Last updated on 18 Jan 2023
While everybody is singing praises of these budget aggregators, very few are looking at the dark side.
The Plot
The travel battleground is set. In the midst of hotels, accommodation providers, online travel agents, offline travel agents and service providers, trying to grab a slice of the travel & tourism market, a new player has joined in — the budget accommodation aggregators.
Players like OYO, Zo Rooms and Fab Hotels among others are stirring up the accommodation industry with their unique business model. They have been taking things one step further than the online travel agents, and every hotel from budget to premium, is asking the same question — Should we join hands with them?
Despite their increasing popularity, not every hotel is willing to jump onto the bandwagon and reasonably so. Why? Let's try and answer that and identify the good, the bad and the ugly of budget accommodation aggregators.
The Good
Easy Money
Who doesn't like quick and easy money? This is perhaps the most alluring part of the entire partnership. Most budget aggregators purchase large chunks of room inventory and pay upfront. Whether your rooms will receive guests becomes inconsequential as the money is already in your pocket and your room sales are in the green. But entirely inconsequential it is not, and we will take up the downside in 'The Bad'.
Promise of Improved Yield
As Patu Keswani, chairman and managing director, Lemon Tree Hotels, puts it concisely — "Effectively, they will bring more supply from the disorganized to the organized part of the market and therefore competitively target the same customer that the organized economy and midscale chains have been targeting."
This should help bring more people to the online medium for booking rooms and a realization that staying at hotels is not such an out-of-reach proposition now. Which in turn should help with increased hotel room demand and ultimately improve yield. But this is a long-term benefit with too many variables involved.
Organizing the Budget Segment
There is an inherent benefit to the entire accommodation industry if this model is executed properly over the long term. The sudden arrival of budget aggregators is giving the branded budget and mid-size segment a run for their money. However, there is a lot yet to be desired. Standardization requires more than just selling under a single brand name — it requires a look into the processes and sub-processes of a hotel beyond free Wi-Fi, linen and a bag of amenities. The platforms are still young, and soon enough there should be talks of regulations, compliances, and protocols.
The Bad
Brand Dilution
While on paper the aggregators allow hoteliers to show higher yield, it is not the hotel's sales in the truest sense. What was actually sold to the consumer was a completely different brand and hence a completely different experience. Not one of those guests acquired through those channels is going to say what a wonderful stay they had at 'Hotel ABC'. It is going to be a great experience at 'XYZ Rooms' for them. Despite the experience being at your hotel, the word-of-mouth favours the budget aggregators.
Increased Cancellations
As budget aggregators are being perceived by hoteliers as steady revenue generators, they are agreeing to more risky propositions. The 'Pay at Hotel' option has been introduced to users and budget aggregators are moving away from the pre-purchased inventory model. Without advance payments, there has been an increase in last-minute cancellations and no-shows. This almost always results in a lost room night, since room inventory distribution on alternate sales channels for room nights so close to check-in dates becomes more difficult.
Your Real Guests Might Start Hating You
While you have positioned your hotel for a more sophisticated demographic with your pricing, the lower rates often attract a rowdier crowd. There are ample instances of guests coming in from budget aggregators creating nuisance at hotels and being involved in various problematic situations. This lowers the brand value in the minds of your direct and repeat customers. A gang of hooligans arriving at a serene resort is more than capable of destroying the experience of all the other guests. Such a crowd is also capable of affecting your staff's morale in a negative way.
Losing Supplementary Revenues
Selling to budget accommodation aggregators is easy money, but if your rooms are sold and no guests are coming, you could be losing revenues from ancillary hotel services such as F&B and Spa. For a lot of hotels these supplementary revenues form a sizeable chunk of total revenue. Moreover, with no guests you are losing out on opportunities to bring your hotel in front of guests and turn them into direct customers.
The Ugly
The Smoke and Mirror Strategy
A lot of people are failing to understand that the budget hotel aggregator's current ability to push out rooms at such a lucrative price point is fuelled by burning investor money, thereby creating an illusion of value addition. A high-value business provides a competent solution — a solution that creates a marketplace for a large unfulfilled demand with a large unfulfilled supply. In the case of the travel and accommodation industry in India, this has already been achieved by OTAs such as MakeMyTrip, GoIbibo and Yatra for ages by using technology to connect hoteliers with guests.
The budget aggregator model should be discovering and curating room inventory, but by selecting properties that are already listed on OTAs and selling them at a major discount, it is simply creating another OTA with a higher capacity to sustain losses. The undiscovered inventory is still undiscovered.
What If They Decide to Ditch You?
Perhaps the most drastic outcome is losing the good graces of the budget aggregators while you go ahead and burn the bridges with your other vendors. You have pushed away your online travel agencies — losing search ranks and reputation. Offline travel agencies might prove to be a tougher nut to crack. And your direct sales channels would need to be reorganised with a new strategy. That leaves you nowhere from a sales perspective.
Overzealous startup valuations have failed in the past and this is a very possible outcome, as the funding money dries up and survival depends on working on a leaner business model.
What Do They Leave Behind?
The assertion of organizing the mid and budget sector falls short once again considering there is very little that accommodation providers are receiving in terms of knowledge and management expertise. Most aggregators' focus on technology is aimed at the guest touchpoints, rather than at hoteliers. Considering how important technology is today in streamlining and organizing industries, there is very little being developed to support hoteliers.
It Could Be Bad Even If They Succeed
Provided the budget hotel aggregators are able to catch up with current shortcomings before their funding dries up and become a critical part of the distribution ecosystem, one thing you can be certain of is that they would be commanding loyalty from a massive guest base — which should allow them to negotiate lower rates from hotels.
Hotels that manage to keep their costs down and maintain a balanced room distribution across sales channels will be the ones to avoid the arm-twisting tactics and flourish.
The Climax
For the most part, the budget aggregators' promises of a brighter future for hotels only time will tell if they can make good on. The business model is still in its nascent stages and should witness some interesting twists and turns until it becomes a mature, unavoidable part of the ecosystem.
Our take is for hoteliers to sit tight and not put all their eggs in one basket. Being exclusively dependent on a single sales channel might put hoteliers in a precarious situation in the future. But we are in no way suggesting that you do not get on board this train.
The key is to play smart and treat it just as any other sales channel. More importantly, treat it as a new sales channel where one can potentially unload unsold room inventory to improve yield. Hoteliers need to identify, based on historical data, how their various sales channels are performing, how well they will scale up for future dates, and then forecast room occupancy. Sell out only the room inventory which you figure might go unsold.
In the meantime, hoteliers should continue to focus on delivering better guest experiences to retain repeat business and developing direct revenue generation strategies to move towards self-reliance. This should be supplemented by improving the hotel's sales processes and developing competencies aided by new technologies, such as DJUBO. And it may seem we are simply tooting our own horn, but the fact of the matter is that this is precisely how DJUBO has been developed — a tool to move hoteliers towards self-reliance in managing multiple sales channels more effectively.
