Why Are Wholesale And OTA Partners A Love-Hate Relationship For Hoteliers?

Working as a hotelier for many years, a common topic of conversation before the pandemic, and even more often now, is how hotels are undercut by unpackaged wholesale rates through third parties like OTAs and wholesalers. 

The general consensus is that maintaining rate parity is now more crucial than ever. 

The fact is there are many who are not sure how to address this issue and it is an increasing concern to keep a competitive advantage.

This eGuide talks about the advantages and disadvantages of wholesalers and OTAs to a hotel. It includes some tips on how to manage relationships and explains how hotels can today use powerful new technology which is cost-efficient. easy for employees to handle and helps via a booking process transformation to increase direct bookings by 32% to improve sustainable profitability.

How do wholesale and OTAs operate?

Very simple and generally, wholesalers will sit between travel agents and travel suppliers (in this case the hotel) to act as a middleman. They are sourcing and acquiring products like rooms, rates, packages a hotel offers in bulk before selling them on to various clients like travel agents, OTAs, tour operators and so on where buyers, which are the hotel guests, can access them.

There are 100s of wholesalers and they will never distribute hotel inventory directly to a hotel guest. Wholesalers offer unique prices for operators to participate in their programs and often different wholesalers will sell in different ways.

For instance, some may sell rooms only while others will deal in packages. Some are even limited to specific property types or markets so it can be an interesting exercise finding wholesalers and deciding which operators to establish a relationship with.

The big benefits of partnering for a hotel with wholesale and OTAs travel suppliers.

• Wholesalers and OTAs can offer opportunities for hotels to access a more diverse and unique range of guests as they invest in early-stage using digital technology to build powerful platforms to sell online. Like Uber, Amazon, and Facebook (now Meta) using digital technology for transportation, retail, and marketing purposes.
• An optimal hotel distribution strategy will include a healthy mix of direct and third-party bookings, with a broad variety of potential revenue streams, with the importance not to lose the direct channel.
• Naturally, wholesalers and OTAs can provide a much more effective level of reach that a hotel usually with their current technologies can’t achieve alone, including being able to more easily attract international travellers. 
• With wholesalers selling to online travel agents and retail agents, no stone is left unturned in the mission to get a hotel or brand in front of as many eyes as possible.
• Most wholesalers specialize in providing access to a wide range of markets that could never reach directly by a hotel, or brand. 
• Working with them appears to be almost a free form of marketing for a hotel or brand, but this is in a way misleading and not the full truth.
• Before the pandemic, there was also the added benefit of being able to more accurately forecast occupancy patterns, especially when a hotel had a contract with a wholesaler, and generally generated a specific volume of business and could be paid in advance.

‘But why do my rates appear through an OTA I didn’t collaborate with?

For hotels the challenges of working with wholesale and OTAs are many!

OTAs and wholesalers are certainly a point of contention in the hotel industry and create many frustrating drawbacks for property owners, brands, and revenue managers.

• Before the internet arrived there was much less polarization. Wholesalers would purchase inventory and sell it to a travel agency, which would then sell to a customer. Each purchase would involve a price markup and all parties would be happy with their margins. What good times for hotels and brands, straight forward.
• The internet made rates much more publicly available and led to inventory being sold to OTA and other wholesalers. Ultimately driving down the amount of profit the hotel could make from their agreements.
• With some hotels and brands generating more than 65% of their rooms revenue through these channels, this had a huge negative impact on profitability.
• Hotels suddenly have guests coming in who purchased their room from a completely unknown OTA which many times brought a profile of guests with much less spending power for other hotel revenue-generating areas. This automatically resulted in a lot of pain for hotel brands, managing companies, general managers and employees as service charges and tips, GOPs declined, while employees had to work even harder.

The list could be even longer!

‘But how come my rooms are distributed at inconsistent rates?’

