With the global pandemic, inbound tourism to China has slowed to a halt, but as we look ahead to the inevitable post-pandemic travel boom, the nation of 1.4 billion people is certain to reopen and welcome visitors from around the world. The general consensus today is that the earliest reopening will be Q4 2022. Yet, what will that look like? How will things be different and how will they remain the same? To understand the future of hotel distribution in China, we need to look at the past. Anson Lau, Managing Director of Shiji Distribution Solutions shares that history with us below. Read on to learn more.
The Early Days of Hotel Distribution in China
In the Chinese market, the population by and large skipped two key developments in the Western developed world: the era of the PC and browser, and the era of credit card payment – both fundamentally shaped how people book and how hotels distribute.
Expedia and Priceline were founded in 1996 and 1997 respectively and started taking online reservations via the Internet around the turn of the century. By 2005, Expedia’s gross bookings were over $15B, Priceline’s were $2.2B. Internet distribution was booming. Also in 2005, the number of computers per capita in the US was 2.04. In China, it was 0.24.
A lot of those bookings on Expedia, Priceline, and other sites were paid for by credit card, while in China, at that time, credit cards were very uncommon. Instead, booking at that time in China was done by traditional travel agents, either through offline face-to-face engagements, or phone hotlines. The two leading “phone travel agents” were operated by China Mobile and by China Telecom.
Without widespread PC and internet access, a convenient mechanism for online payment, it was difficult for internet bookings to take off in China. So, while Expedia, Booking.com, Agoda, and others boomed in the West, travel and hotel distribution in China remained largely offline.
The Perfect Storm:
Mobile Payment, 4G, and OTAs
Ctrip, eLong & Qunar were founded in 1999, 1999, and 2005, respectively, aspiring to take travel bookings online and replicate the success that Expedia and Booking.com had in the West, in China. However, with relatively low PC, Internet, and credit card penetration, things continued to chug along in China as they were.
That is, until 2014 when two things simultaneously took off into the stratosphere.
The first was mobile internet with the launch of 4G at the end of 2013:
According to Forbes, China Mobile launched 4G at the end of 2013, resulting in over 90 million users by the end of 2014.
SOURCES: FORBES & VERIZON
The second was online payment:
With the population, all of a sudden, having personal access to the Internet via smartphones and 4G connectivity, in tandem with online payment solutions, all forms of online commerce took off – including OTAs.
At this point in 2015, OTAs started to dominate consumer traffic and the OTAs’ market share on hotel distribution in China grew very, very quickly. By seizing the opportunity to acquire Qunar and take a majority stake in eLong in 2005, Ctrip became the undisputed number one OTA in China.
Platforms & Super-Apps
The rise of the China internet ecosystem also produced many new types of platforms. Unlike, say, an OTA where they focus on one vertical, in this case, travel platforms in China cover many business verticals at the same time. The biggest Chinese platforms are Alibaba, Meituan, WeChat.
These are also known as “super-apps”. People can run a significant part of their daily lives on these apps. From shopping, restaurant reviews, ordering food delivery, buying movie tickets, hailing a taxi, paying utility bills, to social and instant messaging – all in one app.
It is difficult to overstate how much traffic super-apps have. And all of them want to monetize their traffic. The travel industry looks to be a great idea for this. Alibaba launched Alitrip in 2015 (now Fliggy); Meituan launched its own travel business in 2017.
While Meituan adopted a traditional OTA model, Alibaba and WeChat operate differently. OTAs view the guest as the OTA’s customer. On Fliggy, hotels can open their own online shop. On WeChat, hotels can run their own bespoke booking engine. In both cases, the platform provides traffic and/or traffic generation tools. The guests are the hotel’s direct guests.
Because China skipped the PC and browser age, hotels in China never really had a Brand.com. Since around 2018, hotels have seen their Fliggy online shop and WeChat booking engine as their Brand.com. In this way, they finally have their own direct, online distribution channel.
Hotel Distribution in China Today
Empowered with an online channel they can call their own, hotels rapidly look for ways to capitalize. They do not want to overly rely on 3rd party channels.
When they look at the top global hotel chains, they see the massive value of their membership program and direct customers booking through their Brand.com.
Chinese hotels, in particular, chains, have become obsessed with the concept of converting public traffic to private traffic and growing their membership database.
For Alibaba, this fits nicely with their positioning. They never wanted Fliggy to be an OTA. Instead, true to their mission statement, “to make it easy to do business anywhere,” their vision for Fliggy is to empower hotels to do direct business with their customers.
