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MARKET RESEARCH • INDUSTRY INTELLIGENCE PhoCusWright PhoCusWright White Paper Written and Researched by Bill Carroll and Lorraine Sileo Online Travel Agencies: More Than a Distribution Channel
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MARKET RESEARCH • INDUSTRY INTELLIGENCE

PhoCusWright

PhoCusWright White Paper

Written and Researched by

Bill Carroll and Lorraine Sileo

Online Travel Agencies: More Than a Distribution Channel

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©2014 PhoCusWright Inc. All Rights Reserved. Page 2

This research made possible by Expedia Lodging Partner Services.

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About PhoCusWrightPhoCusWright is the travel industry research authority on how travelers, suppliers and intermediaries connect. Independent, rigorous and unbiased, PhoCusWright fosters smart strategic planning, tactical decision-making and organizational effectiveness.

PhoCusWright delivers qualitative and quantitative research on the evolv-ing dynamics that influence travel, tourism and hospitality distribution. Our marketplace intelligence is the industry standard for segmentation, sizing, forecasting, trends, analysis and consumer travel planning behavior. Every day around the world, senior executives, marketers, strategists and research professionals from all segments of the industry value chain use PhoCus-Wright research for competitive advantage.

To complement its primary research in North and Latin America, Europe and Asia, PhoCusWright produces several high-profile conferences in the United States and Europe, and partners with conferences in China and Singapore. Industry leaders and company analysts bring this intelligence to life by de-bating issues, sharing ideas and defining the ever-evolving reality of travel commerce.

The company is headquartered in the United States with Asia Pacific opera-tions based in India and local analysts on five continents.

PhoCusWright is a wholly owned subsidiary of Northstar Travel Media, LLC.

www.phocuswright.com

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JANUARY 2013

Table of ContentsPurpose of White Paper 5

The OTA Proposition 5

From Perception to Reality 6

OTAs Have Global Reach and Influence 6

OTAs Provide the Services that Consumers Want 10

OTAs Fill the Gaps 11

OTAs Go Beyond Distribution 15

Conclusion 18

Appendix A 19

Appendix B 20

Table of ChartsFigure 1 7 Online Travel Penetration by Region, 2011-2015

Figure 2 8 OTA and Total Market Growth

Figure 3 8 OTA Market vs. Total Travel Market (US$B) by Region, 2013

Figure 4 9 How We Access the Internet is Rapidly Changing

Figure 5 9 Mobile Bookings as a Share of Online Bookings by Region, 2013 vs. 2015

Figure 6 10 U.S. OTA Mobile Bookings, 2012-2015 (US$B)

Figure 7 10 Websites/Apps Used to View Traveler-Submitted Ratings/Reviews, 2013

Figure 8 11 Typical Purchase Method for Lodging, U.S.

Figure 9 11 Websites/Apps Used to View Traveler-Submitted Ratings and Reviews for the U.S

Figure 10 12 OTA Real Time Traveler Assistance

Figure 11 13 Hotel Loyalty Incidence

Figure 12 14 Influence of Hotel Loyalty Membership on Supplier Selection

Figure 13 14 Factors Influencing Last Hotel Decision

Figure 14 15 Typical Purchase Methods for Lodging, by Age

Contents

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Online Travel Agencies: More Than a Distribution Channel

Written and Researched by Bill Carroll and Lorraine Sileo

Online travel agencies (OTAs) have been both coveted and criticized since they rose to prominence in the early 2000s. Representing 13% of global travel gross bookings and growing at 12% annually, OTAs play a pivotal and expanding role in the travel landscape. However, in a climate where suppliers are pushing their direct distribution, OTAs can be seen as just another intermediary in the value chain. This view overlooks the value of OTAs, which goes beyond assisting with the sale of excess inventory during soft demand. OTAs offer suppliers unprecedented reach around the globe and are a valuable marketing tool. As a result many hotel suppli-ers have built a symbiotic relationship with OTAs, benefiting from their influence while managing their own direct distribution as well.

