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A New Approach to Online Distribution and Integration
By Larry Mogelonsky, MBA, P. Eng. (www.lma.ca)
Arising from discussions about Room Key, the OTAs and where online hospitality channels are headed, I had a conversation with Moe Ibrahim, the CEO of the reservation and experiential website Journeyful (www.journeyful.com). It's a fascinating take on online distribution systems.
The platform is designed to be cheaper than a hotel's existing booking engine so that every channel becomes a direct channel. So, if a hotel generates a booking from its website using Journeyful's white-labeled booking engine, it's a small commission. If the booking comes wholly through journeyful.com, it's the same small commission. Ditto for travel agents that book through the platform's wholesale booking system and, soon, for mobile.
The company's goal is to consolidate all of a hotel's bookings on one platform at a very modest transaction fee. Moe Ibrahim anticipates the potential to improve a hotel's overall profitability by a minimum of 15% to 20%. Now that's exciting, and a good place to begin our interview.
What's your take on the OTAs and their influence on the industry?
Since 2005, I have been investing in and turning around troubled hotels in Asia. Initially, the OTAs had been our allies in profit, bringing in bookings from markets that our hotels hadn't been able to access; namely, leisure travelers from countries in which we had no sales presence. Given this awareness penetration, we agreed to pay their hefty commissions, typically between 20% and 25% of the gross booking value. As this was incremental revenue to our hotels, our interests were aligned.
However, over time, a greater percentage of our rooms were being booked through these OTAs, and it became clear that the OTAs were no longer supplementing our occupancy, but rather, competing openly against our own marketing efforts in our primary feeder markets, quickly cannibalizing our direct business. The OTAs were and continue doing this by:
1. Google AdWords and Paid Search. Using this tactic, an OTA runs a guerrilla Google AdWords and paid search campaign, buying variations of a hotel name as keywords. This means that customers looking for that specific property are directed to the OTA website, often lured by misleading taglines like ‘50% to 75% off'. Some OTAs are doing this despite the fact that there's no contract with the hotel - they are aggressively targeting consumers and feeding off of the hotel's marketing efforts.
2. Artificial Strike-Through Pricing. When pulling up hotel rates on an OTA, the strike-through pricing is often fictitious. It gives the illusion that great savings (once again 50-75% off) are available on the OTA. Comparing the ‘discounted' rate on the OTA with that on the official website will show it's the same rate. OTAs will show prices before taxes and service fees, again confusing the consumer.
3. Share-Shifting. Suppose a user searches for a specific property on an OTA and there's no listed inventory. Often, the OTAs will quickly avert the customer's attention to the immediate competition.
On the grand scale, the OTAs have brainwashed hotels to abandon one of the most basic tenets of yield management: demand is largely price inelastic. This means that lowering your room rate will not increase demand over the long-term. It often creates a temporary demand bump for your property, but as your competitors also lower prices, occupancy will redistribute across the competitor set and everyone suffers from reduced margins.
As more and more guests demand discounted pricing, and more and more bookings are directed through third parties where commissions can be as high as 40%, hotels are being squeezed on all fronts. Moreover, the latest features being introduced by these OTAs are frequently designed to divert guests completely towards those hotels paying them the highest commissions. It's no longer about quality for the consumer; it's now about maximizing profit for the OTA.
As a result, the hotel industry is becoming less profitable for hotel owners. Ultimately, this hurts the customer as less profitable reservations means less money will be invested in service and maintenance. Hotels are losing, travel agents are disappearing and consumers will lose. The only winners are the OTAs.
So, where does Journeyful fit into the picture?
Hotels realize the high cost of online distribution can be a big problem and they are desperately looking for a solution. Journeyful was born out of this dilemma. Launching a new OTA or a low-cost OTA wasn't the answer. We want to give hotels a platform to better manage their rates, inventory and brand across all channels, not just OTAs.
Journeyful is being designed as mission critical hospitality infrastructure, whereby hotel employees are using our platform as a fun and integrated part of their daily job. By linking our booking system to a proprietary social network, hotels are able to manage their distributors efficiently. Hotels can optimize all of their distribution channels in a manner that creates a significant boost to their profitability. Consumers win via enhanced service and travel agencies can once again become relevant given their extensive local knowledge and relationships.
We first opened our dialogue by discussing the merits of Room Key. In your opinion, where does the website stand right now?
Room Key is an OTA. If it looks like an OTA and gets compensated like an OTA, it's an OTA. Moreover, its practices of recommending different hotel options for a consumer during a search and using third parties to quickly populate the site with inventory inherently conflicts with the philosophy of generating direct business for a hotel. Theoretically, it's a good thought; an OTA owned by the travel industry - but this is not Room Key in its current form.
How does Journeyful better complete the online experience in relation to a website like Room Key?
First of all, Room Key simply refers business to other websites and gets a referral fee. Their rationale is they want a hotel to generate direct business, but again, in many cases, you're still being diverted to another middleman.
Next, it appears as though Room Key doesn't have a fulfillment system. The reality is that it's very hard to build a fulfillment system for travel and get it right while considering cancellation policies, modifications, rewards, discounts and many others factors. Despite the inherent challenges, we have a functional fulfillment system that's integrated with social networks and tied into a rapidly expanding B2B contracting and wholesale booking platform.
Explain the thought process behind website's streamlined design. What's its benefit?
