As the ABC’s show The Checkout demonstrated in April online booking services and agents are often not beneficial to both consumers as well as accommodation providers.
But at the same time, accommodation providers are increasingly dependent on them for bookings. In this blog post, I want to quickly highlight the interesting tactic employed by the major online booking sites to surreptitiously siphon bookings being made directly with an accommodation business back to their own booking site to gain the booking fees that come with it. Beyond the possible poor ethics of this practice, it’s something that works best with smaller independent accommodation providers that lack dedicated digital marketing.
The practice explained
Accommodation providers work hard to establish a positive reputation and to attract customers through a variety of marketing channels. For these customers, they are already won as patrons or are in the final research phase of making their purchase decision. In practice, this means that customers directly search for an accommodation provider using an exact match of their business name i.e. New England Hotel & Apartment Complex, rather than a broad search for hotels in Hobart for example. When they do this it’s very likely that the accommodation provider’s own website will be the first organic search result. At this point, the likelihood that that customer will book through the accommodation provider’s own booking system is very likely, avoiding the booking fees and revenue share that would otherwise go to a booking agent.
This is obviously not a desirable outcome for booking agents so they advertise on Google for keywords that are an exact match for that accommodation provider’s name knowing that 6% of searchers will click on their Ad because of its search position above the accommodation provider’s own website. It’s easy to consider 6% of searchers to be inconsequential but it’s important to remember that they are searching for the exact name of an accommodation provider so they are highly qualified leads that have more than likely already made a decision to book with that provider’s business.
The economics of the practice
Hotel booking sites have varying margins but they can be anywhere between 10-16% of the nightly rate. If we use a rate of $100 a night, we know that a booking site stands to make potentially $16 dollars from a booking made from their site per night as opposed to over the phone or on the website of the accommodation provider themselves. The average duration of stay for 51% of nonbusiness customers is 2 or more nights. This means that a booking site stands to make $32 from interdicting a customer and getting them to book through their website.
If we look at the scale and cost of this practice we collected and then averaged out the advertising cost of placing a pay per click ad on search results for exact matches of 10 independent hotels and motel’s business names in Tasmania and Victoria, and found that the average cost of displaying and having a searcher click on that Ad was $1.94.
This blog post is mostly about surfacing this practice for independent accommodation providers rather than larger hotel chains so it’s difficult to determine the traffic volume that any given accommodation provider receives for people searching for their business name. However, we know that for smaller hotels and motels, that search volume is anywhere between 100 and 1000 times per month. If we take the mean of 500, we can estimate that this practice takes a minimal of 30 books per month or 360 in any given year. If we keep with our $100 a night rate (the industry average is closer to $130) and assume a two-night stay we find that the total cost of this practice to any given small hotel is approximate $72000 per year. Now, of course, the reality that this could be more or less in practice, but in general we have to consider the conversion rate of the searcher after they click on the booking agent’s Ad. That is, what percentage of people actually go on to book. However, because of the nature of the traffic source, that is people searching for a specific hotel rather than a general accommodation search we could guess the conversation rate to be 28%, but it could be much smaller or much higher. But if we keep with the 28% conversation rate, we can estimate that the cost of this practice to an average independent provider is $20160 per year.
The return on investment (ROI) that booking companies receive via this practice is significant, particularly given the scale that they would be doing it at. Once we factor in our conversation rate estimation of 28%, for every $6 they spend on advertising they make an average of $32 dollars.
Recapturing the lost revenue
From the accommodation provider’s perspective, the solution to this practice is to advertise using Google’s AdSense for their own business name and to outbid booking services. In practice this means offering to pay Google $2 to display an Ad over the current average of $1.94 for example. In doing so, the booking agent’s advert is not displayed and is substituted with the accommodation provider’s website. In turn, accommodation providers should be able to reclaim lost revenue with minimal risk exposure and on a per click basis as opposed to a fixed fee for more traditional style advertising.
Now, of course, this is a very simplified blog post and it is intended to be the catalyst for people to do further research and investigation, rather than an outright encouragement to immediately rush to reclaim this theoretically lost revenue.
Thank you for reading, we’d love to hear your thoughts on this blog post in the comment section.