How Booking Channel Shapes Customer Lifetime Value

Authors

Dev, Chekitan S.

Kumar, V.

Sunder, Sarang

Lezkiewicz, Agata

Abstract

Online travel agencies (OTAs) and other intermediaries have become essential customer acquisition partners for hotels, restaurants, airlines, cruise lines and other travel brands. However, as expected, customers booking via each channel are not equal in value. Until this point however, the behaviors and lifetime value of each channel’s customers were not fully understood. Our research shows that customers booking through third-party channels behave differently than customers booking directly through direct or brand booking channels.

This report reveals, for the first time, the hidden costs and benefits of using OTAs to acquire customers, to help hospitality leaders make more informed channel choices. Using a large customer-level dataset acquired from a major, global, multi-brand hotel company, we found that OTA-acquired customers spent less per stay, booked less frequently, were less likely to shift into direct channels, and ultimately generated nearly 20% lower customer lifetime value (CLV) than directly acquired customers. At the same time, customers who booked through an OTA used more brands in the portfolio.

Does this mean that hospitality leaders should completely bypass OTAs for customer acquisition? It certainly does not. Our channel-allocation simulations demonstrate that growth-oriented brands maximize value by investing in both channels. Although the CLV of OTA-acquired customers is lower than that of brand-acquired customers, it is positive. Moreover, OTAs can offset lower CLV through greater acquisition efficiency, enabling brands to acquire more customers at a lower cost.

Click here to download the complete article from the Cornell Center For Hospitality Research.