Want the lowest hotel rate? Don’t book direct

Major hotels have been waging a war against Online Travel Agents for years whereby hotels couldn’t publish lower rates than what is listed on the OTAs own platform.

This is why room prices on OTAs and hotel sites have been similar for many years. In most cases you would do better to book directly through the hotel as there would be loyalty points, elite status and often better rooms available that otherwise you wouldn’t be able to access if booked through an OTA.

Over the past year the hotel industry has been fighting back to have these agreements with OTAs overturned and even outlawed. France, Germany, Netherlands and a number of other countries have banned the practice and both hotels and OTAs are free to set their own market rates.

What does this mean for hotels?

History shows the hotel industry has a poor reputation on combatting the growth of OTA bookings, so why would the hotel-driven anti-rate parity movement be any different?

How hotels have fought against rate parity over the years:

- RoomKey launched in 2013 as joint venture between Marriott, Choice Hotels, Hilton, Hyatt, IHG and Wydham Hotels and never took off. With a lackluster design, no USP, and most of the traffic coming from pop-unders … the result is hardly surprising it came crashing down in a heap.

  • In 2015 Accor transformed their own website into a sudo-OTA in an effort to bring more direct traffic and sell non-accor hotel inventory. Essentially an attempt to create their own RoomKey, with Accor properties at the top of results, of course.
  • If a guest books through a ‘non approved channel’ (aka: through an OTA), and is an elite status member with the chain; the guest will not receive any benefit they otherwise would have received by booking direct (See: How to alienate high value guests)
  • Almost every major chain offers free wifi, but only when you book direct (and become a loyalty program member), instantly turning off every guest who books through an OTA.

Hilton and Marriott are now the latest chains to offer up to 25% discount for already loyal members to make reservations directly instead of via OTAs. Ignoring the revenue losses this creates by giving discounts to millions of already loyal customers (thus lowering RevPAR and margins from high value guests), this attempt to ‘switch’ customers from OTA’s to direct booking channels is causing OTAs to fight back.

Expedia now penalises hotels which advertise such deals. This means hotels will see a drop in Expedia exposure and ultimately loss of bookings which could easily have deeper negative impact than any perceived gains by the increased direct bookings.

Let me explain — when direct bookings are discounted, the hotel owner pays for the discount (which directly negatively impacts key hotel metrics like RevPAR). In addition to this hit, there’s the extra cost for providing free wifi (most hotels are not set-up for 100% of occupants to be on wifi at any one time); thus deteriorating the experience for everyone and rendering the benefit useless. Also taking a hit is the cost for the hotel to provide loyalty program points for every guest where they otherwise wouldn’t have incurred this cost. High value elite guests who were already loyalty members are cashing in on the discount too, and thus any perceived increase in guest loyalty is being instantly eroded by the double digit discounts offered at a chain level.

All of these factors combined — it can make sense to be obtaining a customer through an OTA channel and the nominal commission rates.

With price parity and member discounts in mind, how can OTAs offer better rates?

Three major factors are in play when it comes to the best rate.

  1. David Feldman mentions in a recent publication Hilton tacks on a 1.5% credit card surcharge for Australian reservations whereas Online Travel Agents do not. Effectively meaning that if an OTA and Hilton.com have the same price point — the OTA will be 1.5% less as no surcharge will be applicable so long as you don’t pay at the hotel.
  2. Utilise last minute booking apps like Hotel Tonight or HotelQuickly. Often, hotels can be desperate to take in any revenue from a room and will drop the rates for last minute reservations.
  3. Leverage both hotel and OTA Best Rate Guarantees (known as BRG).

Here’s how BRGs work: The fundamental principles is if you find a lower price on a competition site — the hotel (or OTA) will match the lower rate and give you something extra for the effort to secure your business.

While BRGs were first introduced as a marketing perception tool, they have evolved into their own micro businesses. Each time you as a guest submit a best rate guarantee to a hotel — keep in mind the hotel already has market intelligence tools at hand to know what rates are. You’re submitting the claim at a chain level (not to the specific hotel) — and with rate parity still in effect; your potential claim acts as a flag to the chain that the hotel revenue managers may not be operating in alignment with rate parity agreements they originally agreed with. If the room rate you found on a competing website is lower, the chain will ‘fine’ the hotel a nominal fee (thus a revenue generator for the hotel chain), and force the hotel to honour the lower rate and your extra sweetener credit (in some cases this can equate to a free night like with IHG properties).

With 1000’s of BRG claims daily to hotels — guests are fundamentally acting as a micro workforce for the major hotel chains.

StayAngel, a big data intelligence solution for hotels which closed earlier in 2016 mentioned 8.5% of direct made reservations parsed through their system were available at a lower price through OTAs.

To really get the most out of BRG claims and always secure the lowest hotel rate you need to understand which booking channels offer the most attractive guarantees as they’re not created equally.

You ideally want to find the top sites with BRG which will always include the hotel directly, Expedia and Orbitz. Armed with pricing from these channels — you can calculate your own view of which has the lowest most effective pricing.

Here’s an example:

Effectively we look at what the price would be after a successful Best Rate Guarantee match with a competing site. In this case, the direct Hilton booking appears to be the cheapest (made slightly cheaper with member only rates), but when booked through Expedia under a BRG claim — you get the same room plus $50 off your next booking. Thus making Expedia the cheapest option — despite appearing to cost more at first glance.

What does all this mean?

Between hotel brands taking down rate parity one country at a time aggressive discounting of their own rates by up to 25%; making hotel owners foot the bill for discounts; these extra ‘direct’ bookings need to come with free wifi + points (again: funded by the hotel) — this arrangement turns hotel owners against the brand AND turns OTAs into a cheaper booking channel when factoring in OTA commissions.

This is a revenue disaster in the making for hotel chains, especially given OTAs are more equipped and better positioned to develop new products to take larger slices of revenue away from the hotels — especially when they crack the loyalty program code .

Expedia CEO, Dara Khosrowshahi famously suggested hotels should focus on creating great hotel experiences and leave the marketing to OTAs.

Perhaps he is right.