Structural Changes in the German Travel Market – Part 3: Hotels

For better readability, the generic masculine is used in these articles. The designations of persons used in these articles refer to all genders unless otherwise indicated.

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Structural Changes in the German Travel Market – Part 3: Hotels

02.05.2019

Even though larger domestic and foreign hotel chains are trying to gain market share in the German hotel market, in the medium term a supply market that remains fragmented can be expected and the agency portals are exerting increasing pressure.

Thesis 1: Top 3 agency portals expand their market presence

Thesis 2: Agency portals expand their value chain

 

Thesis 1:  Top 3 agency portals extend their market presence

Driven particularly by chain hotels, the direct sales share makes about one third of the market according to experts. To what extent this share can actually be expanded in the next few years or whether the major agency portals (Booking, HRS, Expedia) increasingly divide the distribution market among themselves is difficult to assess. The surveyed experts tend to assume that direct sales is growing faster than indirect sales. Indirect distribution, however, is seen as a cutthroat competition in favor of the dominating online portals.

With the increasing market power of agency portals, the market transparency for the customer and the price pressure for the hotel industry is also increasing. As a consequence, the hotel industry is required to work out differentiation characteristics, to sharpen its brand image and to develop a close customer loyalty. It remains exciting to see whether the increasing variety of hotel brands, both on a horizontal and a vertical level, is not counterproductive in the long run and gives much more weight to a sales brand like booking, expedia or trivago.

This can lead to the well-known sales portals competing directly with the marketing and sales organizations or cooperation of the hotel industry. With the growing strength and reputation of the portal brand, henceforth more hotels without their own brand awareness will be prepared to be marketed through such a portal and to submit to their quality criteria.

Conclusion:

Soft Brands of the sales portals will permanently change the hotel marketing of small and medium-sized hotels.

 

Thesis 2: Agency portals expand their value chain

In German hotel distribution, agency portals try to consolidate or expand their market position by expanding their range of services. For example, HRS is currently trying to be an extended shopping arm for business customers in the German business travel industry. With a largely digital solution, which many competitors or TMC do not have in this form, HRS takes over the hotel purchasing functions for corporates. This example shows how innovative digital solutions can shift value-added functions to an intermediary. For business customers, this results in classic economies of scale, as so-called demand pooling strengthens the purchasing power and also allows smaller companies to benefit from better terms. In addition, the intermediary classically has a higher market knowledge and can use this in the interests of the customer. For the hotel industry this means further pressure on prices and controllability. Since the value added is taken over by a sales portal, this also has a negative effect on the hotel industry’s efforts to increase its direct sales share.

Conclusion:

Adapting their business models can help intermediaries to continue to compete in a competitive market environment.

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Gender reference

For better readability, the generic masculine is used in these articles. The designations of persons used in these articles refer to all genders unless otherwise indicated.