What Alibaba and Fliggy have in abundance are traffic and members. With over 800 million consumer members, Alibaba has the largest membership program in China. A few years ago, they started offering “membership sharing and alliance” with hotels. This typically involves 3 parts:
1) Sign-up new members: Guests booking a hotel via Fliggy can opt-in to join the hotel’s membership program. If they choose to do so, they seamlessly become the hotel’s member and do not have to fill in any additional forms since Fliggy already has the guest’s profile.
2) Status recognition: The guest’s Fliggy membership levels are mapped with the hotel’s membership levels. Guests may be able to immediately attain certain membership statuses at the hotel based on their Fliggy membership status. This has proven to be very successful, and many global chains operating in China have already integrated their membership program with Fliggy’s.
WeChat, on the other hand, is rooted as a communication and social platform, rather than an eCommerce platform. That means people’s social circles are on WeChat. Hotels brilliantly leverage this aspect. They deploy tools and programs where an individual shares a product on their WeChat social network, called “WeChat Moments” and another person purchases through that link, then the first person gets a commission.
Some hotels began to incorporate this into their staff’s performance goals, encouraging all of their staff to engage with customers and their own social circles to grow sales, adopting an “everyone sells” approach. Of course, anyone who makes a purchase will be incentivized to opt-in and become a member.
New Media and the Future
Since then, the race to convert public traffic into private traffic, direct business, and then members have only continued. OTAs, even the likes of Ctrip, have curiously offered an online shop model for hotels. Yet hotels still want more reach, so they look to New Media.
In China, New Media generally refers to digital platforms that are mobile-focused, content-driven, interactive, and have social elements. The most well-known one is TikTok. Other ones include Kuaishou, Little Red Book, Bilibili, Pinduoduo, Koubei… the list goes on.
These New Media platforms attract massive traffic from a wide spectrum of the population. They also offer hotels different ways to promote their brand, their product, engage with consumers, drive customer and membership acquisition, referrals, and so on.
Leading hotels and destinations are already utilizing these channels to great effect. Shanghai Disney Resort recently opened its channel on TikTok. Huazhu Hotels Group, one of China’s largest hotel companies with 6,000+ hotels, has an online shop on Pinduoduo selling discount room vouchers. To redeem, the consumer will need to use Huazhu’s own mobile app and sign up as a member – a brilliantly straightforward way to acquire new members via an unconventional New Media channel.
As this digital evolution continues, the line between sales, marketing, and distribution gets blurry. Technology today also plays a more and more prominent role in hotel distribution in China. Some hotels have already made organizational changes accordingly to emphasize the importance of technology in sales & marketing. For example, both Accor China and Wanda Hotels’ heads of sales & marketing also directly lead an IT team.
As their membership database grows rapidly, hotel chains now want to monetize them. Many of them now focus on deep, fine-grain guest profiling to drive specific sales & marketing campaigns and deliver the right product and message to the right customer – to drive the so-called “AARRR” (Acquisition, Activation, Retention, Referral & Revenue) funnel and cycle.
Content, traditionally just photos, now includes short videos, travel diaries, posters, vouchers, even live streaming. One of the challenges is that hotels now have to produce many more types of content, yet this content has a much shorter lifespan. Hotels need to evaluate the ROI of various content types and channels, as well as the management of that content once produced.
Payment, specifically B2B payment, continues to be an area where companies can make it work, but all would like to see a more elegant solution. VCC costs too much and is too manual. Deposit and/or periodic wire settlement means someone is taking some level of credit risk and has cash tied up. Alipay and WeChat Pay, pretty much the standard in the C2B payment space, are only scratching the surface of B2B payment. Reconciliation is also a task most companies would like to minimize.
Traditional OTAs’ advantage is that they have a high degree of expertise in the travel sector.
Consumers, typically in the higher-end segment, who value high-quality services, continue to prefer to use traditional OTAs. However, the upcoming generation of high-end consumers grew up with New Media channels.
How do traditional OTAs both maintain their edge as well as to adapt to the changing preference of their new customers?
For New Media, they are exceptional at attracting a gazillion amount of user traffic. Their challenge is how to produce the best ROI with this traffic. When they go into the travel sector, their challenge is to find a business and operational model that works for them and the hotel. Will they provide service directly to the consumer and operate more like an OTA? Do they only provide traffic and operate more like a search engine? Or will it be somewhere in between?
One thing we haven’t seen yet is a much-hyped metaverse company entering the travel sector… yet.