Purpose of White PaperThe purpose of this paper is to explain the role of OTAs in the travel landscape as a significant and effective marketing and distribution channel. It specifically supports OTA value at broadening reach and attracting new customers including interna-tional guests to hotel properties and encourages hoteliers to effectively use OTAs as an integral part of their marketing and distribution strategies. The paper applies current research from PhoCusWright and academic studies to support these per-spectives.

The OTA PropositionOTAs provide a trusted and effective platform for consumers to dream, shop and buy travel, and share information about their experiences. Their reach includes websites, mobile sites and apps, and call centers. In some cases they also own metasearch companies (Expedia-Trivago, Priceline-Kayak, Odigeo-Liligo).

Online travel agencies play a pivotal role in travel distribution. With gross book-ings exceeding $150 billion in 2013, OTAs now represent 38% of the global online market and 13% of the total market. In the U.S., OTAs have a 15% market share and gross bookings are expected to jump 5-6% annually over the next two years, rates that exceed overall travel market growth. Their influence in accommodations

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continues to spread. OTAs were responsible for nearly $19 billion in hotel gross bookings in the U.S. in 2013, representing 15% of total hotel sales.

A variety of OTA brands serve multiple customer segments – leisure, business and group. They are global in reach and innovative in functionality. They are marketing engines, search engines, booking engines and execution platforms for consumers. OTAs also hold a prominent place in travel information search and multi-device (mobile) applications.

And, while OTAs compete for marketing spend with other search, metasearch and content sites (e.g., Google, Kayak, TripAdvisor, Trivago), these services also act as partners, providing additional reach and distribution.

Hoteliers operate in a highly competitive environment. To optimize their asset values they must make effective use of OTAs and other marketing channels. For hoteliers to underestimate the marketing reach of OTAs as both distribution and marketing platforms is a mistake. To be overly reliant on any one channel is also flawed. Hoteliers must strive to strike the right balance to reach multiple segments of the marketplace and optimize the mix of transactions to achieve occupancy and profit targets.

From Perception to RealityConsumer options have exploded. Armed with laptops, smartphones and tablets, travelers are using multiple devices and searching myriad sites to plan their trips. In burgeoning travel markets like China and Russia, young, adventurous and newly minted “middle class” consumers will grab their handhelds to book their getaways this year, many though OTAs.

While OTAs are indeed intermediaries, they do more than shift share among hotel competitors. They can be an effective tool to: preserve market position, extend search marketing, meet consumer demand for packaged and spontaneous travel, support yield management, and execute integrated marketing strategies. Hotels can and should manage OTAs to optimize revenues versus costs.

The paper utilizes existing PhoCusWright and published academic research to make the following points.

7 Ad spend for managed corporate travel

7 B2B travel industry advertising

7 Costs associated with content creation, social media management and compa-ny-owned assets

1. OTAs Have Global Reach and Influence

The travel industry continues to expand globally. Over the next two years, worldwide online travel is expected to jump 11% as more and more vacationers use their desk-tops/laptops, smartphones and tablets to make purchases. A new generation of travel-

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ers will book their first trip online – not through a travel agency or call center or walking up to a desk. OTA gross bookings are growing at two to three times the pace of the total market in emerging regions.

Keeping up with new market demand globally – including unique cultures, preferenc-es, payment trends, inventory and languages – is a complex and costly undertaking. Expedia, for example, has 150 travel booking sites in over 70 countries with websites lo-calized in more than 30 languages. As well, the global travel industry continues to book travel online, with some regions still growing in double-digit percentages. The percent-age of all travel booked online continues to rise around the world (see Figure 1).

Major OTAs are accelerating ahead of the overall industry on a worldwide basis. Glob-ally they are expected to expand gross bookings twice as fast as the overall market as emerging regions in Latin America, Asia Pacific and Eastern Europe take off (see Figure 2). In the U.S., where OTAs have existed for more than 16 years, their gains are more commensurate with the market as a whole.

Global growth is fueled by investments in multi-lingual, culturally relevant displays as well as alternative payment systems. Local knowledge is attained by both organic growth and international acquisitions. Over the past 10 years, Expedia and Priceline have made a series of significant international (non-U.S. based) acquisitions and part-nerships, particularly in Europe and China.