• One big challenge I see is involving contracted vs non-contracted OTAs. Non-contracted OTA’s are undercutting more aggressively than contracted counterparts. On average, OTA’s working under agreements with the hotel posted rates that were 5% to 6% lower than the direct rate. This could jump to 10% for non-contracted sellers advertising for lead times up to under 14 days and 11% for lead times above 14 days.
• Even if wholesalers have the best intentions, there’s not much they can do to control what OTAs or other parties do once the product has been sold on. Naturally, this added complexity has had serious impacts on hotel rate parity, causing hotels and brands to further emphasise on scoring and increasing direct bookings. In many cases, it has turned out that the internet with OTAs and wholesalers, the once preferred distribution method of sales, has turned into a risk to businesses.
• Online travel agents can charge a commission on every sale. This can range between 10-20 per cent of the gross cost.
• There may be restrictive terms and conditions imposed by OTA such as guest cancellation and automatic room reselling policies.
• Hotels need to find a way of managing room availability across a range of OTAs, hotels’ own websites, reservations, front desk, and telephone sales. But this can be time-consuming and labour-intensive. 

‘But how are the rates displayed on OTAs much lower than my website rates?’

It is about rate disparity, a hotelier, negotiate a net rate with the wholesaler, but has no control over the final price displayed to the traveller due to the long supply chains. This is because there are two different contracts – one with the wholesaler and another between the wholesaler and the third parties.

Once resold, the OTAs will apply a mark-up to the final price of the rooms, depending on their marketing policies. It’s not wholesalers’ prerogative to control distribution downstream, which is why there’s such a big distribution problem in this sector. On top of that, wholesalers also work on a model that marks up their buying rate from a hotel. The wholesaler’s entire value proposition is arguably their resale price, which allows the receiver of this hotel room to add their mark-up and undercut the hotel’s pricing, resulting in huge rate disparity.

Additionally, it is also very common for wholesalers to unbundle rates designed to be sold as part of packages. These heavily discounted rates then find their way onto OTAs like Amoma, and a hotel room worth $200 ends up being sold for $120.

These factors don’t only have a negative impact on the hotel’s profits but can also seriously impact a hotel’s reputation. When rooms are offered at lower rates on some or all OTAs than your website rates, hotels run the risk of confusing, and eventually, repelling potential customers. 

Wholesale and OTAs potential disadvantages for hotels.

• They push, force and demand low net rates (or high commissions), this drives down the hotels and brand profitability and if there is no balance between direct bookings this can be extremely risky to any business. 
• It is proven that in some markets wholesalers take advantage of their power, not playing fairly and with a lack of transparent operating procedures.
• Hotels and brands lose control over where rooms are sold or at what rate and fixing this can take years.
• Wholesalers don’t always fill allocations according to their commitments and pricing can be static for long periods of time, limiting hotel profitability tremendously. 
• Multiple contracts between hotel and wholesaler, and wholesaler and other distributors, results in rate disparity
• Rates expected to be packaged sometimes end up ‘unbundled’ and sold at a heavily discounted rate, undercutting the hotel rate. This then threatens hotels’ direct and repeat booking margins, as rightfully a guest naturally will book BAR (best available rate)

‘But how can I manage all this, taking care of guests, owners, employees, and booking channels, as I have limited manpower and the corporate revenue management team and sales teams are not understanding my challenges?’

How can a hotel or brand manage all these challenges?

As a hotelier, cutting off all ties with the wholesalers isn’t viable and would be not a wise option to choose as a strategy. There are two key practical ways through which hotels and brands can optimize their wholesale distribution strategy and ensure control on the distribution as well as the pricing:

Work only with wholesalers whose philosophy matches your hotel’s or brand’s philosophy:

• In any business partnership, there needs to be the same ethical ideal understanding.
• In hospitality, wholesalers need to believe in taking care of people and enhancing guest experiences and not selling for a minimal margin just to secure a sale. 
• Most important at the end of the day, it is up to the hotel and brand to decide whether they want to maintain a partnership with such distributors.

Now with the pandemic coming to an end move to dynamic-only rates:

• Hoteliers should take a much stronger stand to move to dynamic-only rates with wholesalers to reduce disparity and put themselves back in control. 
• Hotels and brands should consolidate their wholesaler list by signing contracts only with those who agree to the hotels and brands pricing strategy, not the opposite.

‘If one party is more interested in securing sales than taking care of guests and people any strategy will fail.’

How does technology help hotels today to navigate business?

