The Value of Third Party Platforms in Customer Acquisition: An Empirical Investigation into the Hospitality Industry

Third party platforms play an important role in customer acquisition. Online travel agents (OTAs) such as Expedia and Kayak account for over 20% of business in the hotel industry. This creates a unique challenge for hotel brands. On one hand, hotels have traditionally worked with OTAs to get access to prospects, and can use the OTA platform to build brand visibility and room distribution. On the other hand, OTA commissions are high and they drive a hard bargain over control of room rates and inventory. Additionally, OTAs may also be cannibalizing the more profitable brand-owned channels. This presents a major dilemma for hotels. Are third party platforms as an acquisition vehicle worth it? What is the impact of third party (vs. brand-owned) acquisition channels on future customer behavior? In this research, we attempt to provide answers to the above. We empirically assess the impact of third party acquisition channels on customer behavior and apply our modeling framework (interpurchase time and revenue models) to customer-level data from a multi-brand hotel chain. Initial evidence suggests that although OTAs bring in a large number of customers, the lifetime value from these customers is suspect. We find that OTA acquired customers bring in lesser revenue, but purchase more frequently. Further, the effects are heterogeneous across brand positioning. The results are explained through the mechanism of channel stickiness - OTA acquired customers exhibit state dependence toward OTA channels. Our findings have implications for customer valuation and channel management in the presence of third party platforms.