Don’t fight the increasing popularity of OTA’s. Here’s why...

15.01.2018

Over the last few years, I have found that many roleplayers in the tourism industry are still fighting the inevitable future and are completely unaware of the fact that it has already arrived. 

The traditionalists in the hospitality and tourism industry are still trying to recruit followers who will join them in protecting the so-called tourism traditions practised by their “tourism family”, at any cost.

The question is, why have Online Travel Agents (OTA’s) become so popular lately? In my opinion, OTA’s have essentially achieved their business success by embracing and managing the inevitable digital trend and are thus very effectively serving the consumer along with addressing the needs of their partners—the principals in the tourism industry such as hotels, lodges, airlines, tour operators and car-rental companies.

In support of this opinion, let’s look at the facts:

Google did a travel study back in 2014 that confirm that 65% of potential travellers start their journey whilst being online researching and seeking inspiration; 78% of potential travellers use the Internet for planning their itinerary; 60% use search engines followed by 48% using hotel and other principals’ websites; 40% use OTAs for their travel planning. At the same time, 67% of this activity is done from mobile devices such as smartphones and tablets. When it comes to idea gathering or inspiration, some 90% of potential travellers use the Internet, while only 10% make use of the traditional travel agent.

In short, when it comes to idea gathering, research and inspiration, 10% of travellers are making use of the traditional tourism channel whilst 90% use the Internet. Obviously this number is a bit skewed when it comes to the actual booking process as the traditional channel still processes a lot of bookings. Simply put, there are two reasons for this. One is that many of these bookings are done following the traditional route as the consumer in question, mostly from a declining ‘older’ age group in the market, finds it convenient and is more comfortable doing so. However, above statistics confirm that many of these did research via the Internet and then followed this traditional route knowing what he/she wants. The second reason, which is also definitely applicable to the growing ‘younger’ market, is that what the consumer wants is not effectively or efficiently available online, despite us all doing business in this digital world we live in. This consumer then reluctantly follows the traditional route or, at the industry’s peril, decides to book an alternative product.

Today’s potential traveller, the ‘younger’ growing market, gets inspired, does his or her research and planning and decides what to book and then books and pays, all on the Internet, by using resources from Google, OTAs and meta engines, social media and review platforms.

Let’s now look at this consumer or world traveller in a Namibian context. As we all know, Namibia is not usually a ‘one stop destination’ such as, for example, Cape Town or Mauritius can be. Most travellers see Namibia as an ‘itinerary or touring destination’ and, as such, it basically attracts, or should attract, both the traditional traveller who is more comfortable with an escorted tour or pre-planned set itinerary and the growing more independent traveller who wants to do his/her own thing. All the above-mentioned principals in the tourism industry, such as hotels, airlines, etc should realise, and many do, that any independent individual traveller in today’s digital world can and definitely does, with a click of the mouse, research and book whilst comparing facilities, services and prices and even paying for a flight to Namibia, a car rental along with any number of hotels or lodges. Yes, some of these consumers find it too laborious to process all required bookings and then resort to the more traditional channels involving travel agents, tour operators and their DMCs. It is also true that many find it frustrating that the products they want are not adequately available online via the Internet and then decide to satisfy their needs, wants and desires with products that readily are.

It is the consumer’s choice as to how he/she wants to BUY and it is each member of the tourism industry who must choose how to fulfil the consumer’s choice. The best strategy is to follow the route the consumer wants and, if that is both, either the traditional and/or the electronic (aka OTA) route then it is surely a wise business decision to do both rather than ‘kicking OTAs out’ and not welcoming them into your so-called tourism family.

OTA iPad booking

Numerous world-wide market research projects will confirm that of the two prominent market segments in the tourism industry, the more traditional escorted tour market is declining and that as the world becomes ‘a smaller place’ and new generations replace the older ones, it is the non-traditional independent segment that is growing by leaps and bounds in the rest of the world. Just see the global success of AirBnB, simply because it is fulfilling a consumer’s demand. This is also the segment that has grown up in and is very comfortable with the digital world. A world in which the OTAs have taken the lead and have an important role to play. It is those industry members insisting to remain with the traditional tourism practices who are losing ground and, as a result, will lose market share.

Namibia had its tourism peak in 2008. From 2009 to 2012 Namibia tourism was on a constant decline. In 2013 and 2014 the market stabilised slightly without growing and then experienced another decline in 2015. Some stakeholders in the tourism industry in Namibia have explanations that sound more like excuses rather than reasons, while others view the situation with honest and constructive concern realising there are many other reasons which one cannot address in this article if we are to remain on topic.

However, it seems that the traditionalists in the tourism industry, not only support but also wish, at any cost, to protect the traditional tourism family and its value chain from the DMC via the Wholesale Tour Operator and the Retail Travel Agent to the Consumer, stating that it is “the real” and ONLY relevant tourism industry.

