This article first appeared on Linkedin.
MOST PEOPLE IN MY NETWORK are au fait with the travel industry and its quirks, but I hope this article will reach a wider readership so I am going to write it for everybody.
First of all, are you aware that when you book a hotel via an online booking site the commission paid by the hotel can range from 15%-30%? I was telling a friend about this and he was shocked and became quite upset.
Coercion in The Industry
I am both a hotelier and a travel agent so I get to see both sides. There’s a nasty business practice that many agents use to keep hotels in line called Price Parity. It sounds innocent enough. They ask hotels to give them a price no higher than elsewhere on the internet, including the hotel’s own website.
From the agent’s perspective it is good business practice. He doesn’t want the customer going to the hotel’s own website and finding a better price. The agents scan the internet to make sure the hotel isn’t offering cheaper prices elsewhere. If they find something cheaper the hotel will get a phone call and they will back down immediately for fear of being dropped by the agent.
Most hotels have a love-hate relationship with the agents. On one hand the agents bring copious amounts of sales. On the other hand the fees for those sales are eye-wateringly high and the hotels are explicitly forbidden from competing with the agents on price.
And worst of all, market forces which would normally bring in competitors to undercut the overpriced agencies are neutralized by price parity agreements. Hotels are forced to give these new agents the same prices. Even if these agents want to sell cheaper, they cannot pass this benefit to the consumer in order to gain market share.
The movement against price parity has begun. In the UK the Office of Fair Trading has ruled that lower prices can be offered by websites to private members and France is suing Booking.com for anti-competitive behaviour. The writing is on the wall.
New clubs are springing up offering the ability to book for much lower prices, but even more interesting are websites offering 100% commission-free sales: Hôtels-Privés is a French website which plans to finance its activities with extras. Fairbooking is another French initiative which was founded by members of the hotel industry which has attracted quite a number of French hotels.
Despite the low amount of hotel guests using Fairbooking, thousands of hotels have signed up, demonstrating they are actively seeking cheaper reservations and will try anything.
Difficulties remain for these websites. If hotels pay no membership fees then how can these sites fund themselves? Without significant revenues how can they afford to advertise? Will they prefer the hotels owned by people managing the site over other members? How will the sort order be decided?
To date these sites have little momentum because they have not figured out how to attract the public’s attention. I believe it’s possible to do this without an enormous marketing budget. More on that in a future article. When that day comes the big boys had better watch out.
Please do join in and engage a discussion about this article. You can join the conversation here on Linkedin
Thank you for taking the time to read my thoughts. This is an important topic for both hoteliers and anyone who stays in hotels. Please share this if you can to make more people aware of the practices and prices of the online booking websites.
Michael Donelly is a tech enthusiast and entrepreneur. More to come soon. Please follow me on Linkedin to be notified of future posts.