Discrimination of customers is as old as the road to Rome. Through loyalty cards, bonus schemes, miles programmes and market segmentation we have grown up with the fact that we are not always equally treated as customers.
We completely understand that some people stand in line to board and some people pass the line to be personally greeted by the flight attendants. We have no problem with price discrimination in a supermarket based on participation in the local points scheme or airport lounges only being accessible for gold level and up. However lately in the hotel industry it seems to have shifted from who you are to how you have booked.
These are just a few of the examples out there of benefits offered to guests that chose the direct website to book.
- A cookie if you book direct
- A better room for a brand.com booking
- Free WiFi if you book through the website
- Executive lounge access for loyalty members, if booked direct
Is this a logical next step after rewarding frequent business? Are hotel staff capable of explaining this to guests? Where is the dividing line? Is there something to be learned from other industries or, even closer to home, our friends in the airlines?
Hotels seem to be increasing their efforts and creativity to try to shift business back to their own channel by discriminating between guests on the choice of channel. There are a lot of reasons to do this, but also compelling reasons not to. To understand the motives you need to look through the lens of the different stakeholders and players in this field.
Independent hotels
In the past the phone rang, the sales man was productive and the biggest invoice that came in was from the liquor supplier. The current status is that a complete shift to online has taken place. Players like Booking.com and Expedia have taken over, especially in bigger cities. The hotel offers a bad website experience, with a separate and difficult booking process and no recognition for the customer during booking. At the end of the month the general manager receives an invoice from OTAs in the tens of thousands of euros that completely ignores the fact that the merchant model does not show commission, because it withholds revenue from the hotel by charging a higher amount to the guest.
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Hotels are choosing who gets the prizes based on how the traveller books. ©bakhtair_zen/iStock
The GM is very good in hotel operations but uneducated in digital marketing. He or she has no other way to shift the channels than to go to the website administration team and ask them to put out an offer to the people that book direct. Indirectly this will hurt him in the long run, because he is just redirecting traffic from the OTA to his website, which will be penalised by an automatic decrease in ranking.
This is the big rate parity discussion.
Branded hotels
Big brands are increasingly under pressure as they seem to be less and less able to do their job and prove it to the owners and asset managers. Their task is to deliver on brand, take care of distribution (technology), experience and, in the case of a management agreement, management.
The experience and value for money component has depreciated a lot already. If you look in any city it is hard to find a branded hotel in the top of TripAdvisor. Lately, customers seem to have caught up with this as well and have seen that you can get better value for money, even if you are part of a loyalty scheme. What is more important, points or experience?
Booking.com and Expedia have opened up the eyes of the guest and made them realise you can count on their inventory, value for money, review system and customer service and you don't have to choose a brand for that. It's difficult to explain to an owner why a double-digit commission into the owner's P&L has been entered because of the agent commission model and why they are losing ground in the percentage of 'system bookings' versus third party bookings.
Therefore the top chains are hanging on for dear life to their loyalty programme, as a further shift of this dial will lead to owners realising they don't need distribution or experience from a big brand at all.
Corporate travel buyers
Buyers are unfortunately a victim of this discrimination taking place. The fact their travellers are discriminated against starts with the definition of what is a direct booking or non-direct booking.
No matter what you think of the discrimination of guests booking through 'the expensive OTA channel', in my eyes it is complete nonsense to even consider not passing on the goodies that you are providing to the direct channel to the corporate guest that book its negotiated (hopefully off BAR) rate through the GDS.
Companies should demand that their travellers automatically get the best possible deal with benefits. Companies should also pressurise the booking ecosystem (if booked through a third party website) at the same time to not charge commission to hotels for handling their bookings. They are, in the end, the booking originator and not the marketing efforts of the OTA.
Owners of hotels
Owners should demand from a brand, or arrange for themselves, state-of-the-art distribution, good management and a service that ensures their guests will be taken care of. If they have gone to a big hotel brand for this they need to consider who plays what role in the ecosystem between investment in the real estate and service delivery to the guest.
In my view, global ecosystems that are already offering the full package like Priceline and Google, or in other verticals like Amazon/Alibaba, will become the sole distribution system to get heads in the beds. They will be used by companies and individuals to do all business with hotels. Only brands and management companies that provide a real experience to guests will survive, so it will be a matter of adapting or extinction for a few companies.
I always like things to be actionable, so is this purely a waiting game or will it happen by doing things now?
- I believe an individual guest should not accept today that they have been discriminated against because of how they booked (that includes the passthrough of GDS fees by airlines unless it is discounted in the fare).
- A company should demand the best possible proposition from the hotel.
- But the real action is with the hotel (owner). They need to get into a position where the cost of acquisition makes sense again and is reflecting the efforts that have been put into guest acquisition. The owner needs to be clear about what the cost of customer acquisition is. It is not just the bill of the OTA. It is also the invisible part (the merchant model impact), the centralised sales and marketing fees of a brand, loyalty customer fee, brand.com reservation fee, advertising costs, sales people, website fixed costs and even construction-related changes that have been made to a building to accommodate a loyalty club member, such as an executive club lounge. For the longest time the topic was not visible because most OTA commission was hidden in the merchant model. That was until the rise of Booking.com and all of sudden brands had to put that into the owner's P&L.
For this to make sense again for the owner, we need hotel performance benchmarking to not only focus on RevPar. There should be more clarification on the costs between top line revenue and net operating income, or rather focus on return on investment per square foot or metre. In a presentation I attended some time ago, an analyst from a big bank showed that Expedia and Booking.com had a higher EBIT (earnings before interest and taxes) per room than two top brands. If that is the case, why would the owners of these hotels still accept that guests booking through those channels are discriminated?
It is time that owners stepped up and demand that this wild west of marketing incompetency ends. It's time hotels do what they should be good at again; providing a memorable experience to their guests while maximising the return on the investment. And negotiate directly with the real, global kings of distribution to be able to act channel-indifferent towards every guest.