So, let’s look into the statistics and study what are the market dynamics in Namibia in relation to this consumer or world traveller: With the decline in the traditional escorted tour type tourism into Namibia, we end up welcoming some 250,000-300,000 (+/-) real tourists per year, after taking out business and friends and family-related arrivals from our neighbouring countries. A number Cape Town runs in one month, just to put this into perspective. These 250,000 Namibian tourists have a choice of ±1,500 accommodation establishments. Taking into account that a tourist stays around 17 nights on average, it results in about five million potential bed nights. If you then spread this across the 1,500 registered accommodation providers you get an annualised average occupancy of some 30%.

Every hotelier knows what that means. Let’s look more closely at this traditional tourist visiting Namibia: Looking into the demographics of these 250,000 travellers, one finds the majority are in the age group of 50+ and are very often returning travellers who have visited Namibia for many years.

This in itself is positive but one must ask oneself how does one grow the market realising that in the last five years we have lost dramatically in the relevant age group of 30 to 49 years? Here we should all be asking ourselves why? Could it be that by sticking to and protecting traditional tourism marketing practices the tourism family is not reaching them effectively?

When one studies the status of Namibia’s digital presence in the international market place, and applies international benchmarking, one finds at least 9 out of 10 websites are not up to standard and even more are not at all mobile or tablet ready, despite confirmation that 67% of world travellers use this route to research and book. This makes it difficult for the potential traveller to even research what Namibia has to offer. It is even more difficult to plan, book and pay for what one wants.

Book and pay also means BUY and this is what needs to be focused on. International benchmarking is also important as the tourists and travellers we are talking about are mainly international and have the entire world to choose from when researching and planning a vacation.

For years now marketers have been preaching about instant gratification. The decision to buy is taken and then the traveller follows a simple click to book and pay. Market research confirms that these are the needs, wants and desires of our consumers.

We, in a dynamic tourism industry need to respond to these rather than, at all cost, protect the traditional practices or ‘the old boys’ club’.

OTA bookings sunglasses

Each supplier in the tourism industry has complete freedom of choice whether or not to get into a business relationship with ‘non-traditional electronic third party intermediaries (aka OTAs)’. Yes, in many industries there is a ‘reluctance’ to pay commissions. This has existed in our tourism industry for decades and long before OTAs appeared on the scene. Just look at the changes brought about in the airline industry. Look also at the steps taken in the hotel industry and so on.

Also look at the recent competitive strategies some huge multinational hotel chains such as Hilton or Marriott have adopted pertaining to commissions paid and distribution control given to OTAs. It is interesting to note that none of them has stopped doing business with OTAs. All they have done is at last ‘wake up’ and began paying full attention to the power of digital marketing in all disciplines to reach all possible source markets and market segments.

Another way of looking at it is to ask what value-add does an OTA or similar bring me as the owner of any given hotel or lodge.

  1. The listing with an OTA is free of charge, including uploading images, descriptions, 360° Virtual Reality immersive content, rates and real-time availability.
     
  2. The ability to instantly update rates, availability, images and content or to participate in the many global marketing campaigns they offer is also free of charge.
     
  3. This free listing exposes your hotel to hundreds of millions of real and potential travellers in every corner of the world, daily. This includes all those who are researching and do not book with the OTA in question.
     
  4. Even as a small independent lodge, listing with an OTA gives you the marketing reach previously only available to huge multinational chains. OTAs have levelled the playing field for you as a small lodge.
     
  5. OTAs in no way dictate what your rates should be and simply list your rack rates or those you wish to trade with at any given time. By focusing on the consumer they simply allow natural market forces to come into play.
     
  6. With their review platforms they ensure that all your excellent ‘guest service’ is exposed to the world allowing you to compete and enjoy the benefits of all your hard work.
     
  7. The only time you pay an OTA any money is when a booking is made and (most importantly) paid for. As there are no marketing costs, no wasted marketing costs are incurred, yet a huge amount of marketing is provided.
     
  8. All OTA bookings are paid for in full immediately at the time of booking, or in some cases, on the day of departure and are subject to strict cancellation policies which are always adhered to.
     
  9. Commissions then paid range only between 15% and 25%.
     
  10. The industry norms for Retail Travel Agents stand at around 10% with many of the larger chains achieving 12-15%. None of them can provide the marketing reach of an OTA who provides it at no cost.
     
  11. STO industry norms are from 20% to 35% off ‘rack’ but this so called ‘rack rate’ is fixed up to 18 months in advance with no ability to change them. The OTAs rate is a ‘real rack rate’ as it is fixed now for today and can be revised at any time and can thus reflect up to date market and demand conditions any time.
     
  12. In Namibia ‘exceptional’ or ‘special’ STO deals are concluded at even 40% or more off the ‘rack rate’ set up to 18 months in advance.
     
  13. Payment for STO bookings is contractually supposed to be made within 30 days of guests’ departure but in many cases can take up to 60 or even 90 days.
     
