10 Under-the-Radar Advantages for Independent Hotels
The independent hotel market in Europe is a big business, in terms of employment, tourism and contribution to local economies. Most importantly for the players in the industry, independent hotels are big in terms of room inventory – the collective number of rooms these hotels represent. Independent hotels have 10 advantages in controlling their inventory that chains can’t match.
Inventory is what makes independent hotels attractive partners for online travel agencies (OTAs), and it’s at the heart of the current struggle for independents and chains alike to strengthen their direct bookings. Along with all that inventory to sell, promote, control and protect, independents have 10 powerful, often overlooked advantages when it comes to competing for market share.
We’ll get into detail about these 10 reasons, but first, how did we get to where we are today?
Independent Hotels are an Attractive Market for Online Travel Agencies
European independent hotels make up almost two thirds of the room supply in Europe. This makes them an attractive, lucrative market for OTAs like Booking.com and Expedia.
The independent hotel business is so attractive and so profitable to OTAs because they rely on availability – it is the backbone of their business model. They sell your room stock on their sites, for a fee. Through the strength of their brand, marketing and technology, OTAs have cornered a very nice business for themselves. Independent hotels are appealing because they a) have availability to offer, and b) lack the bargaining power of a large multinational chain when it comes to commissions and more.
However, this availability is an independent hotel’s most powerful tool. Rate parity is a secondary issue. Parity without availability is a moot point, so we’ll leave it alone for now.
Let’s step back for a minute. How did OTAs corner this market?
PhocusWright and H2C commissioned a study in 2015 which reported that independent hotels believe that their direct website is their most important channel. In other words, direct bookings are a priority for them. Part of the reason for this is that direct bookings come at a lower CPA than OTA bookings, and they give you the chance to improve the lifetime value of the guest.
However, there is often a disconnect between what an independent hotel wants and what they can do to make those goals a reality.
Many independents face scarce resources. Namely, there is an industry-wide deficit in revenue management and marketing skills, as well as limited advertising spend. This can lead to independents struggling to stay on top of a rapidly changing technology landscape.
This is where OTAs have excelled. They filled a critical skills void at a time when independent hotels were cutting back on staff numbers and technology, following the recession in 2008 and onwards.
Hotels turned to the OTAs for much needed business, and gave them their room stock to sell.
That’s how we’ve gotten to where we are today, and the OTAs have been extremely valuable in helping independents sell their rooms. Unfortunately, this has come hand in hand with high commission rates, and independent hotels have little leverage to negotiate better rates due to the sheer size of OTAs.
The past 4-5 years have seen strong growth in the world economy. Both leisure and corporate business are driving growth and allowing hoteliers to push ADR.
Hotels are looking to reduce reliance on OTAs, and this makes sense in the current economy. However, how can they do that when OTAs have such strong branding, marketing and reach?
What Are Chains Doing to Reclaim Direct Business?
If you’re a chain hotel, you have two strong options when it comes to promoting direct bookings: negotiations and loyalty.
Large chain hotels like Hilton, Marriot, Wyndham etc. are scoring big by negotiating aggressively with their OTA partners. They have the muscle to negotiate their commission rates down to as low as 12% or better in some cases.
Chain hotels have also been very good at keeping some control over their inventory and the business that they do with the OTAs. They’ve done this to such an extent that OTAs represent between 8% and 15% of their total business on average – a phenomenally low figure to most independent hotels.
Chains and OTAs are getting more creative in working together, as well. OTAs are beginning to recognize the need to treat at least some hotels as true partners, and that’s being reflected in a wider range of offerings and services. Be sure to scrutinize these carefully, though.
The other tool that chain hotels have in their armory is loyalty. They’re good at running loyalty programs and driving points-based rewards systems for their guests. This works very well for them, but only to a certain point.
Eventually, loyalty has a cost, and one thing that chain hotels certainly have is a lot of cost. Chain hotels will need to become more creative and cost-effective with their loyalty offerings or risk driving down their own profits.
There are many layers of stakeholders involved in a chain hotel business who all want their fair share of the pie. That’s perfectly reasonable. However, the pie is only so big: margin for a chain hotel is limited.
This is where independent hotels have a significant advantage over chain hotels.
Independent Hotels Have Margin and Flexibility
Yes, chain hotels have scale. They’re big companies with centralised management, huge marketing departments and clearly defined processes. They’re also, as a general rule, incredibly slow.
Large hotels chains are like any large company. They are slow to react, turn, and shift with market forces. They’re like large cruise liners: awesomely huge and beautiful, but these companies can be astonishingly slow to move, simply because of the sheer bulk involved.
Not the swiftest boat on the water.
At the hotel level, branded chain hotels have no flexibility over strategy, no input into marketing, little flexibility over pricing and no control over their website. Independents have all of that.
Large, international chains simply can’t adapt locally, and this is a crucial issue.
If chains are cruise liners, independent hotels are yachts. Sleek, nimble, and quick to adapt to the changing environment.
Independents are quick-moving actors.
The rapid pace at which today’s market changes favours independent hotels over chain hotels.
That’s why some chain hotels are getting into bed with the OTAs: because they have to. They’re struggling to retain market share, and need revenue to satisfy the demands of their stakeholders.
Large chain hotels are failing at what they should be doing best: building brand. Instead, they negotiate to take demand away from their competitors in the short term, rather than invest in direct bookings for the long term. This lack of investment in technology, marketing and revenue expertise, while not universal, is giving the power to the OTAs.