Europe is the largest region in the world in terms of OTA gross bookings, followed by the U.S. and Asia Pacific (see Figure 3).

Note: 2013-2015 projected.Source: Global Online Travel Overview Third Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 1: Online Travel Penetration by Region, 2011-2015

0%

10%

20%

30%

40%

50%

2011 2012 2013 2014 2015

Europe U.S. APAC Eastern Europe Middle East Latin America

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In a shifting landscape where mobile usage is overtaking PCs, OTAs play an even more crucial role (see Figure 4). They are investing heavily in mobile websites and apps and can service consumers via multiple devices throughout all phases of the travel process. This allows OTAs to be present not just in the dreaming, planning and booking stages, but also as travelers are in transit, checking and changing itineraries, reading reviews, sharing experiences, and choosing restaurant options, hotel accommodations, tours and activi-ties. This mobile presence allows OTAs to capture much of the last-minute hotel market, a significantly growing portion of all hotel sales. According to PhoCusWright, 72% of OTA mobile web bookings are made within 24 hours of the stay.1 .

1) Parsing Shop and Book: How Airlines, Hotels and OTAs Compete on the Desktop and Mobile Web, PhoCusWright (July 2014).

Note: 2013-2015 projected.Source: Global Online Travel Overview Third Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 2: OTA and Total Market Growth

0%

2%

4%

6%

8%

10%

12%

2012 2013 2014 2015

U.S. OTAs Total U.S. Market Global OTAs Total Global Market

Note: 2013-2015 projected.Source: Global Online Travel Overview Third Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 3: OTA Market vs. Total Travel Market (US$B) by Region, 2013

0

50

100

150

200

250

300

350

U.S.

44.983.6

28.5

304.6333.2 322.6

Europe Asia Pacific

OTA Market Total Market

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Mobile is the fastest-growing method for travel booking. The percentage of travel booked via mobile devices is expected to at least double in the U.S. and Europe over the next two years (see Figure 5).

Because of their brand reach and investment in mobile-optimized sites and apps, OTAs will represent one fifth of all smartphone and tablet bookings in the U.S. by the end of 2014 (see Figure 6). Much of that will be hotel rooms: Nearly 60% of the $13 billion projected in hotel mobile sales will be transacted via OTAs in 2014.

Source: Expedia, Business Insider© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 4: How we Access the Internet is Rapidly Changing

2009

60%

23%

52%

10%

12%

3%

40%

2013E

PersonalComputers

Smartphones

Tablets

Smart TVs

Wearables

Note: *Mobile bookings calculation for APAC includes China, India and Japan only. 2013-2015 projected.Sources: U.S. Online Travel Overview Thirteenth Edition, European Online Travel Overview Ninth Edition, Asia Pacific Online Travel Overview Seventh Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 5: Mobile Bookings as a Share of Online Bookings by Region, 2013 vs. 2015

0

30

0

30

2013 2015

10% 11% 12%

27%

20% 20%U.S. Europe APAC*

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As mobile grows in global prominence, OTAs offer the scale and expertise to assist ho-tels in expanding their mobile (and multi-device) footprints. By leveraging their techno-logical innovation, multiple brands, and localization and marketing capabilities, OTAs can effectively drive mobile demand on a global scale to hoteliers in a cost-effective manner.

2. OTAs Provide the Services that Consumers Want

OTAs are a preferred shopping and booking channel for hotel accommodations in the U.S., Europe and other parts of the world. They are the leading online shopping and purchase method in the U.S., outpacing supplier websites, phone and other methods (see Figures 7 and 8).

Source: U.S. Online Travel Overview Thirteenth Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 6: U.S. OTA Mobile Bookings, 2012-2015 (USB)

OTA Mobile Bookings 2012 2013 2014 2015

2,691 5,480 10,004 14,618

Percent Change 150% 104% 83% 46%

Share of OTA Gross Bookings 6% 12% 21% 29%

Question: What type(s) of websites do you typically use when comparing and choosing leisure travel products? Select all that apply. Base: U.S. travelers who used websites to compare and choose leisure travel products (2010 N=2,008; 2011 N=1,587; 2012 N=2,041; 2013 N=1,485)Source: U.S. Consumer Travel Report Sixth Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 7: Websites Used for Shopping, 2013

