HM Exclusive: Kalibri Labs' study finds sustained growth in direct bookings

Kalibri Labs' study shows gains in loyalty programs directly benefit hoteliers’ bottom lines. Photo credit: Getty Images/anyaberkut

Hotel companies continue to grapple with online travel agencies for guest bookings and a new study from Rockville, Md.-based Kalibri Labs—shared exclusively with Hotel Management in advance of release—indicates their efforts have not been in vain.

The Kalibri Labs’ report, updated from 2017 and titled “Book Direct Campaigns 2.0: The Costs and Benefits of Loyalty in 2018,” found hotel companies’ initial campaigns to attract loyalty members and drive direct bookings over a period from January 2016 through August 2018 have either stabilized or strengthened the growth rate of bookings via proprietary hotel company websites—the so-called sites—primarily by growing loyalty programs. Meanwhile, bookings growth for online travel agencies during this period either held steady or decelerated, signaling a shift for the hotel industry.

Kalibri Labs' CEO and co-founder Cindy Estis Green and VP of revenue strategy Mark Mazzocco authored the report. The first study, released in Oct. 2017, was conducted to compare and contrast the hotel industry’s direct-booking pace before and after engagement campaigns were launched. This latest iteration examines whether the gains made from these campaigns can be sustained.

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After two-and-a-half years of promoting direct bookings, roomnight demand through in the United States is on average 50 percent higher than OTA roomnight demand, said Estis Green. While the original study examined 52 million bookings, this time Kalibri Labs combed through 80 million bookings and found while the industry benefitted from a burst of initial direct business as a result of large-scale advertising campaigns, true long-term gains were realized once hotels began updating their mobile applications to offer more perks for booking direct.

According to the new study, bookings made via and those made directly with a hotel property account for 23 percent and 29 percent of all bookings, respectively, made between August 2017 and August 2018. Meanwhile, OTAs represent 15 percent of all bookings, trending closer to group bookings at 14 percent. Additionally, bookings made via voice channels stand at 8 percent, so all told the industry records roughly six in 10 room nights through direct channels.

“In the beginning, [brands] were all offering discounts on bookings, sometimes up to 10 percent, to entice people to sign up to be loyalty members,” said Estis Green. “In the last 2.5 years, almost all brands have substantially updated their apps to offer keyless entry, more features, mobile check-in and different services such as those. All these benefits only apply when booking through the brand’s app or as a loyalty member and those things were not in place in the beginning.”

Loyalty bookings made directly through a hotel’s website generate a return on investment that is nearly double that of the revenue earned via OTA channels. Source: Kalibri Labs

Mobile on the Mind 

The importance of the mobile experience is not lost on hotel companies. Robert McDowell, chief commercial officer at Choice Hotels International, said ongoing improvements to the mobile experience would be integral to boosting direct bookings in the immediate future.

“We continue to see increased engagement on mobile—both through web navigation and utilization of our mobile app,” McDowell said. “We’ve found that the customers who download the Choice Hotels app are more likely to book directly with us, so we continue to invest creating relevant and personalized experiences to drive engagement.”

Encouraging guests to book direct also had an impact on net average daily rates for hotel stays. According to Kalibri Labs' research, direct-booking campaigns generated clear gains for hotel companies, with ADR for member rates and loyalty bookings increasing to 9 percent in 2018 from 8.6 percent in 2016 when compared to OTA bookings, even after room acquisition costs were accounted for.

However, as hotel companies gained ground on OTAs in the booking arena the conversation began to shift away from growing rates and onto ways for guests to control their stay. According to a Hilton spokesperson, the company launched its “Stop Clicking Around” series of advertisements in February 2016 with the goal of educating guests that the best possible rate can often be found directly on a brand’s website. The company followed up with a price-match guarantee, which it touts as just one of many benefits guests can take part in by booking direct.

“The goal is to help customers understand how Hilton… can offer benefits that can’t be obtained by booking elsewhere,” the spokesperson told Hotel Management.

Insider Interference 

While the results of the study show positive gains year over year in the effort to increase direct bookings, these campaigns are not without their critics. Industry veteran Bjorn Hanson, clinical professor at the Jonathan M. Tisch Center for Hospitality and Tourism at the New York University School of Professional Studies, said in compiling data for his annual hotel industry rate report he found gains in the direct-booking space to be lower than anticipated.

Hanson said wholesalers are partially to blame because some of them have been caught reselling rooms for bargain-basement prices on third-party OTAs. As a result, some guests are encountering lower rates outside of direct channels, causing some consumers to doubt guarantees for low rates.

“Even if there is just one room available, that’s what consumers see, and hotels don’t even know about it until a loyalty member calls in about seeing a lower rate somewhere else,” Hanson said. “Hotels are finding out through unhappy customers.”

Hanson’s concerns may be short lived. Hotel companies have caught on, and he said wholesaler contracts written in fourth-quarter 2018 increasingly included prohibitions against the resale of rooms, which should help curtail the majority of their availability. In addition, Hanson submitted even Hilton is shifting its focus away from price and onto other aspects of the direct-booking experience, such as the ability for guests to pick their own rooms. However, he said, there are still improvements to be made.

“It seems very appealing to pick your own room… but in reality guests are choosing from a small pool of rooms within the hotel. There could be better execution in delivering on some of these promises. The message right now is that a lower price is out there and now [guests] have other reasons to book direct,” said Hanson.

According to the study, the hotel industry receives approximately half of its roomnights through direct channels. Source: Kalibri Labs

Balance of Power 

At Expedia’s 2017 partner conference in Las Vegas, Mark Okerstrom, president of Expedia Group, said he did not begrudge hotel companies for seeking ways to improve direct bookings. From her perspective, Estis Green said OTAs remain a crucial element to attract bookings for many hotels today, a statement that is backed up by her company's report.

The report also found, however, that net rooms revenue recorded from OTAs is lower in the long term due to typical OTA commission rates of 15 percent. Overall, the report found direct bookings are, on average, 12.5 percent more profitable than bookings made through OTAs.

“[OTAs] will do anything to be a part of the sales path. If you collaborate with them, you have to do it with your eyes open,” said Estis Green. “The business you get through a third party would have to be better than what a hotel would get through direct channels.”

Bruce Ford, SVP and director of global business development at Portsmouth, N.H.-based Lodging Econometrics, said OTAs are most effective when targeting leisure travelers, packaging hotel stays with airline tickets and/or car-rental reservations. In considering this, Ford said hotels are missing out on similar package deals using loyalty programs, something the hospitality industry has experimented with before but has slowly shifted away from.

“There used to be a lot more coupling between airline and hotel rewards...Travelers used to be able to double dip and earn both Hilton points and Delta miles, for example, and I would like to see something like that come back,” said Ford.

While Choice Hotels remains a staunch advocate of direct bookings, McDowell maintained the company isn’t seeking to cut OTAs out of the equation entirely. According to Estis Green, this may be the prevailing strategy in 2019 as the focus shifts to refining loyalty benefits.

“The trick for each hotel and brand is to determine in each market what pipes are flowing and what’s available. It’s optimal to cherry pick which bookings are available at the highest possible profit margin,” said Estis Green.“That’s the challenge everyone has.”

Ready for the deep dive? The full report, "Book Direct Campaigns 2.0: The Costs and Benefits of Loyalty in 2018," can be accessed here.