Posted on

The Billboard Effect… Revisited

It seems like the summer is prime time for hotels and industry experts to re-examine the basic revenue management concepts that they have always held to be true. Most recently, an article was published on Tnooz.com called “Does the Expedia billboard effect still exist for hotels?”, which examines the billboard effect and the various studies done by Cornell University, which proved it to be a valid phenomenon.

For those who aren’t familiar with the concept, the billboard effect shows that hotels are able to increase their direct booking rates, simply by being listed on OTA sites. Chris Anderson of Cornell University conducted two studies – one in 2009 and a more in-depth study in 2011 – to determine whether the billboard effect was, in fact, an actual end result of a property being listed on OTA(s). Both studies showed that the being listed on OTAs did have a substantial effect on property’s direct booking rates – thereby proving the validity of the billboard effect:

The 2009 study showed that participating hotels had “a 7.5% and 26% uplift in direct bookings” from being listed on Expedia.

  • The 2011 study (executed using 1,720 reservations from InterContinental Hotel brands over a period of three months) showed that “for every commissionable hotel reservation that came through Expedia, there were between three and nine reservations at an IHG-related website that were influenced by the hotel having been listed on Expedia”.

The recent Tnooz article examined the results of these two studies and then offered commentary from various industry experts, who disagreed that the billboard effect was as prominent as it was previously. Some even went so far as to argue that the same effect could be achieved through other online sites (i.e. car rental sites, etc.), making the billboard effect negligible and diminishing the value of being listed on OTAs.

Being an industry expert myself, I wanted to take a moment to share my beliefs on the billboard effect.

I think that one of the biggest issues that most hotels and experts have with the OTAs is the high commission rate charged for all bookings originating through these channels. Hotels feel like they are being ripped off and that acquisition costs have skyrocketed too high (considering the comparable growth of revenues).

However, I believe that is a mistaken viewpoint to have. Just like back in the day when tour operator brochures were a necessary marketing medium for hotels, so are the OTAs today. In the recent past, tour operators would typically charge between 25 to 40% commission on each booking initiated through their brochures/advertising. Considering that OTAs charge commissions as low as 15% and even the most expensive ones rarely charge more than 35%, the OTAs are a much more affordable way to secure a much greater number of potential bookings.

It is a commonly understood fact that today’s consumers use OTAs to research and book hotels for their upcoming trips. OTAs do create significant visibility for your property to potential guests – and will generate increases in both OTA and direct bookings. Online bookings are made and paid in real-time, 24/7. Today, if a hotel is not listed on OTAs, they are losing out on bookings and will find it hard (if not, downright impossible) to be as financially successful as possible.

As such, does it make sense that tour operator brochures were a widely accepted marketing medium (and that their commissions were considered reasonable), but OTAs are not given the same credit?

But now back to the billboard effect… At its core, I believe that the billboard effect is a very real effect experienced by hotels that list their properties on OTAs. I don’t think that the exact percentage increases experienced by hotels in the Cornell studies matter because they simply prove that it is a real phenomenon. While I firmly believe it is a necessity, simply being listed on OTAs is not enough to maximize the billboard effect that your property experiences. In reality, how much of an impact the billboard effect can have on your direct bookings is determined based on your actual revenue management strategy.

Your property should NEVER be relying only on OTAs for generating bookings. Hotels should always be combining distribution via OTAs as well as direct sales (both online and via phone). To ensure that your property is maximizing the billboard effect, all of your property’s online rates should be controlled by a sophisticated, automated, real-time revenue management system. This technology will ensure that your property’s presence on the OTAs will yield an increase in direct bookings as well.

Do you agree or disagree? Have you experienced the billboard effect at your property? I’d love to hear your comments. Please share in the comments section below.

https://www.revparguru.com/automated-revenue-management/

 

5 thoughts on “The Billboard Effect… Revisited

  1. As a small B and B owner I do not know what the Billboard effect is. Nor do I know what OTA means.Please elaborate as I am keen to find ways of increasing direct bookings.
    Thanks

     
    1. OTA = Online Travel Agencies

      Search, OTAs, and Online Booking: An Expanded Analysis of the Billboard Effect
      https://scholarship.sha.cornell.edu/chrpubs/4/

      The Billboard Effect: Online Travel Agent Impact on Non-OTA Reservation Volume
      https://scholarship.sha.cornell.edu/chrpubs/2/

      Does the Expedia billboard effect still exist for hotels?
      https://www.tnooz.com/article/billboard-effect-hotel-exists/

       
      1. No I do not think the OTAs are out to hurt us that would be akin to the parasite klniilg its host. However, there is an oversupply of accommodation so there is a race to the bottom. I attended a presentation by TravelZoo a few months ago who specialise in short sharp heavily discounted campaigns by using their 600,000 strong subscriber list (in Australia). This is an extreme form of last minute sales. It works pretty well for hotels who have a large staff and need cash flow to get through the seasonal lows. Unfortunately, it also conditions consumers into believing the new low prices are the benchmark. There is not much point in being angry with the discounters they are just a market response to the oversupply. The best cure for low prices is even lower prices because it generally results in removal of the oversupply as businesses go bust. We are in a deflationary cycle and I would think that the independent accommodation suppliers are in a better position to weather these difficult times provided they are not heavily leveraged and their mortgages are manageable. This is a great time to be starting a project aimed at helping independent accommodation suppliers from the internet monopolisation by the OTAs. The independents are only a fraction of the OTA’s turnover they are dependent on the big hotel chains who will suffer far more from cost pressures. The valuations of the prime property locations that many of these chains occupy is already coming under pressure and their financial models have been subject to the insanity of the financial engineers. In short, many are highly leveraged.You have highlighted the emerging alliance of Facebook, Bing and TripAdvisor fuelled with the several billion from the initial public offering. I am betting that they will blow it. They have already paid a crazy price for Instagram.While they are figuring out how to burn the next billion, we have a chance to consolidate the huge amount of local knowledge and tremendous variety of product that is controlled by the independent accommodation owners. We can respond faster and we have greater incentive, as owners, to do whatever it takes to present our product and demonstrate its value to the world at large.

         
    2. in handing the OTAs a $20.6 miollin or more defeat in the City of San Antonio vs. Hotels.com class-action lawsuit, Judge Orlando Garcia made several revelations, which the OTAs may consider

       
  2. Good points Nick I do not agree that the OTAs are not as insreetted in us small independents as you suggest there are a lot of us and we are supplying an increasing amount of the accommodation displacement from hotels due to the demographics.Therefore the OTAs see us small operators as their new grazing and have been making free offers and big discounts to get us on their lists (and in their thrall).Hence my initiative to unify us, the suppliers, and offer the market, our guests fair choice as well as saving money.By working together we can develop services which meet the needs both of the individual and match the demanss -of rapidy changing technology and marketing.I am not going to try to outthink Google, Facebook, Apple and Microsoft, all of who are firmly in his accommodation service market place already.Personally I think Facebook has made some very clever moves, they are using their unfettered freedom at present to act fast and secure some of the high-ground before shareholders and financial markets bog them down in a few weeks time.I would like to think that we, as a group, are fast responding I would suggest that the opposite is true and that, without a focus, we are likely to be fragmented and vulnerable. I am trying to present that focus and the facilities needed to create a strong source of information, services, publicity and support.

     
Leave a Reply

Your email address will not be published. Required fields are marked *