Restaurant operators can learn from the mistakes hotels made with the rise of third-party services.
When a third-party takes control of some of your inventory and customers and then charges you a 25 percent commission, it drives you crazy. You may think I’m talking about the restaurant industry, but the hotel industry faced this exact same problem about 20 years or so ago when Online Travel Agents (OTAs) like Expedia and Priceline emerged.
Obviously, there are some major differences between the two industries (most notably the fact hotels didn’t have to rely on “gig” workers to deliver their service), but what lessons can be learned from the hotel experience? What are some of the things that you should avoid and what are some things you should be sure to do?
Bill Carroll, Ashwin Kamlani, and I had a great discussion on this topic at our eCornell keynote on May 17. To watch the discussion, please go to https://ecornell.cornell.edu/keynotes/view/K051722/.
Here are five of the key lessons.
Don’t treat the third-party intermediaries as your enemy. Yes, you don’t like paying the commission and yes, you don’t like losing control of the customer experience. But, the fact of the matter is that the third-party intermediaries are not going to go away because customers like the convenience. The same thing happened in the hotel industry. For years, hotels fervently hoped that the OTAs would just go away (and some even cut them off, but suffered a major loss of bookings), but they haven’t. Why? Because customers like the convenience of placing their reservation this way.
View the third-party intermediaries as a marketplace and learn how to navigate this marketplace to your advantage. For example, what sorts of promotions and offers work best? What sorts of things can you do to drive more customers to your restaurant? How should you design your menu to help make it easier for customers to order (and also for you to produce)?
The migration to first party orders will be moderately successful, but don’t expect the world. To put this in perspective, the hotel industry has worked hard at trying to get their customers to book directly through the hotel. While they have met with some success, particularly by leveraging their loyalty programs, many of their customers still prefer to book through the OTAs. Think about ways that you can make the first party order experience more valuable to your customers, whether it be through lower prices, a different menu or your loyalty program. But, in order to be successful, you need to know more about your customers.
Invest in digital. Hotels, unlike restaurants, have plenty of data on their customers since they have reservation information. Try to gather as much data about your customers as you can. This will allow you to better target your customers and deliver the service and product that they desire. If you have a QR menu, make sure that it’s digital so that you can collect information on what people are ordering. Now that the pandemic is hopefully subsiding, don’t just switch back to your previous ways of doing business and assume that things will stay the same in the future. Again, the more data you can get about your customers, the better.
Leverage your pricing potential. Most hotels in the US have had to contend with something called price parity. Essentially, they are not allowed to charge a lower price than what is offered through one of the OTAs. This is particularly painful for the hotels when you think about the 25–30 percent commission imposed by the OTA. In the restaurant industry, we can charge different prices or even offer different menus. Another option here is to frame your takeout and drive-through prices as lower than your delivery prices. For more tips on this, take a look at my article entitled "How to Make Better Pricing Decisions For Your Restaurant: Part 5".
Off-premises dining and third-party intermediaries are here to stay. By avoiding the mistakes that the hotel industry made and learning from the approaches that worked, you will be better positioned to succeed in the future. And, remember, the third-party intermediaries are NOT your enemy.
Sherri Kimes (sherrikimes.com) is an Emeritus Professor at the Hotel School at Cornell and specializes in pricing and revenue management. She is passionate about helping restaurants increase profitability. She can be reached at email@example.com.