Facing steep competition from fellow booking websites, online travel agencies have been experimenting with travel rewards as a means of incentivizing consumer loyalty -- at the expense of straining relationships with the hotels with which they partner.
In the 1990s, OTAs threw a wrench in the hotel booking process by allowing travelers to compare prices across multiple hotels, inspiring consumers to book rooms through third-party sources rather than directly with hotels. Travelers' desire to score the best deal has led to a greater demand for companies like Expedia, Orbitz and Hotels.com, which cull the lowest rates from multiple hotels. And while online booking sites once tacked on hefty transaction fees, today those fees have been eliminated, making planning and purchasing trips through intermediaries all the more enticing for consumers. As a result, OTAs are poised to build brand loyalty, while hotels are at greater risk of losing prospective guests to competing properties.
Now, the dynamic has shifted once more. The rise of metasearch sites like Kayak and Bing -- which allow travelers to not only compare prices across hotels but also across OTAs -- has intensified the rivalry between booking sites, leaving companies like Expedia and Orbitz fighting for repeat customers.
To match Web competitors and increase brand loyalty, "it's in the interest of online travel agencies to keep upping the ante," said Clem Bason, CEO of DealBase.com.
In order to influence customer fidelity, OTAs have begun branching into the rewards business with the hope that additional incentives will keep travelers from straying to other booking sites. This is a tactic that hotels have employed for a long time. And now, OTAs are hoping that offering a rewards program will bolster consumer loyalty, the way it did for hotels. Meanwhile, hoteliers worry that programs like Expedia Rewards and Orbitz Rewards will continue to encourage travelers to make third-party bookings.
Whether or not online booking sites' initiatives to promote repeat bookings will create major changes in the hospitality industry is up for debate, but one thing is certain: Consumers have plenty of loyalty programs to choose from. And now, travelers are facing a challenge when it comes to selecting a booking method to which to pledge their allegiance.
Traditional programs vs. OTA loyalty programs
The logic behind hotels' loyalty programs is simple. Hotels attract repeat business by promising rewards like free stays, complimentary amenities and even frequent flier miles. The more often a traveler stays at that hotel or with that hotel brand, the more rewards he or she will earn.
Hotel loyalty programs generally benefit business travelers the most, as they stay more often on the company dime and apply accumulated rewards to vacation expenses. On the other hand, infrequent travelers cannot reap the benefits of program membership as easily as business travelers since they typically cannot collect substantial rewards and membership privileges as quickly.
According to Brian Kelly, founder of ThePointsGuy.com, OTA loyalty programs aren't challenging the traditional rewards system because they're not targeting business travelers, but rather the "folks who book one, two or three trips a year." For these travelers, OTA loyalty programs may be the more lucrative option.
The good and the bad
Online travel agencies target consumers looking to rack up and redeem points more quickly than they would through a hotel program, said Expedia CMO and Senior Vice President of Global Marketing David Doctorow. OTA program members can earn rewards by booking stays at eligible hotels, regardless of the brand they choose -- allowing for increased earning potential. "There are more ways to get to a reward faster," he explained.
Some booking sites also allow members to collect extra points through affiliated credit cards. Orbitz recently announced a credit card partnership with Visa that enables members to receive an 8 percent return per dollar spent on hotel bookings and a 6 percent return on airfare bookings and package deals purchased through Orbitz.com with the Orbitz Visa card. Even if you decide not to sign up for the card, you can still collect a 3 percent return per dollar paid for each hotel booking made on Orbitz's website if you're a member of the loyalty program. Meanwhile, Hotels.com Welcome Rewards hooks members with the promise of a free hotel stay for every 10 hotel nights booked. It's "a pretty compelling proposition," according to Tim Winship, editor and publisher of FrequentFlier.com.
For some potential program members, the simplicity of an OTA loyalty program may be the primary selling point: Traditional hotel program policies are constantly changing, making it difficult for members to keep track of how they can use their rewards. "[Welcome Rewards] amounts to a 10 percent rebate and that's something that is easily understood. It sort of circumvents the complication of figuring out the value proposition of what the Hilton HHonors or Starwood Preferred Guest program is actually giving you," Winship said.