Online travel agency websites,such as Expedia or Priceline

General search engines,such as Yahoo or Google

Traveler review websites,such as TripAdvisor

Travel search engines, such as Kayak

Travel provider websites, such asUnited Airlines or Marriott

Deals newsletters/websites, such asTravelzoo or TravelTicker

Destination websites, such asVisitNewYork.com or LasVegas.com

Online social media, such asFacebook or Twitter

Travel guide websites, such asLonely Planet or Frommer’s

Magazine/newspaper websites, such asTravel+Leisure or The New York Times

Home/apartment rental websites,such as Airbnb

54%

47%

36%

33%

30%

18%

16%

13%

12%

9%

8%

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Question: Please indicate which method you typically use to book each type of travel component. Select one response per row. Base: U.S. travelers who purchased lodging (2011N=1,687; 2012 N=1,997; 2013 N=1,716)Note: Totals may not add to 100% due to rounding. Source: U.S. Consumer Travel Report Sixth Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 8: Typical Purchase Method for Lodging, U.S.

Online travel agency

25%

8%

2%

18%

4%

6%

6%

31%

Supplier website

Retail agency website

Calling/visiting retail travel agents

Walk-in/at property

Other

Metasearch

Calling travel providers

Question: On what types(s) of websites did you read traveler-submitted ratings/reviews? Select all that apply.Base: U.S. travelers who read reviews online (2011 N=1,564; 2012 N=1,989; 2013 N=1,082)Source: U.S. Consumer Travel Report Sixth Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 9: Websites/Apps Used to View Traveler-Submitted Ratings and Reviews for the U.S.

Travel review websites 52%

42%

45%

33%

23%

23%

21%

15%

Online travel agency websites

Hotel websites

General user review websites

Social networking websites

Blogs/online forums

General search engines

Travel search engines

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Consumers, especially younger travelers, typically prefer the depth and breadth of OTAs vs. supplier direct channels. These savvy consumers are looking for the best accommodations that fit their preferences and budgets and prefer to cross-shop. They rely on reviews and mapping services and overall comparative capabilities of OTAs to find what’s best for them.

User reviews rank among the most important features for travel decision-making, and it’s not all TripAdvisor. Next to travel review websites, OTAs rank as the second most popu-lar source for ratings and reviews in the U.S. (see Figure 9), ahead of search engines and hotel websites. As a differentiator from TripAdvisor, some OTAs offer the advantage of authenticated reviews (associated with guest stays at the property).

When customers book via an OTA and other intermediaries, these third-parties can also be personal travel assistants, supporting the consumer throughout the travel experience (see Figure 10). OTAs are available 24/7 and accessible via any device the consumer wants to use in a multi-lingual display.

OTAs provide one-stop shopping via breadth of content across multiple travel segments: (i) carriers: air, rail and bus; (ii) lodging: hotels, B&Bs and rental properties; (iii) cruises; (iv) rental cars; (v) ground transportation; (vi) attractions/activities. Shoppers get a compara-tive information view across properties, ranked by authentic user reviews, type of proper-ty, star classification, facilities, location and other criteria, all within selected destinations. In many cases, price and inventory availability are real time. And, perhaps most important to the consumer, this information is provided with comparison prices.

The depth and breadth of inventory allow OTAs to offer packages at lower prices to the consumer than if purchased separately. For travelers willing to take some risk by not knowing the name of the hotel (only its general location, star rating and possibly price),

Source: www.priceline.com© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 10: OTA Real Time Traveler Assistance

See http://www.expedia.com/app

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opaque (name your price: Priceline) and semi-opaque services (e.g., Travelocity Top Se-cret Hotels, Expedia Unpublished Rate Hotels) are welcome resources.

3. OTAs Fill The Gaps

Hotels rely on OTAs to reach this important and growing segment of the population: travelers who are not always brand loyal are searching for value as well as amenities, and who prefer deals – whether a single-night hotel stay or weeklong dream vacation.

