Don't be fooled by Booking.com's 'Risk Free Cancellations'

Don't be fooled by Booking.com's 'Risk Free Cancellations'

This week I read an interesting article in Mirai (and I am in no way taking the credit for some of the content in this blog) but they wrote an interesting piece about Booking.com's new 'hook' for hotels and I wanted to share and add my own perspective.As we all know, Booking.com has become a necessary evil, but as you also know and as with any other OTA, we need to manage rates, availability and packages on these channels very carefully.  Booking.com has often tried to entice us as an industry into Genius Programmes and discounted pricing, but 'Risk Free Cancellations' is their newest attempt to gain yet more control.  And let's be honest, if something sounds too good to be true, it often is...So what are 'Risk Free Cancellations?' A direct quote from Booking.com -Risk Free Reservations is a new programme whose objective is to help you make more money.How does it work?Booking.com clients will see non-refundable bookings as bookings with free cancellation. If the client ends up cancelling, we will find you another client for the same dates. If we don’t find anyone, your room will not be occupied but we will pay for the booking.How does it benefit you?Our clients are not always certain about their plans and they love having the flexibility that free cancellations give them. If you participate in this programme, you will receive more bookings but you will not incur any risks with cancellations because, if the booking is cancelled, we will find another client for you and if we don’t, we will pay it for you. No matter what happens, you will receive payment from your booking.Which is the downside?Receiving payment is guaranteed, but it may arrive slightly later than usual because the client may cancel the booking up to 24 hours before check-in. If we can’t find another client, we will deduct the cost of the booking from your monthly invoice.If you have any questions or wish to unsubscribe from the programme, please contact your account manager.Yours sincerely,The Risk Free Reservations TeamThe first thing to note is that this is a new initiative being rolled out by Booking.com and as soon as you are notified about it, you will automatically be opted-in.  You need to speak to your Account Manager to opt-out and I guess they are hoping for apathy from our side and most hotels not even bothering to query the conditions.  But lets look at those in more detail.A drop in rate - Many hotels still (unfortunately) allow Booking.com a Pre-Paid Non-Refundable Rate and a Flexible BAR Rate.  If this is you, then the Flexible Bar Rate will be come redundant.  You will literally stop receiving bookings on that rate level and will only receive reservations at the cheaper Non-Refundable Rate which Booking.com has now turned into a Flexible Rate.The decrease in Average Rate can be easily calculated and I urge you to look at your own numbers:For example, if 20% of your real bookings from Booking.com are flexible and are 15% cheaper, the price will decrease by 3% (20% x 15%).Better conditions than any other OTA, including your own brand site - If you had rate parity on both non-refundable and flexible rates your visibility would look like:Booking.com - £80.00 non-refundable / £100.00 flexibleBrand Site - £80.00 non-refundable / £100.00 flexibleWith this new initiative, Booking.com will show:Booking.com - £80.00 flexibleBrand Site - £80.00 non-refundable / £100.00 flexibleSo why on earth would a customer book on your brand site?  There is absolutely no incentive at all.Your cancellations will increase - This is an absolute nightmare for Revenue Managers who already expect over 40% of all Booking.com's reservations to cancel. Booking.com may be saying that all cancellations are 'guaranteed' but now that non-refundable rates are disappearing, your cancellation rate will increase drastically.What exactly does finding a client of equal value mean? - There is no clear guidance on this and lets think through the scenarios and what that might mean:

• Of the same room type or would a room of inferior value count?
• Of the same occupancy or would a lower one count?
• With the same meal plan or would a lower one count?
• Could a booking with a Genius discount replace a guaranteed cancellation without discount?
• If you’ve lowered your prices, does a new client with a lower price count as a replacement?

Control over availability - In my mind this is the most dangerous and concerning issue. Ask yourself, what happens to guaranteed cancellations if at hotel level you are already full?Will Booking.com ignore the cancellation restriction because its commitment to find another client prevails over everything else? This would not only give them an advantage, it would give them exclusivity. The Booking.com conversion would shoot up since they would be the only ones offering your hotel. Does finding a client this way actually benefit your hotel?Will Booking.com respect the closed dates, thus freeing itself from the commitment of finding another client? If so, it’s a terrible deal for the hotel. It will have given Booking.com an advantage; it would have generated a booking… that was cancelled; it wouldn’t have received a replacement booking and it would not have been paid by Booking.com.There may be a few hotels out there that see this programme as an advantage.  There are some who don't care about cancellations; control; parity; book direct strategies or a drop in rate and for those hotels, this may be a great option.But for all others please don't... Stop and think before you agree to anything.  Identify the risk to your own business and please, please don't be taken in by the sugar-coated hype.  As I mention above, if it seems too good to be true, it probably is...Isn't it better that we make more time to manage our own site and our customer experience, rather than give yet more control to an OTA?  The choice is yours...(and for all things revenue, just ask@rightrevenue.wpengine.com)