  14. Having your property listed in one of their agents brochures can often cost between N$5 000 and N$10 000 per season (+/- 6 months) labelled as ‘brochure contribution’ in their agents’ brochures, plus the STO rate provided.
     
  15. When a principal adds up annual costs of hosting complimentary or heavily discounted travel agent familiarisation/educational tours and international trade show/events organised by tour operators along with other activities, one soon realises that combined with the above listed commissions of 25% to 40% the traditional tour operator/DMC/travel agent route comes at a cost significantly higher that by the non-traditional third party intermediaries (aka OTAs).

OTA booking cellphone

The traditional business model of DMC and TO type of tourism into Namibia is mainly sold on price and the OTAs simply work with real rack rates allowing natural market forces to determine the price. At the end of the day, price will always be one of the important factors but the OTAs linked review platforms allow the consumer to also focus on other factors. These reviews are posted by fellow travellers who remain impartial and only report on their experience. In Namibia, DMCs have repeatedly asked or even demanded lower rates and higher commission to remain competitive within their traditional value chain. Based on this, I conclude that the traditional route is even more price-driven than OTAs.

It is also not correct to simply assume OTAs do not provide additional services and value add-ons. Surfing their various websites will confirm this. Most importantly, it is their open and honest review platforms which provide their consumers with one of the most relevant and important services available in today’s transparent digital world. It is also more a factor of them following a different business model and as some traditionalists would say, one that has given them “enormous power“. I would say that this so-called enormous power has been earned by them by giving a large segment of the consumer market exactly what they want.

In conclusion, I would summarise matters as follows: In Namibia, the traditional DMC, tour operator and retail travel agent route is definitely one that all principals in the tourism family need to follow according to their own business strategies and decisions. Namibia is still firmly in this market and there is nothing wrong with this.

However, it would be very ill-advised to do so without having a strong and “firm foot in the future”, which has already arrived. To not recognise and not value that is, in my opinion, a very big mistake. One which has cost many other industries much pain and financial loss.

As I have attempted to outline in this and the previous three issues, these entities are our partners in the industry and the consumer willingly uses them. Namibia and all in the tourism industry would benefit from continuing with the traditional business model, to improve the way they work, especially when it comes to digital, but never to the exclusion of following consumer trends. Especially considering how things change in the blink of an eye.

All involved should foster business relationships with those who are serving our mutual consumer and those our consumers choose to do business with in the manner they are comfortable with. The Internet arrived many years ago and brought with it numerous marketing opportunities for the tourism industry. Since then, it has grown exponentially in popularity and efficiency. In fact, travel is the second-biggest revenue contributor on the Internet.

As a principal or supplier in this industry, one needs to maintain the traditional path but also recognise that the non-traditional path arrived a long time ago and that it is here to stay.

All principals or suppliers must have more than just one strategy in place and, most importantly, not allow only one to dominate their distribution network, which in fact, would be a business risk and not be sustainable.

Currently, many Namibian lodges receive between 80% and 90% of their bookings via the traditional DMC, tour operator and travel agent route and within this some 80% from our main source markets (Central Europe) and of these a majority is in the age bracket of 50+. This is not by any means a healthy situation to be in and calls for the adoption of new and non-traditional business strategies and distribution channels in order to sustain and grow Namibia’s tourism.

Evaluate your own website. Benchmark it to those in other countries and industries. Pay special attention to all internet-based opportunities available, be they resources from your own website or Google, OTAs and meta engines, social media and review platforms. When we do this correctly and honestly, looking at it as an opportunity rather than a threat, there are great times ahead for the Namibian tourism industry.

The key to a successful business plan and strategy is an intelligent and integrated omni channel revenue management strategy where all value chains play their role. DMCs for occupancy. OTAs not only for occupancy but also global exposure and visibility and an improved profit and cash flow achieved by direct bookings at a vastly improved average daily rate. This, all at a much lower cost and a zero marketing cost, resulting in an increase in profit. This enables a hotel/lodge to then subsidise the high distribution cost of the traditional DMC value chain. A healthy sales mix that no longer looks like 85%+ DMC, 10% OTA and 5% direct bookings but more like 55% DMC, 30% OTA and 15% direct bookings.

previous next
Please keep me updated with
the newest technology and digital
marketing methodologies for the
Hospitality and Tourism Industry.
rainmaker digital cc

rainmaker digital cc

P.O. BOX 6941 AUSSPANNPLATZ
WINDHOEK, NAMIBIA
EMAIL US

© 2017 rainmaker digital cc. All rights reserved

Don’t fight the increasing popularity of OTA’s. Here’s why...
rainmaker digital cc
www.rainmaker.travel/blog
Over the last few years, I have found that many roleplayers in the tourism industry are still fighting the inevitable future and are completely unaware of the fact that it has already arrived. 
https://www.rainmaker.travel/_assets/media/blog/header/OTA_Header.jpg 15.01.2018