OTAs can help suppliers…

7 Reach non-brand loyal travelers

7 Reach a younger demographic

7 Reach a higher-yielding packaged traveler

Major hotel chains continue to build their direct website business, investing heavily in marketing and functionality. They also covet and support their customer relationships (particularly among loyalty club members). Yet only a segment of the traveling popula-tion is actually faithful to a particular hotel brand (see Figures 11 and 12). And nearly half of those who are members of a hotel loyalty program book outside that program some or all of the time. In addition, some OTAs have their own loyalty programs that reward bookings made with any supplier, not just one, and capacity to use those rewards for multiple products.

Questions: Are you a member of a loyalty or frequent flyer program for any of the following types of travel companies? Select all that apply. Which of the following, if any, have you done while traveling for leisure in the past 12 months? Check all that apply. Which of the following, if any, have you done while traveling for leisure in the past 12 months? Check all that apply. What type(s) of internet websites/apps do you typically use when comparing and choosing leisure travel products? Select all that apply. Base: U.S. Leisure travelers (N=1,850)Source: U.S. Consumer Travel Report Sixth Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 11: Hotel Loyalty Incidence

U.S. Adult LeisureTravelers

127 million

Hotel Stayers118 million (93%)

Hotel LoyaltyMembers

54 million (43%)3

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PhoCusWright and academic research indicate that a leading factor in leisure hotel choice is price, followed by location (see Figure 13). Other leading factors are related to satisfaction, such as previous experience, brand, amenities, star classification and positive

Questions: When flying for leisure, how often do you typically book with an airline(s) where you are a member of a loyalty pro-gram (versus other options)?When staying in hotels during leisure travel, how often do you typically book with a hotel(s) where you are a member of a loyalty program (versus other options)?Base: Hotel Loyalty Members (N=804)Source: U.S. Consumer Travel Report Sixth Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 12: Influence of Hotel Loyalty Membership on Supplier Selection

Never Sometimes Half the time Most of the time All of the time

Hotel loyaltymembers 3% 25% 20% 41% 12%

“When staying in hotels for leisure, how often do you typically book with the hotel(s) where you are a member of a loyalty program

(versus other options)?

Question: What factors influenced your last hotel decision? Select all that apply.Base: U.S travelers who stayed in paid lodging (2013 N=1,471)Source: U.S. Consumer Travel Report Sixth Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 13: Factors Influencing Last Hotel Decision

0 10 20 30 40 50 60 70

Price

Location of hotel/property

Previous experience

Hotel brand

Amenities (e.g., pool, gym, spa)

Special offer/discount

Positive hotel reviews by previous guests

Pictures/photos of hotel

Class/star rating of hotel

Loyalty membership

On-property dining, restaurants

Size of hotel

Hotel had a recent renovation

Hotel was part of an attractive travel package

Personal recommendations from friends and family

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reviews. Therefore, when consumers are making hotel choices related to their own leisure hotel stays, they are often more influenced by price and other service qualities than loyal-ty programs.

For these same reasons, a coveted segment of the traveling population – millennials – is also less likely to be loyal to a particular travel brand versus older travelers. Use of OTAs for lodging purchases is highest among those 18-34 years of age (see Figure 14), indicat-ing the preferences of a new generation of travelers.

Packages and opaque/semi-opaque services allow hotels to offer deals without com-promising on the retail rate. Packages are not only a valuable option for revenue man-agement, they also attract travelers who are likely to book earlier, stay twice as long, and cancel half as often as standalone hotel bookers2.

4. OTAs Go Beyond Distribution

For hotels, OTAs are more than a distribution channel. They have marketing influence similar to search engines and metasearch sites, and they can engage customers globally through all the stages of the travel experience – with whatever devices their customers choose to use. OTAs have extended their influence through mobile (multi-device) usage and metasearch, and that influence will continue to escalate.

In 2013, U.S. OTAs spent nearly $700 million on advertising, and that figure is expected to jump 8% over the next two years.3 Of that amount, nearly eight in 10 dollars was spent online, mostly on search, metasearch and display.

Question: Please indicate which method you TYPICALLY use to book each type of travel component. Select one response per row. Base: U.S. travelers who purchased lodging (2011 N=1,687; 2012 N=1,997; 2013=1,851)Note: Totals may not add to 100% due to rounding. Source: U.S. Consumer Travel Report Sixth Edition© 2014 PhoCusWright Inc. All Rights Reserved.

