Verifying the OTC Billboard Effect?
Expedia claims to reach 51 million online travelers worldwide. Rather than make hoteliers cringe, Expedia wants them to embrace this "unparalled reach." To help this cause, Expedia and other OTCs have publicized research from the Cornell Center for Hospitality Research that purports to verify the "billboard effect" - the marketing and advertising benefits that hotels receive by being listed on the results page for an OTC like Expedia and Priceline.
The 2009 study - characterized as a pseudo experiment by author Chris Anderson - was limited in scope but did support the existence of the billboard effect, with the consequence that a hotel listed on an OTC directly booked more rooms and was able to increase rate. This month, Anderson published a follow up report titled "Search, OTAs and Online Booking: An Expanded Analysis of the Billboard Effect." Looking at a much larger data set, Anderson finds that "almost 62% of those who booked at one of the brand's websites visited Expedia prior to that reservation." From this, he concludes that:
One lesson here for hotel firms is that the magnitude of the billboard effect indicates the effectiveness of OTCs in marketing to consumers and educating them on product assortment and characteristics. Additionally, the billboard effect leads to an effective decrease in the cost of OTC transactions. Given the additional bookings that clearly result from being listed on the OTC, a hotel firm can average the margins paid to OTCs additional reservations. Thus a 30% commission would effectively be reduced to single digits.
Like his prior study, we expect that Anderson's follow-on work will be widely cited. However, we hope more research will be done to determine whether Anderson has identified a correlation or causation. Such an analysis may begin by referencing another Cornell study - How Travelers Use Online and Social Media Channels to Make Hotel-choice Decisions - that offers a much more in-depth analysis of the consumer decision-making process. In particular, that study suggests that consumers use a broad variety of tools to educate themselves on hotel product offerings. That, in turn, raises a question as to how much value should be attributed to the billboard effect generated by OTCs.