO, a formidable player in connectivity. Finally, Forbes catapulted this chart from industry media to mainstream media when they allowed an op-ed post by a data insight company. This simple chart soon began making the rounds in the industry. It was brought up and discussed at countless revenue strategy meetings within the hotel operators themselves and with their owners/asset managers. Everyone wanted to know how they stack up against this measure, whether it's good or bad, and what to do about it.
The conclusion of the chart seems to suggest that hotels are doing a worse job than airlines to capture non-loyalty members who have been long attributed as OTA customers. It seems to suggest that hotels are losing the battle with OTAs to recapture new customers.
However, there are fundamental flaws in presenting this conclusion that could've been easily spotted by an experienced Revenue Strategist before publication
According to the chart, 40% hotel direct bookings coming from the highest tier members vs. 4% for airlines and conversely, 64% of non-loyalty members booking with airlines direct vs. 21% for hotels. While there is no reason to doubt the underlying data, the chart does not support the conclusion at all. Without wasting any more time, here are the most important reasons why that's wrong:
First, guests get hotel loyalty points only when they book direct. At all major hotel chain they do not get points, nor status when booking through OTAs. Given this, which value-appreciating loyalty member will book anywhere else but direct? Airline customers, on the other hand, you get miles & status equally, regardless of where they book
Hotels show member-only rates right on their front pages of search results which are discounted over their non-member rates. If you aren't a member, it's in your best interest to become one for free, perhaps further skewing this data. Moreover, non-member rates are in parity with OTAs, so for loyalty members, the cheapest place to find a rate is hotel direct. Why would they book anywhere else? Airlines have no such distinction in fares.
Hotels offer welcome bonuses and perks for loyalty members like free internet when booking direct only. I have status with Delta Air Lines, but I can't remember a time they gave me free wi-fi on board for booking direct
We do not know what percentage of total travelers are loyalty members, especially the highest tier at hotels vs. airlines. As an exaggerated example, if only 4% of total passengers on Delta Air Lines are highest tier members vs. 40% of all guests are highest tier loyalists at Starwood, this chart would look perfectly proportional to each company's highest tier share of direct bookings.
This data is based on bookings, not customers. So saying that loyalists book more on the hotel's web more than OTAs is like a self-fulfilling prophecy. These could be multiple bookings by same customer - booking direct is the only way to get to becoming high tier loyalty members in the first place. From a marketing stand point, I'd rather reach one customer cheaply who gives me 10 bookings/year than spending money on high acquisition costs to get one customer giving me 1 booking/year
There is nothing shown to compare the percentage of loyalty members booking with OTAs, yet it is touted as a "Hotel Loyalty vs. OTA Problem".
In the end, it's not hard to see why this comparison is apples to oranges and there's confusion with causation vs. correlation. That being said, I reiterate that I have no doubts about the integrity of the base data, the gathering method, and the sample. It's just that the conclusions are leading us down a path that's dangerously self-harming.
This chart just underscores what I argued in my previous article, that hotels need to take charge of the facts before they take charge of their distribution. I'm making an example of Phocuswright, perhaps unjustly so, because most of their insights are valuable and provoke sound strategy discussions in the industry. But that's precisely the reason why the bar is high and hastily published conclusions can do more harm that good. It is a distraction for the revenue and sales teams at best, and a disastrous strategy change at worst.
Perhaps Revenue and Sales teams could just share this post whenever someone brings up this chart and get on with what you do best.