FIGURE 14: Typical Purchase Methods for Lodging, by Age

18-34 35-54

2013

55+

37% 32%18%

6%

30%6%

27%

13%

19%

OTA website Metasearch Supplier website

2) Expedia Worldwide data from 7/1/2013 – 6/30/2014. 3) U.S. Travel Advertising Marketplace: Industry Sizing and Trends 2015, PhoCusWright (June 2014).

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Hotels should not consider OTA usage as merely a distribution cost. OTAs rank higher than search engines in terms of travel decision-making (see Figure 10), and a portion of the cost of OTA use goes beyond commissions or merchant rates and falls into the marketing budget. Hotels generally spend about 6-9% of their revenue on sales and mar-keting4 – and some of that should be allocated to OTAs. (On the contrary, major OTAs spend 35-40% of their revenue on sales and marketing).

The key to successfully managing OTA use is for hotels to assess their full value as a distribution channel and as a marketing platform versus the benefits of other channels and media outlets. Hotels should integrate OTA participation within an overall marketing strategy and with effective revenue and channel management. Only by considering both the distribution and marketing costs can hotels fully measure return on investment (ROI).

Some hoteliers and industry experts undervalue the net cost of participation in OTAs by considering only their merchant markup – the net rate paid to the hotel versus the OTAs’ price to the consumer.5 For example, the OTA collects $160 per day from the consumer and remits $120 to the hotel, which then mistakenly compares this cost to booking the same transaction as if made through the hotels’ brand website at the same price, $160. Erroneous assumptions include:

(i) The hotel could have gotten this (and other) booking(s) from consumers without OTA participation, and

(ii) There is no marketing value of OTA participation that produces future bookings.

Instead, PhoCusWright research shows that consumers use OTAs to shop nearly as much as they use search engines, and leisure guests are more likely to use OTAs – as opposed to business travelers who probably would book through a travel management company (TMC) and/or global distribution system (GDS). This increases the likelihood that the OTA booking would be incremental. There’s also an impact from merely being featured on an OTA site. Therefore, hotels should ascribe some media value to being displayed in an OTA. How much is not clear; ascribing no value is an error.

A 2012 PhoCusWright article illustrates the net operating income effect of share-shift gain (or loss) from OTA participation versus cost.6 It counters the argument put forth in “Distribution Channel Analysis: A Guide for Hotels” that there is no “billboard effect,” recommends that hoteliers effectively manage the participation of OTAs, and provides a set of suggestions for hoteliers to follow in evaluating OTA participation. Its conclusions:

1. A “billboard effect”7 – the increase in direct bookings a property or brand experienc-es when it is featured on an online booking site – is probable for a hotel operating within a competitive set, though the specific impact could vary depending on market circumstances.

4) PKF Consulting. 5) Cindy Estes Green and Mark Lomanno, “Distribution Channel Analysis: A Guide for Hotels,”

Hospitality Sales and Marketing Association (HSMAI) (July 2012).6) William Carroll, “Sage Advice for Hotels: Another Point of View on a Popular Industry Report,”

PhoCusWright (June 2012).7) Chris Anderson, “The Billboard Effect: Online Travel Agent Impact on Non-OTA Reservation Volume,”

Cornell University School of Hotel Administration, The Center for Hospitality Research, 9, no.16 (2009), and Chris Anderson, “Search, OTAs, and Online Booking: An Expanded Analysis of the Billboard Effect,” Cornell University School of Hotel Administration, The Center for Hospitality Research, 11, no. 8 (2011).

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2. Hoteliers should consider the full “marketing effect” of OTA participation – e.g., the impact on sales through all channels generated from OTAs – not simply the net markup cost versus a direct booking.

3. Hoteliers should use an analytical approach to evaluate the ROI for both participa-tion in distribution channels and marketing activities. (See Appendix A.)

4. Hotels and OTAs would both be better served if there was more research and (shared) robust information available about the media effects of OTAs versus their distribution costs.

