What “free cancellations” really means for Costa Rica’s hoteliers


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Costa Rica’s hoteliers are faced with the bittersweet reality of online travel agencies (OTAs) vying to dominate the reservations process. And yes, even Costa Rica’s small and large hotel brands have to accept that giants like Booking, Expedia, Travelocity, and a multitude of others are here to stay.

Online third-party websites, or OTAs, facilitate the travel and vacation booking process by providing access to multiple sought-out services on one platform. Virtually every internet-surfing adult these days has reserved a flight, hotel, car, or event on an OTA site. And most consumers much appreciate the opportunity to compare options, rates, and reviews in one expedited process. Time is money, after all.

The relative benefits are undeniable, and OTAs do deliver on the promise of short-term gains, especially considering the impact of international publicity and the lure of instant bookings. Small and off-the-beaten-track hotel venues can immediately reach a global audience of tens of thousands of potential consumers. And large chains or well-established brands can have last-minute access to fill empty rooms.

Understand the OTA marketing angle and learn to counteract its downside

The biggest downside associated with OTAs and similar platforms, however, is the financial insecurity and potential long-term repercussions associated with the ubiquitous “risk-free reservation” strategy. A free cancellation booking option can send hotels into a downward spiral that’s already been aggravated by “lowest-rate wars” the sites also encourage.

A “buy now, ask questions later” option to stake a claim on the lowest fare or “last room in this category” is undoubtedly convenient for consumers. But the growing frequency of reservation cancellations is a severe problem for the hotels themselves.

According to Rob Funnell’s article The real cost of ‘free’ cancellations on triptease.com, third-party sites are now positioning the free cancellation incentive at the heart of their marketing campaigns.

“While cancellations affect a hotel’s ability to forecast revenue and impact their income in real terms, they are used by OTAs as a marketing tool – one that benefits their growth, rather than hinders it. Flexible reservations are at the heart of how Booking.com sells rooms to its users, and a year-on-year increase of their cancellation rate is proof that their message is clearly resonating.”

Funnell points out that overall cancellation rates for OTA channels have been increasing steadily, and in 2018 peaked at an alarming near-40%. Bookings made directly on hotel websites, on the other hand, reflected only an 18.2% cancellation rate.

The study conducted by D-Edge Hospitality Solutions, claims Booking.com has the highest average cancellation rate overall at 50% in 2018. D-Edge goes on to suggest that reservations made further in advance have a higher probability of being canceled – up to 65% for bookings made three months before the anticipated check-in date.

Succumbing to the downside of third-party bookings isn’t inevitable, however. Hoteliers can—and should—take steps to reclaim a direct relationship with the consumer and increase the frequency of direct bookings on their websites.

According to Costa Rica-based ClickAss Tourism Marketing strategist, Keven Peoples, hotels have several tools at their disposal that can be implemented to grow their brand’s internet presence.

“Direct reservations clients generally stay longer, spend more money, and engage in tours or activities suggested, or hosted, by the hotel,” he explains. By drawing consumers back to the brand’s websites, long-term relationships are fostered, and the customer’s trust in the online interaction and the dollar value of their purchase is restored.

Direct bookings also reveal higher tendencies for repeat visits and friends-and-family referrals. Most are made with long lead times—90 days or longer on average—and have a lower cancellation rate, allowing hoteliers to accurately forecast revenue.

“Hotels have to invest somewhere to attract customers. Either they can invest in paying OTA commission rates for bookings (up to 30% in some cases), or they can invest in strengthening their online presence and marketing services,” Peoples adds.

What hoteliers can do to win back their internet audience

According to Peoples, the potential clients who are hesitant to give up the discounted rates and refund guarantees offered by OTAs have to feel that their needs are still being addressed by migrating to a hotel’s direct booking mechanism.

He also suggests that hotels incentivize their website’s listed rate plan by offering slightly lower prices than what appears on third party sites (5% for example). Hoteliers who are bound by price parity contracts can give direct reservation customers special perks like breakfast included, free tours, or resort credit/vouchers that can be used at the hotel’s restaurant, bar, or spa.

Tips for strengthening the direct booking process

On your hotel’s home site:

  • It should be self-evident, but many hotels forget to keep their guests as the focused target audience when building a website. Through a comprehensive, clear, and honest depiction of what’s offered, potential consumers will have the data they need to make an informed decision.
  • Remember, it’s only the hoteliers themselves that can guarantee they’ll meet the unique needs and expectations of their guests.
  • Questions or doubts about what’s included in a final purchase can send potential clients looking elsewhere. Address them.
  • Emphasize communication through targeted messaging and live chat options so that guests can have their questions and concerns attended to quickly and efficiently.
  • Create a positive interactive experience on the site by engaging clients with personal questions and follow-up emails. For example, give clients the chance to tell you if their stay coincides with an important event, such as a wedding or birthday. By personalizing the customer’s experience, you gain their trust in what your hotel offers.
  • Offer OTA-type incentives on your website. Options include customer loyalty programs, referral incentives, or special non-refundable rates for specific rooms or timeframes.

In your OTA parameters:

  • Set more rigid parameters to your cancellation policy and apply them to your bookings. For example, non-refundable until a specific date before check-in. Or provide non-refundable discounts on individual rooms only.
  • Skip the full-refund option altogether.

Hoteliers ultimately have the power to influence the behaviour of third-party reservations platforms and OTAs. By fostering a culture of collaboration among owners and setting parameters on OTA sites for what’s ok and what’s not, hoteliers will level the playing field and take back their company’s control over online bookings.