Study reveals hidden cost of rate disparity for hotels

OTA's undercutting pricings is responsible for 50% rise in CPC for hotels

Hotels that allow Online Travel Agents (OTAs) to undercut their rates pay nearly 50% more for PPC leads, new research by hotel technology specialist SHR  has revealed. 

Analysis of 27 million Cost per Click (CPC) impressions shows hotels are forced to pay an average of 47% more per click than if they offered the lowest nightly rate on their own website, the study has shown.

Cost per click climbs to $0.97 (£0.79) when hotels allow OTAs to offer the cheapest rate compared with $0.66 (£0.54) for hotels who make sure they offer the best deal, SHR reported in the Digital Strategy Secrets for Hospitality study. 

The increased cost is driven by competition. OTAs increase its bids on branded searches when they know they can offer travellers the best price because the businesses understand that having the lowest rate is the biggest determining factor for conversion, and are confident the investment will pay off.

This in turn pushes up the cost per click for the hotels when bidding on their own branded search results.

Even offering rate parity — keeping rates on direct booking sites and OTAs the same — still increases cost per click significantly compared with hotels maintaining the lowest rate on their own site. 

Hotels offering the same rate on their own website as on the OTA sites pay 35.9% more per click at $0.89 (£0.73).

While OTAs provide valuable visibility and access to a broader audience, the study makes clear how the extra costs associated with rate undercutting significantly impact hotels’ marketing budgets and overall profitability. 

This situation compels hotels to allocate more resources to maintain their online presence and compete effectively, often forcing them to divert funds from other marketing initiatives that could drive long-term growth. 

Striking a balanced booking strategy that leverages the strengths of OTAs alongside direct channels enables hotels to maintain visibility while optimising profitability. 

Rate integrity therefore frees hotels to shift resources toward building sustainable guest acquisition pipelines because they benefit not only from the lowest CPC but also the strongest conversion rate. 

These findings come as the hospitality industry is expected to see a major shift, with predictions that hotels will secure more direct bookings than from OTAs by 2030. 

This forecast highlights the growing importance of strategies that strengthen direct channels and reduce OTA lead generation.

Steve Collins, VP of digital marketing of SHR, said: “Our findings highlight the delicate balance hotels must maintain when working with OTAs. 

"While these platforms help hoteliers reach a wider audience, abandoning rate integrity sacrifices marketing spend and profit. 

"By prioritising direct bookings and making OTA partnerships more balanced, hotels can achieve more sustainable growth and more efficient digital marketing spend.

“The research underscores the need for hotels to take a holistic view of their digital strategy," he said.

"Approaches that prioritise direct bookings, while also investing in broader brand-building activities earlier in the customer journey, can help hotels remain competitive.”