The most authoritative and well-known statistical study to date on OTA marketing impact was produced by Chris Anderson of the Cornell University School of Hotel Administra-tion. Using clickstream analysis, Anderson found extensive consumer use of OTAs and a positive statistical correlation between hotel reservation activity and Expedia appearanc-es in the path.8 His research found:

- a lift in reservations from appearance on an Expedia page-one display of 7.6% to 26% in months where the hotel was displayed versus months when it was not (2009)

- a ratio lift of 3.1-to-1 to 8.75-to-1 when Expedia appeared in the clickstream compared to when it did not (2011)

Although correlation does not necessarily imply causation, and results may differ under other circumstances, the statistical results are significant. They indicate a very high proba-bility of a relationship between participation in Expedia and incremental bookings. While there have been critics of this research, no one has refuted the measured results.

Other studies have focused on the type of information consumers use when choosing hotels. Those findings show that consumers want amenities that add value (e.g., free Wi-Fi, fitness center, etc.), and that OTAs are an information source.9 Recent studies by Breffni M. Noone and Kelly A. McGuire suggest that user-generated content (reviews) has a significant effect on perceived value when evaluating price-versus-benefit tradeoffs.10 The studies also found that brand name as well as TripAdvisor rankings and ratings im-pact consumer choice.

Not surprisingly, price is a prominent factor. Other important considerations that impact a consumer’s expected hotel experience: images, descriptions, ratings and reviews. Studies

8) Ibid. 9) Manus Ward and Mathew Shafaghi, “A Literature Framework Analysis of Online Hotel Accommoda-

tion Process Factors,” Information and Communication Technologies in Tourism 2014, Springer (2013): 481-494.; Peter Jones and Meng-Mei Chen, “Factors Determining Hotel Selection: Online Behaviour by Leisure Travelers,” Tourism and Hospitality Research 10, no. 1 (January 2011): 83-95; and Ugur Yavas and Emin Babakus, “Dimensions of hotel choice criteria: congruence between business and leisure travel-ers,” International Journal of Hospitality Management 24, no. 3 (September 2005): 359-367.

10) Dohee Kim and Richard R. Perdue “The effects of cognitive, affective, and sensory attributes on hotel choice,” International Journal of Hospitality Management 35 (December 2013): 246-257; Breffni M. Noone and Kelly A. McGuire, “Effects of Price and User-Generated Content on Consumers’ Prepur-chase Evaluations of Variably Priced Services,” Journal of Hospitality & Tourism Research (Feb. 27, 2013): 1096348012461551; and Breffni M. Noone and Kelly A. McGuire, “Pricing in a social world: The influence of non-price information on hotel choice,” Journal of Revenue and Pricing Management 12, no. 5 (July 5, 2013): 385-401.

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also show that OTAs represent a significant share of the sites consumers review – namely because major OTAs have all the key information that consumers use when making travel choices.

Recent (2014) academic studies summarize the most influential factors for hotel purchase intention across multiple countries.11 These confirm results found in several U.S.-based studies (see Appendix B). The major OTAs – Expedia, Priceline and Ctrip – effectively address these factors and continue to invest in functionality that enhances the user expe-rience.

ConclusionOTAs provide a platform to market and sell inventory. Attempts by hotel suppliers to completely bypass OTAs have successively failed.12 Hoteliers have simply acknowledged their significance and made studied and optimized use of OTAs as part of their marketing and distribution strategies.

OTAs are in a position to charge for the value they add in the market. They do provide suppliers, particularly hoteliers, with analytics and tools that they can use to optimize OTAs’ marketing and booking services:

7 Real-time price and inventory access

7 Market intelligence and performance tools

7 Knowledgeable supplier services managers

7 Promotional opportunities

Suppliers that effectively manage their overall price, inventory and marketing activities, and use of OTAs as marketing, search and distribution engines can improve profitabil-ity. The challenge for hotels is to do so in the context of the other options they have to optimize marketing.13 In large part, the onus is on hotels, chains and marketing services vendors to use that other information to make informed marketing and channel distribu-tion decisions in an integrated fashion for both the near and long term. m

11) James N.K. Liu and Elaine Yulan Zhang, “An investigation of factors affecting consumer selection of online booking channels,” International Journal of Hospitality Management 39 (May 2014): 71-83.

