The pandemic era has undoubtedly highlighted the opportunity to increase direct hotel bookings. Many hotels have realized that their presence in distribution channels is important in order to increase their direct bookings. Direct bookings increased by 98% compared to 2019, while Google Hotel Ads jumped to 398%. This trend is not the result of effort or work of the hotel industry, but of the recent pandemic and the change in the consumer behavior of tourists that started already in 2007 due to the change of their needs and preferences.
Tourist demand is now shaped by the needs and consumer behavior of tourists and not by businesses. These needs are increasingly leading to tourists’ direct contact with hotels, the purchase of experiences instead of simple rooms and direct bookings. The smart contracts, as they were first named by the American Computer Scientist in 1994, are about direct electronic agreement between customers and businesses and are gaining ground over traditional contracts between hotels and travel agents (tour operators, travel agents, etc.).
The negotiation is now done directly with the customer. Direct trading can be more profitable, free of commission fees and at the same time more difficult to achieve and maintain in the long run.
Direct trading involves several challenges. Initially the hotel is called to arouse the desire for holidays, which is inextricably linked to connectivity, identity and ease of access to the destination. Direct trading requires the sale of differentiated and personalized experiences and not rooms. The big challenge and trap, however, is to achieve marginal profit, reducing commission fees and optimizing revenue management. Profitability is not only determined by operating costs and supply costs.
It is determined by the pricing policy which in turn is dynamically determined by the identity, the reputation of the hotel, the needs of tourists, the number of loyal tourists / repeaters, the ability to convert a new customer (new comer) into a loyal customer as well as also from the quality of services that determines the value of the night (value for money). Direct trading requires investing in digital marketing strategies and presence in digital distribution channels.
The trap in direct bargaining is for a hotel to try to reduce the cost of commissioning by tour operators, to replace it with the cost of digital marketing without combining it with personalized high quality services-experiences and a dynamic pricing policy. In this case the marginal gain can not only be reduced, but also converted into financial loss (marginal gain <marginal cost).
Hotels that realize that their identity is part of the destination identity and that direct customer negotiation and smart contracting is a dynamic process that requires vigilance and a dynamic pricing policy, will be able to increase marginal profit. Hotels that translate direct bargaining into a reduction in commission costs and an automatic increase in marginal profit, without taking into account the above, risk significant financial losses.
Dr. Lemonia Papadopoulou-Kelidou, Economist specialized in Negotiations in the Hotel and Tourism Industry. Lecturer, CITY College University of York Europe Campus