New Study from Kalibri Labs shows Direct Bookings push is working[i]
The War Is Over, and the OTAs Have Won[ii]
For Hotels, the Airbnb Threat Could Be Receding[iii]
Hotel Investors May Be Ignoring Airbnb Threat[iv]
Believe it or not, these are all headlines from just the last few months. Conflicting data is spreading like wildfire. Hotels are confused by reports that direct booking efforts are working when they are still feeling the significant pressure of rising OTA commission costs. Guests, on the other hand, are confused by the vast array of hotel and vacation rental choices available across so many different outlets, able to be booked at any time from anywhere on any device.
Much of the pressure to produce falls to reservations because the voice channel brings in the most profitable bookings. As reservations manager, it’s your job to make sure agents nail it when guests do call. And we know they will call. For independents and vacation rentals, approximately 35% of bookings go to the voice channel (for brands, it’s more like 7%),” according to Jeff Robertson, NAVIS VP of Marketing.
Here’s what reservations managers need to know to move into 2018 feeling equipped to increase bookings and improve agent performance.
Independents & Vacation Rentals More Options Than Big Brands in 2018
In an interview with Jan Freitag, SVP of STR’s Lodging Insights, he said, “Independents have an opportunity to grow occupancy and rate in a way that the big brands do not. Branded hotels have been achieving 70% occupancy; their only solution is to increase RevPAR. Independents, on the other hand, have had an average occupancy of 64.5%, so there is still room to grow.”[v] Of course, this doesn’t mean growing occupancy all at cost (i.e., don’t rely on OTAs). Independents must be cautious about maintaining profitable bookings while simultaneously increasing occupancy, and it falls most often to reservations to make this happen.
Reservations agents can focus energy on increasing call volume capabilities so that any additional demand generated by marketing can be handled. Even if demand stays flat, which is the projection for next year, improving agent performance can offer the needed boost. Additionally, independents should adopt processes—some of which fall to reservations, some to marketing—to nurture reservations leads from the very first call.
The vacation rental market is projected to see significant increases in revenue in the coming years. By the end of 2018, reports Forbes, the industry is expected to be worth $36.6 billion, “twice the growth rate of the entire travel sector.[vi]
Though growth will slow, vacation rentals still have new market penetration on their side—some travelers still aren’t aware of or have not yet booked a vacation rental— and naturally built-in efficiencies (fewer staff and services). A focus on increased mid-week, shoulder-season, and off-season occupancy, as well as growing RevPAR, are essential.
What Reservations Can Do
Growing RevPAR and occupancy simultaneously requires investments from revenue management, sales and marketing, and reservations. Reservations should request frequent reviews with revenue management and sales and marketing teams to ensure you can reasonably follow through with the rate strategies and understand the scope of marketing promotions. This familiarity will keep the reservations team informed and better able to track the online to offline guest journey, which is valuable even with tracking technology. (Technology can only track so much; agents, on the other hand, can ask and record valuable attribution details.) Teams must if not integrate then synchronize around messaging and goals.
Further to this, embrace training and technology that will ensure agents are properly selling the rates and value proposition and using specific strategies known to increase conversions. The reservations team is the last—and most important—stop on the way to the most profitable reservations a hotel or vacation rental can achieve.
Guest Acquisition Costs Affect the Asset
The cost of guest acquisition has become so substantial that hotels are evaluating it as an asset loss, a big one. Cindy Estis Green, CEO of Kalibri Labs, notes that “a change of -0.3 percent year-over-year was a loss of $500 million for hotels and an asset value decrease of nearly $5 billion.”[vii] The long-term financial health of the property is affected by today’s guest acquisition costs. Increasing costs also hinders day-to-day operations, which for reservations may affect the ability to cover calls after hours, use technology that will increase bookings or improve agent performance, or employ more staff to increase call volume abilities.
STR’s Freitag says that it’s not clear yet if the U.S. lodging industry is at a peak or plateau. According to Freitag, “The most important thing hotels can focus on is that RevPAR growth number; it encapsulates everything.” The first line of defense: reining in guest acquisition costs to increase net revenue. Not only are OTA costs 6.5% higher than direct costs, but direct ADR is also 9% higher than an OTA.
