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richard adam - OTA bookings and online distribution for independent hotels and tourism suppliers - 08/2019

  1. HotelDistributionCosts andhow to tacklethem…. inanAggregationTheoryenvironment Richard Adam
  2. 1. Introduction andVolumes 2. AggregationTheory 3. OTAs: the two sides of the medal 4. Consequences 5. Conclusion © Richard Adam - July 18, 2019
  3. 1. Introduction andVolumes © Richard Adam - July 18, 2019
  4. 1. Introduction andVolumes © Richard Adam - July 18, 2019
  5. 1. Introduction andVolumes There is a series of questions deriving from this development:  What is the potential impact on business performance of independent suppliers, service providers and operators in tourism (hospitality, restaurants, transport, tours and activities etc.)?  What are the consequences of digitalization and technology for business and operational strategy?  What are the consequences in management priorities, organizational structure and hiring requirements as well as priority KPIs? © Richard Adam - July 18, 2019
  6. 1. Introduction andVolumes Share of Booking Distribution:  Direct → phone, mail, website, walk in, …  Indirect → OTA retailer and merchants (TOs) or other agencies (MICE)  Global hotel industry total retail value 2019: 570 bn USD  Share of Americans with preference booking hotels online: 88% (vacation transport 83%) (, taken July 8, 2019) © Richard Adam - July 18, 2019
  7. 1. Introduction andVolumes “…. In 2017 OTAs were capturing 39% of the US hotel booking market. Forecasts expect this trend to continue, reaching 41% market share in the US for OTAs in 2020…. Commissions can reach as high as 30%....” (Source:Travel Daily News, Feb. 23, 2018) “In 2017, almost a third of hotel bookings in Switzerland were processed by Online-Providers with tendency strongly increasing…“ (Source: DerTages Anzeiger, Zürich, March 8, 2019) „…. 25,2 per cent of hotel bookings in Germany in 2016 were generated via OTA platforms …” (Source: marktdominanz-der-online-buchungsportale), taken July 9, 2019 © Richard Adam - July 18, 2019
  8. 1. Introduction andVolumes „Share of OTA revenue for some hotels is up to 40 – 60%, depending on destination“ (Source:, taken July 9, 2019) “20% of your direct bookings come from people who discovered your hotel on an OTA…Per a recent Google survey, 52% of travellers will visit your hotel’s website after seeing you on an OTA” (Source: bookings, taken July 8, 2019) © Richard Adam - July 18, 2019
  9. 2. AggregationTheory OTAs: A Category of “Aggregators” In AggregationTheory, according to BenThomson, “the value chain for any given consumer market is divided into three parts: suppliers, distributors, and consumers/users.The best way to make outsize profits in any of these markets is to either gain a horizontal monopoly in one of the three parts or to integrate two of the parts such that you have a competitive advantage in delivering a vertical solution” (Source:, taken July 8, 2019) → Old-Economy: businesses have controlled supply → New Economy: controlling or centralizing demand © Richard Adam - July 18, 2019
  10. 3. OTAs: The two sides ofthe medal © Richard Adam - July 18, 2019
  11. 3. OTAs: The two sides ofthe medal 3 Groups of hoteliers and other suppliers in their positioning towards aggregators:  Group 1 embraces them and becomes increasingly dependent  Group 2 is trying to strictly avoid this kind of business  Group 3 is trying to balance dependencies by actively improving OTA business and enforcing direct bookings at the same time © Richard Adam - July 18, 2019
  12. 3. OTAs: The two sides ofthe medal Upsides of OTAs from supplier perspective  Potential additional business  Strong brands and premium ranking in search engines  Review site as primary source of information  Mature advanced booking and processing technology  Additional marketing programs to increase hotel visibility and ranking  Analytical tools © Richard Adam - July 18, 2019
  13. 3. OTAs: The two sides ofthe medal Downsides from supplier perspective  Commission from 15 up to 30 per cent of room rate  Ownership and availability of data  “best price” contracting  Increasing dependency  Non-supportive for added value positioning © Richard Adam - July 18, 2019
  14. 4. Consequences Cost factors for independent suppliers:  Involvement of human resources → increase automated bookings  Commission to third party → increase direct bookings  Do independent hotels know their distribution costs and the opportunity costs related? © Richard Adam - July 18, 2019
  15. 4. Consequences Strategic consequence: → AddedValue vs. Price  Constantly optimize forecasting and pricing in OTAs via channel management  Review and adapt flexible cancellation policies  Increase direct bookings via SEO/SEM, revenue management, dynamic pricing and (net) conversion rate  Utilize CRM data for personalized (automized) marketing and upselling  Optimize cost-based (contribution margin) pricing to identify flexibility  Monitor development of new technologies (blockchain based hotel booking systems, seamless connectivity networks)  Explore value adding aspects (brand, trust, services, upselling) to conquer price dominating decision parameters © Richard Adam - July 18, 2019
  16. 4. Consequences Cost Consequences →Transaction costs vs. fixed costs  Revolving Investment in own booking system and channel management devices  Costs for training in channel management and pro-active revenue management, upselling, CRM utilization of data, also for staff retention  Significant share of transaction costs will convert into fixed or undistributed costs  Marketing costs for SEM (not indicated as distribution costs)  Cost transparency and KPIs for make-or-buy decisions © Richard Adam - July 18, 2019
  17. 5. Conclusion  Hoteliers and suppliers are recommended to shift resource and attention to online distribution management (direct and indirect bookings)  Shift in required competencies  Demand for distribution cost transparency and framework of indicators to navigate pro-active pricing, cost-benefit analysis and inventory decisions  Suppliers need KPIs to distinguish the value and costs of direct bookings vs. value and costs of OTA bookings by generating applicable return-on-invest matrix © Richard Adam - July 18, 2019
  18. Literature Jagels M./Coltman M., 2008: Hospitality Management Accounting, 9th ed.,Wiley & Sons, Hoboken (US) Langford G./Weissenberg A./Gasdia M., 2019: USTravel and Hospitality Outlook, Deloitte Publishing, Chicago Lien C./ Wen M./ Huang L./ Wu K., 2015: Online hotel booking,The effects of brand image, price, trust and value on purchase intentions, Asia Pacific Management Review 06/2015,Taipeh BCG (Ed.):Technology Investment inTravel Innovation, 2019: traveler-first.aspx Aggregation Theory (in a nutshell): 589b360ac373 © Richard Adam - July 18, 2019
  19. Contact RichardAdam   Stay tuned on LinkedIn:  © Richard Adam – July 2019 -