In part two of my response, let’s now look at this matter from a product owner’s perspective. The most important fact here is that each supplier in the tourism industry has complete freedom of choice whether or not to get into a business relationship with these ‘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 multi-national 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 begin 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. In so doing I will also address some of the astounding statements you made in your article.
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) Free of charge is the ability to instantly update rates, availability, images and content or to participate in the many global marketing campaigns they offer.
3) This free listing exposes your hotel to hundreds of millions of real and potential travellers every day in every corner of the world. 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 time of booking or in some cases on 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) Your statement: “Expedia and Hotels.com have obtained enormous power in the hotel distribution and they have learned to abuse it, charging far above industry norm commissions.” is at least astonishing.
a) The industry norms are for Retail Travel Agents 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.
b) 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.
c) In Namibia ‘exceptional’ or ‘special’ STO deals are concluded at even 40% or more off the so called ‘rack rate’ set up to 18 months in advance.
d) 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.
e) 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.
f) Then, when a principal adds up annual costs of hosting complimentary or heavily discounted travel agent familiarisation/educational tours and international tradeshow/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).
11) Your statement: “Whilst OTAs sell bookings on the basis of the lowest possible price. DMCs as well as most Southern African hotels and lodges offer guest-centred and value added experiences, while OTAs sell accommodation.”
a) Given the above STO rate negotiation report it is very evident that the traditional business model of DMC and TO type of tourism into Namibia is also mainly sold on price and that the OTAs simply work with real rack rates allowing natural market forces to determine 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 would come to the conclusion that the traditional route is even more price-driven than OTAs.
b) It is also not correct to simply assume OTAs do not provide additional services and value add-ons. Surfing their various websites will soon 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 in your words, one that has given them “enormous power“. I would say that this so-called enormous power has been gained by them 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, possibly more than many countries around the world, 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 those you in your article question by asking: “What the heck are non-traditional electronic third party intermediaries (aka OTAs) doing at a tourism expo?” 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 above, these entities are our partners in the industry and the consumer willingly uses them. Namibia and all in the tourism industry would be well served by continuing with the traditional business model and even improve the way they work, especially when it comes to digital, but never to the exclusion of following consumer trends and how things today 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 the consumer is comfortable with. The Internet arrived many years ago and brought with it numerous marketing opportunities for all of us in tourism. 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 your 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 right 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.