Independent hotels can be equally guilty of this. In times of low occupancy, it can be tempting to effectively hang a Booking.com sign over the front door instead of investing in the means to drive bookings through direct channels. However, there is another way.
Independents are Indispensable
Independent hotels are indispensable to OTAs on a collective level.
From an OTA’s perspective, independent hotels are the crown jewels. OTAs are capitalising on a fragmented industry with a push for higher margins, safe in the knowledge that independent hotels need to work with them.
The flip side, of course, is that OTAs rely on independents’ inventory as well.
OTAs need inventory. That’s one of the reasons the Priceline Group is buying into technology providers such as revenue management provider PriceMatch and hotel marketing platform Buuteeq, both part of their BookingSuite.
When hotels use these services, OTAs get better visibility on your inventory. Through these tools, OTAs get visibility on your rates. This allows them to better monitor parity, making it increasingly difficult to offer different rates on your own site.
The idea that OTAs ought to be allowed to dictate rate parity is one that has been hotly contested by many hoteliers, and has been behind more than a few recent legal issues. I’m sure we’ve all seen Booking.com’s recent troubles in Turkey!
Without availability, rate parity is a moot point. If an OTA doesn’t have rooms to sell, their business wouldn’t exist. That’s one on the reasons they’re interested in mid-tier hotel technology companies. If you’re connected through those systems, they have more visibility and potentially more control over your stock.
For example, what if an OTA bought up a number of channel managers? If they bought the top three channel managers in Europe, they would have a far deeper insight into the room stock in Europe, putting them in an even stronger negotiating position.
As restrictive and frustrating as many hoteliers find their relationships with OTAs, though, there’s no doubt that OTAs have helped independent hotels greatly. They have given them a global reach and placed them on a level playing field with chain hotels.
The issues between OTAs and hotels come from negotiating the relationship – there’s no question that the relationship has value. To bring in the obvious metaphor, no one’s breaking up. We’re just asking for a little space.
Independents Should Focus on What They Do Best
To get that space and pull more direct business out of the OTA’s shadows, independent hotels should focus on what they do well: focus on the guest to deliver a more personalised experience. Partner with local providers to give a more natural experience and capture the essence of your neighbourhood, town or region.
These features are what draw guests to your hotel and benefit the local economy. Guests stay for the authenticity and uniqueness of the local experience. That, in part, is why Airbnb has been such a hit. Guests increasingly favour a more authentic, personal service.
Chain hotels are also getting in on the game with their ‘boutique’ offering. This is partially due to the hype around the millennial’s desire for a more interesting hotel experience. This offering is, in truth, simply a standardised ‘unique’ offering.
An independent hotel, on the other hand, has the opportunity to genuinely distinguish its customer service and property as unique. They can respond to guest needs quickly, delivering a personal experience which gains the hotel greater loyalty from their guests.
Independent hotels have the freedom to play around with their brand. Not having a specific brand standard can actually be liberating. Marketing teams have the freedom to try different channels quickly, and the autonomy to change strategy as needed.
10 Advantages Independent Hotels Have:
- Independent hotels have greater scope for creativity and identity, instead of adhering to standardized brand guidelines that might lack relevance in your local market
- Independents have more margin to play with, i.e. there’s a smaller number of stakeholders taking a piece of the pie
- There is less bureaucracy for independents to deal with, giving them greater freedom on distribution and commercial strategies, free from restrictive agreements
- Independent hotels have the ability to be much more proactive in terms of revenue management, and can certainly be more creative in terms of book direct strategies
- Independent hotels don’t need to fill their hotel every night – they can survive with lower occupancy rates, giving them more freedom to refine strategies and allocate budget as needed
- An independent hotel’s budget is targeted toward making an impact on one hotel. There isn’t a bigger brand franchise to feed or satisfy
- Independent hotels really only need to make what they need to survive and make a fair profit
- Independent hotels don’t need a 1-800 number or centralised call centre. While chain hotels provide a centralised call centre at a direct cost to the hotel, either through franchise fees or as a percentage of bookings, independents do not bear this cost.
- Independent hotels can freely focus on their guests’ experience to give a more personalized service
- An independent hotel’s originality is more appealing now than ever as travellers look for unique, local experience – capitalize on that!
It’s true that branded chain hotels have a broader distribution reach. However, independents don’t need their distribution to be as extensive.
Branded chain hotels have successful loyalty programmes, but independents are free to take a more modern approach. Instead of an old-fashioned points based system, independents have the flexibility to create loyalty based on immediate value or discounts.
In the digital age of immediate customer satisfaction, long term investments like points are less satisfying. This is especially true when you’re talking about independents with only one property or a small group of regional properties. What guests want is discount or added value now – not for some future date.
Branded chain hotels have strictly defined rules, regulations, processes, and associated costs.
Independents have greater flexibility, providing greater freedom to explore and innovate.
We believe it’s time for independent hoteliers to realise that they are a very valuable part of the hospitality industry. Their inventory is highly prized, and that there is a broader ecosystem there to help and support them in their endeavors.
There are hundreds of technology partners in Europe providing booking technology, revenue management, rate shopping, distribution and digital marketing expertise that hotels need to stay on top of their business. Use your hotel’s margin to invest in these tools to help you continue to grow.
Independents are key players on the hotel landscape. They have access to all the tools they need to overcome the challenges commonly faced in the fight for more direct bookings.