Why Are Direct Bookings So Important?
According to Zeidan, direct bookings are fairly misunderstood.
“Traditionally, they’re thought of as ‘free bookings’ with no OTA commissions attached to them,” he explains. “But a discounted direct booking has the cost of that discount, a free amenity or upgrade has a cost, any labor, website/tech, or advertising costs associated with driving direct bookings should also be included, and therefore direct bookings are not ‘free’ and tracking these costs properly is no trivial task.”
However, they come with certain benefits including: lower costs to acquire customers, retention of customer information and attracting the correct customers.
Plus, OTA commissions are quite costly at 20 percent or more and OTAs don’t share detailed contact information about guests which can prevent a hotel from remembering and having a direct relationship with the customer in the future.
“Finally, travelers that book direct (all else equal) tend to be customers that value the brand and the content and communication of the brand on the hotel’s website versus an OTA traveler who is focused on price,” Zeidan notes. “Travelers that resonate with the brand are more likely to pay more for the room and have a better experience.”
But a brand can’t just go around charging higher prices to loyal customers. Prices need to be fairly uniform across all channels making critical mass of direct bookings important for cultivating the right audience that values the hotel and is willing to pay the proper price for that value.
“It’s complicated,” Zeidan notes. Hence the creation of the RMMS.
“Revenue management is complicated,” says Rami Zeidan, CEO, Life House Hotels.
It often requires highly skilled data scientists, marketers and sophisticated software to manage dynamic pricing for each room type, for each day of the year, based on a myriad of factors; make sure the hotel is optimally merchandised on all relevant channels, and ensure the hotel is using digital marketing – especially in PPC channels – optimally.
“Small independent hotels are left particularly underserved as they cannot afford any revenue management team, let alone a sophisticated one,” Zeidan adds. “But it’s really too complex even for the sharpest of minds. Prices change by the minute based on a myriad of data points, and advertising spend needs to tie to pricing such that you can bid to an ROI, and then you need to track your marketing spend conversion and performance, etc. Software can do this better than the brightest minds and can do so more reliably, at scale and for a fraction of the cost.”
Enter the RMMS or Revenue Management & Marketing System, a tool that Life House Hotels debuted in December 2021. The company launched this tool specifically to help independent hotels more than double direct bookings by using metadata to direct online searchers away from OTAs and back to their own websites featuring lower prices. For some readers, this tool may not seem very innovative – after all, revenue management systems have existed for quite some time, but Zeidan says there is a significant difference between what’s out there, and what his brand has to offer.
“Current revenue management systems really only serve as ‘pricing systems’ which is only a fraction of the revenue management scope,” he explains, “and they do not do any marketing, especially metasearch marketing. As our product includes metasearch marketing and distribution (among other things), we felt it necessary to distinguish our product from the incumbent ‘RMS’ solutions in the market.”
“The result is maximized revenues,” he adds. “With 70 percent direct bookings and no revenue management labor costs.”
Plus, the tool is an automated solution. General Managers can “set it and forget it” as it doesn’t require ongoing management.
Life House Hotel’s RMMS comprehensively manages all revenue for an independent hotel by automatically leveraging AI-based pricing algorithms, automated metasearch marketing, and distribution. But perhaps the best part is how quickly a hotel can begin using the product. According to Zeidan, hotels can be set up within a matter of hours – via a free trial – and can see results within days, not months.
The Pandemic Effect
The pandemic has also had a significant impact on how hotels book business. For example, the massive decline in business travel is requiring hotels to be much better at acquiring transient travelers, Zeidan notes.
“We’re experts at this and since transient customers have the lowest negotiating power, they’re also the highest paying segment, which is a shift that works in our favor,” he adds.
Additionally, the booking curve is very different from what it was pre-pandemic. Customers now book hotel rooms more last minute and also cancel more option. COVID caused hotels to relax cancellation policies which is a “very trick component to manage.”
“If a hotel sells out and then 48 hours before arrival 10 percent of guests cancel, hotels need to quickly fill up those rooms,” Zeidan explains. “The RMMS is great at managing cancellations and introducing the right refund policies to ensure the hotel’s net revenue is maximized and cancellations are minimized.”
Finally, the pandemic helped hoteliers to see the operational problems and costs associated with their antiquated systems.
“Right now every penny counts, so owners and managers are suddenly very aware of how inefficient many of their operations are and are looking for more cost-effective ways to run their hotels,” he adds.
“This enables General Managers to focus on their day job of managing the property and frees up tens of hours per week resulting in higher revenues and better guest reviews,” Zeidan notes.
Life House Hotels also handles the advertising for all of its RMMS clients so that boutique hotels don’t have to try and become experts in complicated paid advertising solutions.
According to Zeidan, the RMMS tool solves for net revenue by minimizing costs of customer acquisition (OTAs, back office labor, etc.) and maximizing revenue (which often requires marketing).
“Pricing needs to be connected to marketing and needs to be connected to budgeting, otherwise your metasearch bidding will be out of sync with your pricing or you’ll be spending advertising dollars on days when you’re already sold out, etc.,” he explains.
As a hotel operator that has built its own revenue management system, Zeidan says Life House Hotels really understands its customers and the importance of net revenue as well as each hotel’s brand positioning.
Consider the Life House Nantucket. This hotel property generated more than 90 percent direct bookings and has been so successful that in the peak of summer, Zeidan’s team actually turned off the hotel’s listings on OTAs and now sell rooms exclusively direct.
“Additionally, we manage an ultra-luxury hotel in a market with very low demand,” Zeidan says. “We drove 75 percent of revenue from direct bookings, with eight times the web traffic versus the prior Leading Hotels of the World website. This helped increase room profit 58 percent and gross operating profit a whopping 678 percent to turn around the historically unprofitable hotel.”