TripAdvisor's Instant Booking Product Poses Tough Questions for Hoteliers
TripAdvisor's Instant Booking product has caused mixed reactions throughout the industry. Expedia and Priceline have elected to pass on the new feature at the time this blog was written. Large hotel chains like Choice Hotels have signed on. TripAdvisor is now rolling out the feature to small chains and independent hotels.
There are two big questions to ask about this product for hoteliers: 1) Is it good for my revenue, and 2) Is it good for my brand?
Is it good for my revenue?
Let's tackle the first; is it good for my revenue? This is a fairly simple math problem for your revenue managers.
12% commission is TripAdvisor's entry-level price for Instant Booking. They are willing to negotiate this commission based on volume. Some of the larger players are paying as little as 7%.
At a 12% commission, TripAdvisor’s Instant Booking product is better for your revenue as long as Avg. Revenue Per Booking is below $834. Above $834 Avg. Revenue Per Booking, Instant Booking becomes more expensive per booking.
How can it be that simple? The answer has to do with TripAdvisor's meta-search bidding system. It’s not very sophisticated. I’ve charted out the basics of their bidding system below. In every case, if someone is bidding the same amount as you, your ad simply rotates.
This bidding system doesn’t allow us to appropriately adjust bids for really high-end hotels, or really economical hotels. In short, the average CPC and ultimate CPA from TripAdvisor Meta Search remains pretty flat regardless of all of the factors which SHOULD have a large impact on it. MMGY’s historic data tells us that Avg. CPA from TA Meta-Search sits around $100 per booking if we’re running things efficiently.
At an Average CPA of $100 for TripAdvisor Meta-Search, your Average Revenue Per Booking must be beneath $834 in order for the 12% commission of TripAdvisor’s Instant Booking to be a revenue win. Above $834 per booking, a 12% commission is a revenue loss.
In case you want to see the math for yourself, I've shared this Google Sheet. Simply make a copy of it and play around with the ADR (Average Daily Rate) & Avg. LOS (Average Length of Stay) metrics for your hotel, and if your average CPC or conversion rate from TripAdvisor meta-search varies significantly from our historic data you can change those values as well. The formulas will update themselves. Simply compare columns E & H for the metrics you've entered. Which one is lower? That's the product that is better for your revenue.
Is it good for my brand?
Now that the math is out of the way, we have to answer the second question: Is it good for my brand? In this author's opinion, probably not. The user books on TripAdvisor.com, never seeing your website or booking engine.
(It's not a CPC based platform so we don't have to feel bad about clicking through and partially completing the booking process.)
Clicking the "Book Direct" link that has blatant TripAdvisor branding instead of hotel branding leads us here:
Clicking through any of the room selections gets us to a pretty sleek billing form:
Note the TripAdvisor branding at the top. Also note the disclaimer at the bottom stating that White Elephant will provide customer service for this reservation.
Ultimately, your hotel gets 2 tiny logos and a couple of small photos in this booking process. Back to the original question: Is it good for my brand? It's certainly good for TripAdvisor's brand.
Another OTA to accept or reject
Hoteliers for whom this is not a revenue win will not have a hard decision to make. They have no use for this product.
Hoteliers that could get incremental revenue out of this product have a tough choice in front of them. Do they risk giving up some of their branding to another 3rd party and allow TripAdvisor to act as a lite version of an OTA? They will have to weigh the costs carefully, and watch the lifetime value and retention of their customers closely to ensure no erosion of their own brand loyalty occurs.