Call centers have the second lowest acquisition costs next to online booking; however, call centers bring in more profitable revenues and have higher conversion rates. According to Michelle Marquis, NAVIS VP of Sales, “All the data still supports that voice produces the highest revenue. This is especially good news right now because mobile search has surpassed desktop, but mobile bookings have only increased marginally. What hotels are finding is that their guests are using click-to-call from mobile devices when it comes to finalizing the reservation, especially for high consideration stays, which includes independents and vacation rentals.”
About the Direct Bookings Campaigns
The direct bookings push by several major chains, also known as “Stop Clicking Around,” has worked… for the major chains. A Kalibri Labs report from November said that from May through December of 2016 room nights were up 7.8% and net revenue growth was 9.3%. What you need to know, however, is that the survey included 25,000 hotels, but the majority were flags, and the focus was on Brand.com bookings, excluding direct bookings via the voice channel.
So does the data still apply? According to Robertson, “Absolutely, but there are interesting exceptions for independents and vacation rentals, including a much greater percentage of voice channel bookings. This is a good thing because as Kalibri notes, the big benefit of the direct booking campaigns is the long-term decrease in guest acquisition costs due to increased loyalty. Independents and vacation rentals have this in the bag in a way that the flagged hotels don’t yet.” And the experience guests have with reservations is where this exceptional experience begins.
The Kalibri report notes, “The success of the book-direct effort—and all future campaigns to drive direct bookings—will hinge on how well hotels can cater to the guest experience.” For independents and vacation rentals, experience and loyalty are inextricably tied together. Robertson notes, “Experience comes in not just the singularity of the product but also in the human interaction. This is why we see websites with 2-4% conversion rates while reservation agents have a 40% conversion rate. In the end, this bodes very well for independents and vacation rentals. To capitalize on these trends, they will need to shore up their marketing tracking efforts and begin to think more holistically about online and offline booking channels, but after that the experience and loyalty are built-in.”
The Online vs. Offline Reality
Phocuswright’s 15th Edition U.S. Online Travel Overview shows that offline bookings still outpace online with 60% offline and 40% online, but when it comes to those online reservations, OTAs are edging out hotels.
For private accommodations in the U.S., 34% called the homeowner or the vacation rental company, while 32% booked via rental or vacation rental company website.
The bottom line is that both online and offline channels matter to achieving the most profitable mix of bookings. Among the lessons: revenue management and reservations must maintain rate integrity with direct bookings. Deep discounts undermine branding and long-term rate strategy. Look to optimize rates across all channels carefully and drive direct bookings through inexpensive value adds as well as the promise of a superior experience.
The Sharing Economy & the Impact on Reservations
Two years ago just 14% of travelers had used Airbnb, and now 25% have.[viii] The competition has expanded and, in addition to the supply increases among hotels, the sharing economy has further extended the inventory available across nearly all markets. Therefore, hotels must consider vacation rental and home sharing sites when selling the value of the property.
All that said Airbnb and VRBO have been making moves to substantially decrease the contact that owners and management companies have with the guest. As a result, phone calls are on the decline and the guest experience with these listing sites is coming up short. Questions must be answered one-by-one via email, and some of the listing sites are going so far as to black out details in email correspondence when there is any reference to competitors. Vacation rentals that rely too heavily on sharing sites may find that in addition to their guest acquisition costs, their guest experience also may suffer. For reservations, this has big implications.
According to Marquis, “For every 5% of call volume a vacation rental gets from VRBO or HomeAway, they will need to increase inbound call resolution (with the same demand) by 2%. Let’s say that 15% of inquiries won’t be coming in via phone anymore. That means you have to increase your call resolution by 6%. It’s a tall order. Vacation rentals will need to shore up their agent performance as well as use tools to manage and consolidate their listing site leads to capitalize on existing call volume.”
The Short Version
Supply is increasing, competition is increasing, demand will start to taper off, OTAs are thriving, and guest acquisition costs are still far too high. But for independents and vacation rentals opportunity is high. Reservations is on the front lines of growing occupancy and RevPAR in the coming year and must stay in sync with revenue management and sales and marketing, focus on optimizing agent performance, and integrate technologies that will support reservations managers in leading a team that will increase direct bookings.