Journeyful is all about serving hotels, travel agents and consumers. We're not selling ad placements. We're not selling airfares or advertising hotels that pay us a higher commission on our home page. Our goal is to emphasize hotels and travel experiences, and to help connect consumers with these experiences through a streamlined website. This is why the site is designed in Flash. The moment you find a hotel, you are never directed away from that hotel's profile.
A guest can explore the hotel's information, events, photos, videos, guest reviews and the hotel's friends. They can also chat, message, interact with the hotel's staff, and most importantly, book a room, all without ever navigating away from a hotel's profile.
Many travel websites run what they call ‘interstitials'. These interstitial screens operate behind the scenes, collecting information about a user's behavior and creating lists of ‘other' hotels he or she might consider, sometimes flashing these deals to entice a consumer. We don't do that; it conflicts with our commitment to help a hotel generate a large percentage of direct business.
Describe the purchasing pathway for Journeyful. How does this acutely tap into consumer behavior patterns?
Let's first examine the OTA model. This model is designed to influence consumers based purely on price. In fact, OTAs take great strides to commoditize hotels. They often don't even mention the hotel, just the price - share-shifting at its purest.
Next, examine consumer behavior. It is estimated that a leisure consumer averages nearly 23 site visits per hotel purchase, visiting an average of 8 to 9 sites roughly 2 to 3 times each. This infers a definite lack of trust. For a hotel, it's not just about the leisure consumer. Hotels get business from travel agencies and corporate groups. What happens to those contracts the moment a hotel uploads a flash sale rate on an OTA?
Technology and online distribution are moving so fast that it's all too easy for hotels to use these tools the wrong way. At Journeyful, we take a holistic approach to managing channels.
1. Journeyful Website: For a consumer, the Journeyful promise is threefold: Social. Travel and Rewards. Consumers will be able to make friends, find travel companions, meet others while traveling, find the best destinations, travel like a local, get great prices and even be rewarded for their social activity on the site. In upcoming releases, a customer's total travel spend and social network will qualify them for Social Rates™ (rates customized for the individual) and Social Rewards™(perks given for social activity). Journeyful is the first true Transactional Social Network™.
2. Hotel's Website: For hotels, we have developed a white-labeled booking engine that will ensure a guest remains in a hotel's social network before, during and after their stay. Upon booking and during the stay, a guest enters a hotel's TravelNet™, enabling the guest to see others staying at the hotel at the same time. They can interact with other guests, and hotel staff can interact with the guest to determine any special needs or expectations. Oftentimes, this leads to an up-sell. After the stay, a guest receives an automated review request. Each review is propagated to the consumer's friend base, creating awareness and driving more business. Reviews are linked to actual bookings, ensuring all reviews are genuine and providing tremendous insight consumer behavior.
3. Travel Agents: Journeyful is developing a sophisticated B2B wholesale booking platform which enables hotels to negotiate customized, dynamic rates with any travel agent registered in our system. This dramatically reduces the overhead for a channel that was once thought to be dying. Travel Agencies have personal relationships with operators and tremendous local knowledge; websites do not. Hotels that contract with Journeyful will have immediate access to our growing database of travel agents and vice versa.
4. Corporates: This is presently a huge gap in the online travel world as most business with corporates is down offline. We offer access to our wholesale rates, and more importantly, our local knowledge and customized service are making us a big hit for companies looking for great service.
What other features does Journeyful have to incentivize customers to switch from another online accommodations provider?
The platform will enable any user to interact with any other user in both a social and transactional manner. Think: hotels with consumer, travel agents with consumers, travel agents with hotels, hotels with hotels, and any other combination. From a hotel's perspective, linking a social network to a multi-channel distribution and fulfillment platform is revolutionary. The hotel will be able to conduct targeted marketing campaigns and measure the ROI with a high degree of certainty. It will be able to optimize rates by market and by channel, down to the individual within each segment. This is the power of our Social Rates™technology.
What are some other ways that the internet is affecting traveler behavior?
More and more, bookings are happening last minute. Guests are putting up anonymous bad reviews on sites like TripAdvisor with the expectation the hotel will contact them and give them a free stay. The internet is a powerful tool that has the potential to create real value for travelers and hotels. Unfortunately, today, there's a tremendous amount of confusion amongst travelers.
What are you doing to promote Journeyful? What's the response been thus far?
We've been building the site for the past 18 months. So far, we've generated nearly 10,000 room nights with about US$2.5 million in real revenue (not gross bookings!) just during our beta phase. We have nearly 35,000 users so far; a sizeable financial contribution per person. With this, we're now assembling a team for growth, starting in Singapore with a San Francisco headquarters. We've been approached by many interested parties, namely hotel owners, looking to invest and help us grow our sales offices in key cities around Asia and the Middle East.
About Larry Mogelonsky
Larry Mogelonsky (email@example.com) is the president and founder of LMA Communications Inc. (www.lma.ca), an award-winning, full service communications agency focused on the hospitality industry (est. 1991). Larry is also the developer of Inn at a Glance hospitality software. As a recognized expert in marketing services, his experience encompasses Four Seasons Hotels & Resorts and Preferred Hotels & Resorts, as well as numerous independent properties throughout North America, Europe and Asia. Larry is a registered professional engineer, and received his MBA from McMaster University.
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