A few weeks ago, eHotelier had a wide-ranging interview with Michael Levie, founder and COO of CitizenM Hotels. In part two of the conversation, we discuss the topic of OTAs – a distribution channel that he sees from perhaps a very different angle to many in the industry. Here is his philosophy on the role of OTAs.
At CitizenM hotels, we are fortunate to have a very high repeat factor and we’re well-known in the locations that we operate. But we don’t have a high brand value yet, as we’re still a very small company. Lining up with a brand is an option – you have to decide what you are going to do.
We decided to approach the market differently. We said, when the market is traded, it’s mostly done on the Internet at the last moment. If you want to be a part of that, you need to build your own site and acquire your own clients.
You can use billboards in internet marketing – they’re called OTAs. Do I have trouble signing cheques at the end of the month for OTAs? I would be lying if I say no. But on the other hand, I take a closer look at our cost of distribution,than many. My cost of distribution using OTAs as my billboards is much lower than many hoteliers spend on their distribution!
That raises the question then “What is distribution cost?
We use a uniform system of accounts where I account for distribution as a line under revenue. We take gross revenue, minus the distribution costs equals net revenue. I break down my distribution costs into OTA costs and my own online marketing costs. If you have a brand, if you pay for a franchise, these costs would also fall under distribution costs. So, I know what my total distribution cost is per hotel, per month.
If you ask the average hotelier what their distribution cost is, generally they have no clue – they don’t know what makes up their cost of acquiring revenue. So, for them to yell at OTAs saying, “that’s ridiculous, that’s expensive!”, I find questionable.
Generally my competitors in the industry sell 70% of their inventory by segmentation: corporate contracts a year out, volume business a year out, group business, let’s say on average six months out. So 70% of their inventory is sold at serious discounts on historic data, and then the remaining 30% will be put out on the Internet which is at the highest cost/or the highest rates. When all of a sudden the OTA asks for its commission, they are astonished that they have to pay!
You need to flip it around, you need to know what it is you are doing with your distribution costs and analyse the data. OTAs are very smart data companies. If you are capable of analysing your data a little bit better and have a profound knowledge of the Internet, then you’re in the game.
You need to have your own website that is not like a little electronic brochure, but something that you spend time and energy and intelligence on – then it can be a whole different ball game. We have a consumer behaviourist heading up our website. I don’t know too many hotels that know what a consumer behaviourist is!
Back to OTAs – they have such a bad connotation in the industry, but they’re brilliant, they’re wonderful. I work very closely with the OTAs and I have lot of respect for them. I think they are doing a wonderful service and they are close to the guest.
What I respect the most is when you get into deep conversation with them, they’re open and they’re flexible. It’s all about data and fairness. They want everyone to be treated like everyone else. Everyone has access to that last minute room, everybody has rate parity, and everybody does what needs to be done failrly. It’s just that we as an industry are asleep at the wheel.
Michael was the KeyNote speaker at TED Horner’s CEO Summit in Sydney – for more information on the summit visit http://www.tedsconference.com.au.
Do you feel the industry is asleep at the wheel when it comes to OTAs? Share your thoughts on OTAs in the Comments section below.