12) Hee “Andy” Lee, Basak Denizci Guillet and Rob Law, “An Examination of the Relationship between Online Travel Agents and Hotels: A Case Study of Choice Hotels International and Expedia.com,” Cor-nell Hospitality Quarterly (Dec. 18, 2012)

13) For a comprehensive discussion of the approach hotels should take in evaluating the use of OTAs in a competitive environment, see PhoCusWright’s “Sage Advice for Hotels: Another Point of View on a Popular Industry Report,” (June 2012).

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Appendix A

Hotelier Decision Matrix for OTAs and IntermediariesConsiderations for Channel Choice

CONSIDERATION TYPE

• How responsive (price elastic) are the consumers that use this channel?

• How effectively can the hotel communicate value rather than just price?

• How effectively can competitors match price/promotion offers capable of shifting share?

NEAR-TERM INCREMENTAL DEMAND

GENERATION

• Does the channel have the capacity to generate business the hotel would not have gotten otherwise; share shift or new (to the whole comp set) demand?

• Can the additional current and future business volume be increased?

• Can specific attribution of value to the channel be measured?

PRICE (STRUCTURE) DILUTION

• To what extent will price and promotional offers lead to prospective and existing transient, event, and/or corporate bookings price reductions?

• What impact will discounting have on reference prices con-sumers expect or expectation of future price reductions?

• To what extent can the hotel restrict dilution of higher rates?

CUSTOMER VALUATION, LOYALTY AND ADVOCACY

• To what extent does the channel affect consumer loyalty and advocacy?

• To what extent do offers and prices enhance service expe-rience and value?

• To what extent can brand trust be enhanced (or diluted) via the channel through value representations and guarantees?

Source: PhoCusWright Inc.© 2014 PhoCusWright Inc. All Rights Reserved.

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Appendix B

Summary of Reviewed Literature on Lodging Purchase Intention

Author (year of publication)

Sample country (number of samples) Influential factors

In the context of hotel booking

Wong and Law (2005) Hong Kong (638) Information Quality, Sensitivity Content, Time

Kim et al. (2006) China (206) Information Needs, Online Security

Chiang and Jang (2007) US (404) Perceived Price, Brand Image

Bai et al. (2008) China (180) Website Quality (Functionality & Usability)

Kuan et al. (200*) A university (111) Website Quality, Information Quality, Service Quality

Sparks and Browning (2010) Australia (554) Online Review

Wen (2012) US (559) Website Quality, Travelers’ Attitudes, Customers’ Satisfaction

In other contexts

Van der Heijden et al. (2003) Holland (228) Perceived Risk, Perceived Ease-of-Use

Chu and Lu (2007) Taiwan (302) Perceived Usefulness, Playfulness, Perceived Price

Moon et al. (2007) New Zealand (116) Price National Culture

Chang and Chen (2008) Taiwan (628) Website Quality, Website Brand

Hahn and Kim (2009) US (261) Perceived Confidence Online

Hausman and Siekpe (2009) US (420) Computer Factors, Funcitonality, Human Factors

Ganguly et al. (2009) India (260) Information Design, Communication, Privacy and Security

Lu et al. (2010) China (376) Trust in Vendor/Website

Source: Liu & Zhang, “An Investigation of Factors Affecting Customer Selection of Online Booking Channel,” International Journal of Hospitality Management, 2014.© 2014 PhoCusWright Inc. All Rights Reserved.

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About Expedia Lodging Partner Services

Expedia Lodging Partner Services (LPS) is the group within Expedia respon-sible for sourcing hotel supply that reaches travelers in more than 70 coun-tries through all of the Expedia group brands, which include Expedia.com®, Hotels.com®, Hotwire®, Venere.com®, corporate travel management company Egencia®, and the Expedia® Affiliate Network. The Expedia group offers hotels international reach; access to multiple channels in a single mar-ketplace; exposure that positively influences direct bookings on the hotel’s own website; and a dedicated team of market managers in cities around the world, who provide deep market insight and are committed to helping hotels increase their profitability.


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