Re-booking sites, friend or foe?
At first glance, you may say it depends on which side of the fence you sit on – hotelier or customer, but does it really? Do sites such as DreamCheaper.com really offer the best value for either?
Let’s look at the facts from a hotel’s perspective:
A clever hotel is revenue managing and by that I mean, ‘selling the right rate, to the right person, at the right time, for the right duration, on the right distribution channel and for the right cost of sale’. This in real terms means that a hotel strives to offer their guest the very best rate possible at all times. Gone are the days of static pricing and hooray for the days of dynamic pricing!
Due to terms in the contracts that we signed with OTA’s, we promised rate parity and this promise ensured that we offered the same rate on every distribution channel. Now of course we should always have the very best rates on our own website but as an industry we have committed to ‘playing fair’ on the OTA’s (shame they don’t do the same for us!)
What we all know, is that this Best Available Rate is actually the very best rate that we can offer at the time and if we break that down (and I use the UK as an example)
A room sold at £100.00 looses:
£ 20.00 in VAT
£ 18.00 in commission (for an 18% OTA)
£ 14.00 for breakfast allocation (as an example)
£ 38.00 cost of sale (industry average for a 4 star non-branded hotel)
Leaving a pitiful £10.00 per room profit – and this is often best case scenario!
So cost and profitability is an issue that we all struggle with every day and every single penny counts. After all that profitability is what we have to invest back in our properties and to keep our hotel operational in quiet seasons.
Then if we look at the OTA’s we know that an average of 40% of all bookings made through an OTA cancel and that is a huge consideration for a Revenue Manager. This ‘risk of cancellation’ should and must be built into forecasts and rates adjusted and aligned with this potential drop in bookings.
So not only do we have OTA’s such as Booking.com screaming at our customers that they have ‘Free Cancellation’ – even though in real terms they have to adher to the hotel’s own cancellation policies, but we now have websites such as DreamCheaper, actively telling our customers that they will cancel and re-book the same hotel if they find a better rate. But who wins here?
The hotel certainly doesn’t as they lose a booking at what was already a rate with very little profitability, to a lower rate with even less profitability. And don’t forget that the only reason a hotel should lower the rate is because they are predicting a drop in demand.
So what does the OTA get out of this, well lower commission for a start as the rate they derive their commission from has dropped. So why do they do it? Customer loyalty? Increasing market share? Maybe… but the jury is out on that. Do customers feel that this is ethical? That they are actually getting a better rate? Is it a rate at a lower room category? Does it have less inclusions ie room only now and breakfast is removed? There are many cases of customers arriving at hotels to be told that they have to pay extra for this and extra for that.
What these sites actually get in monetary terms is 20% of the amount that the customer has saved. So if we look at the scenario that a customer booked a room at £100.00, that OTA potentially made £18.00 commission. Now the hotel drops it’s rate to £80.00, saving the customer £20.00. What the OTA gains on top is now 20% of £20.00 (ie the saving), so another £4.00, leaving the customer to pay £84.00 not £80.00.
There are also the third party aggregators who openly advise customers if hotels in a similar area and of a similar grade are selling cheaper than the hotel they have just booked. Is this fair practice? Definitely not.
I have written often about how I feel the relationship between hoteliers and OTA’s could be improved. Look at even the words we use to describe them – ‘aggregators’, ‘disrupters’ – not language you would normally associate with a healthy relationship…
So what would make us all play fair? Hotels would give more availability and better rates if OTA’s simply reduced their commission to a fair amount. Perhaps even reduced commission for repeat bookings.
As an industry we gave too much control over to the OTA’s at the start of the recession. Isn’t it time we took even a little of this control back? We all know that a reported 80% of all travel sites are owned by Priceline or Expedia but perhaps as an industry we should have a concerted effort to move away from these discount sites that allow cancellation and re-booking. We don’t have to be there do we? Wouldn’t our hard end cash be better spent marketing our own property online rather than sleeping with the enemy? The call is yours…
(and for all things revenue, just email@example.com)