But there is a downside to choosing an OTA program over a hotel program: "You're never going to get the same perks," noted Kelly. Traditional hotel loyalty programs standardize benefits across all participating hotels: Starwood Preferred Guests can count on priority check-ins and member discounts, and IHG Rewards Club members can expect free amenities and room upgrades. Meanwhile, OTA loyalty programs can't offer these perks -- at least not consistently.
Although OTA loyalty program rewards apply across multiple hotels, Scott Mackenzie, creator of travel site Hack My Trip notes, "The status benefits of OTAs are generally quite poor," due to travel sites maintaining relationships with "so many disparate properties." Unlike brand-backed hotels that offer consistent perks for guests who book frequent stays, OTAs can't offer the same level of guaranteed customization. For example, Expedia's Elite Plus members can receive some additional benefits like flexible check-ins, but this perk is only available at select hotels. As Dorothy Dowling, senior vice president of marketing and sales for Best Western International puts it, online booking sites may be able to "control the booking transactions through their channel, but they don't control the experience."
But OTA loyalty programs aren't entirely reliable, either. Jeff Low, chief executive of Stash Hotel Rewards, adds that OTAs can't offer a customized experience based on individual guests' styles and preferences. Hotels, on the other hand, are able to personalize their rewards programs to better meet individual members' needs, a service that's difficult for OTAs to match, he said. Independently owned and operated hotels like those participating in the Stash Hotel Rewards program "really want to build a relationship with you."
Still, a rising number of travelers are migrating to digital channels to book their trips rather than booking directly with hotels, giving intermediaries a power over individual properties. In the end, "the hoteliers will win," but "right now the OTAs have a huge advantage," Low said.
Caught between a rock and a hard place?
While individual properties benefit from OTAs filling beds, they also have an incentive to prompt direct hotel bookings to increase their profit margins. "It's really a bad marriage," Low said of the relationship between OTAs and hotels. "Hotels are in a bind because people have become accustomed to using those [third-party booking] channels." Hotels have been upping their efforts to promote direct bookings. Many brands and individual properties have invested time and resources into updating their websites. Hotels also frequently advertise deals and bargain rates only obtainable through the hotel.
But that doesn't mean hotels want to cut ties with OTAs -- after all, third-party websites fill beds that could otherwise be left empty. "The OTAs are very important to the hotel business," explained Dowling. Although OTAs do claim a cut of the profit of each sold room, in the end, the hotels are still making money.
The rise of OTA loyalty programs adds to an already nuanced relationship between booking sites and hotels. However, Low and Dowling aren't concerned, noting traditional programs are making moves to stay competitive in the loyalty space.
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What does the future have in store?
"I don't know if they're sticking," Low said of the increasing number of new OTA loyalty options entering the hospitality space. His doubt stems from OTA programs' inability to provide sought-after benefits like complimentary amenities, which draw frequent travelers to traditional hotel programs. "We compete much more with the Marriotts of the world," he said.
Experts agree that that while OTAs have long attracted bargain-hunters with generous deals, their transition into the rewards market seems like an unusual way to gain loyalty from customers who aren't already using their channels. "If it's not executed well, the OTAs could become less profitable," forecasted Bason.
Going forward, Mackenzie believes OTAs' foray into rewards programs won't drastically affect the relationship between booking sites and hotels. In fact, Kelly asserts that OTAs are bringing "more hotels into the fold" by offering stays at brand-backed chains and boutique properties, ultimately allowing independent properties to compete with established chains.
And while online booking sites are trying to shift consumer behavior and prompt third-party bookings, Bason said that hotels are "always deploying new tactics" to encourage more direct bookings and stay innovative in the loyalty space. In the end, a myriad of loyalty choices should create more benefits and greater value to consumers.
-- Liz Weiss