When navigating distribution at a hotel or brand, the industry default solution is to make life easier and more profitable is using a channel manager.

A channel manager is a cloud-based tool that allows hotels and brands to centralize and manage all their distribution channels simply. Data sharing is two-way and any updates they make are automatically communicated to and from their property management systems and connected channels, including their own website booking engine.

The more channels they have, the greater the need for a channel manager, to ensure instant rate adjustments and avoid double bookings. Being able to manage channels more easily allows hotels and brands to connect to more, broadening their reach and potential revenue.

A cloud platform for hotels can automate room inventory and rate updates from wholesalers to a hotel property management system (PMS), keeping everything in sync and eliminating manual entry.

On top of these benefits, a good channel manager will also offer deep performance insights and extra integration with other applications hotels want to use in their business plan.

The second piece of technology they might consider is a tool to monitor rate parity and combat any issues that arise. These types of hotel business intelligence software allow hotels to keep on top of demand and pricing, and fix parity complications before they become a problem. With a pricing intelligence tool, hotels have clear, actionable data that they can access and action every single day – giving them greater flexibility when they are managing their rooms and rates.

Hotels need better technology to win the game!

This technology needs to be able to help in five key business processes

1. Competitive intelligence to make smarter decisions!

Bench benchmarking, providing hotels with never-before-seen competitive data that completely changes the rules of the game. Through real-time actionable insights, hotels will not only be able to compare the end results but also gain a clear understanding of how they came to be, so hotels can unravel the building blocks of an effective direct booking strategy.

2. Customized message formats and optimal timing!

Hotel managers can create powerful campaigns using a wide variety of display types and formats, all completely customizable within an easy-to-use platform. Intelligent behavioural triggers ensure hotels show users personalized messages at critical points in the booking process to create urgency, decrease the risk of bounce and encourage engagement.

3. Algorithm-powered optimization!

Today, each traveller is unique, with distinct behaviour and expectations. A system means hoteliers can add the user into the revenue management equation and personalize every touchpoint in the direct booking funnel. After all, hospitality is personal.

4. A powerful tool to generate immediate revenue and encourage guests’ loyalty!

Personalization is in every hotelier’s DNA. And so, it’s no surprise that the force behind it has to be a voucher solution which is a unique targeting system, making sure the hotel voucher offers and messages always hit the spot. What’s more, hotels need to have full flexibility to create unlimited vouchers, in multiple languages and currencies, applying their own terms & conditions.

5. Keep track of price disparities and hotel competitiveness!

Controlling the price of hotel rooms is a vital part of growing the hotel’s direct channel. Ensuring hotels are offering visitors the best possible rates by identifying the price disparities hotel guests and repeat guests are finding online, both on OTAs and metasearch engines. A tool that monitors disparities down to the exact user’s search query means hotels can make better-informed revenue management decisions. And if someone is undercutting the hotel’s rate, the system lets the hotel show users a price match offer.

The solution 

Believe it or not, the technology solution is already there, covering all these urgent needs, and is many times more powerful than whatever has been there before.

• There is no learning curve or warm-up period for employees, hoteliers can see conversion rates and bookings increase from day one, love on a beautiful dashboard. 
• Installation is super simple: just add a line of code to your current website, no surgery required.
• It takes an IT person 10 minutes to have it up and running.
• The technology works on any website for any hotel, no matter who your technology provider is. 
• This digital solution will integrate with any existing solution and improve it.
• The data proves immediate results, with an average increase in bookings by 32% and an average 10 times turn of investment.

As an independent consultant, I have access to a world-class innovative technology company, which beliefs in the power of extreme personalization, designed by a team with deep expertise in hospitality, IT product design, and consumer marketing.

While working on various projects in the travel space, my partners also noticed a wide gap between the quality of the technology used by the large online players and that of the hotels themselves. Together we are here to bridge that gap. With our help, any hotel brand can compete and regain its fair share of online bookings.

Travellers expect simple yet personalized shopping experiences, and hotel brands should be able to provide them, no matter their size or resources. My mission is to improve that booking experience and strengthen the relationship between hotel brands and their guests.

It will be an exciting future with technology that will directly embrace any hotel and guest’s life.