Our opinion on... who is really suppressing hotel room rates? A common concern among hotel companies is that OTAs are causing hotel rates to stagnate, or decline. Through a combination of principle (transparency) and policies (limitations and rules as to what rates hotels can list, etc.) it might appear that OTAs are forcing hotels to sell rooms at lower rates than is necessary. Opaque sites add to this dy‐ namic. On first blush it certainly looks as though OTAs are the guilty party. But, are they really? Or is, as they say, there more to the story than meets the eye? A recent, simplistic exercise we undertook suggests that hotels and hotel brands make it difficult for market forces to drive rates up. According to the basic principles of marketing, there are four “Ps” – product, promotion, place (which for hotels really refers to distribution – where customers can buy the product) and price. But somehow, in the rush to build the most boutiquey boutique, most luxurious luxury, most convenient convenient and most no‐frills no‐frills, these principles seem to have been forgotten. Specifically, “price” as a component of the marketing mix has wandered off like a lost sheep, gently meander‐ ing at will with no specific purpose in mind, and un‐ aware of the harm it’s causing to the flock left behind (okay, lousy metaphor, but you probably get the point). Hotel guests are and would‐be guests are constantly being exposed to pricing absurdities that confirm over and over again that there is no intrinsic value to a hotel stay – prices are random, unrelated and mean nothing. Therefore, price shopping is the only logical way of choosing ho‐ tels. On a recent trip to Mexico, staying in a hotel with an occupancy of around 10%, we asked to stay an extra two nights. The Expedia rate for the extra nights was approximately $320/night. The hotel quoted $450 per night. When we pointed out that we could save $200/night by walk‐ ing across the lobby to the business centre computer and booking through Expedia they said (and I am not making this up) that they would
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not be able to match the Expedia price so we should book online. Which we did. We suspected (hoped) that his kind of silliness was the result of the eco‐ nomic trauma that Mexico was suffering, and that hotels in less volatile markets would be more rational. So, we checked rates in three hotels in Toronto (two of the properties were part of major brands and one was part of a small Canadian brand) at the same time for the same dates (two of the properties were part of major brands and one was part of a small Canadian brand). Here’s what we found:
Hotel A
Hotels.ca Expedia PriceLine
Hotel B
Hotel Site (Best available Rate) Hotel Reservation Negotiated down to* Hotels.ca Expedia PriceLine Hotel Site (Best available Rate)
Hotel C
Hotel Reservation If booked separately* Hotels.ca Expedia PriceLine Hotel Site (Best available Rate) Hotel Reservation If booked separately* Negotiated down to***
Wednes day
Thursday
Friday
Saturday
130
121
104
104
130
121
104
104
129
129
129
129
149
149
149
149
159
159
159
159
139
139
139
139
128
128
144
144
128
128
144
144
n/a
n/a
n/a
n/a
152
152
152
152
153
153
153
153
135
135
135
135
195
195
181
181
195
195
181
181
214
214
214
214
249
249
249
249
199
199
199
199
159
159
151
151
159
159
159
159
*Negotiated down to: we asked the reservation associate if that was the best rate and were given the lower rate **We asked how much it would cost just to stay on the Wednesday and Thursday or on the Friday and Saturday ***We pointed out the weirdness to the reservations associate and, after eight minutes of conferring with her manager, she offered us the $159 rate, commenting that there must have been a computer error.
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What’s wrong with this picture? Mostly, the picture is one of unorganized market chaos. None of the three properties shows any sign of strategy or thought, with the possible exception of Hotel A, but that totally falls apart when we learn the rates are, in fact, negotiable (it might appear to the naive eye that they are try‐ ing to undercut the Brand Web‐ site). In all cases the pricing conspires to keep customers away from Brand sites. In two cases guests are penalized by as much as 20% for booking 4 nights at once rather than in blocks of two nights (if it were only one case, this could be seen as an anomaly, but as it is in two cases it is clearly either carelessness, conspiracy or larceny). And so on. To be honest, we were surprised that the Hotels.ca and Expedia prices were the same in all cases – a consistency that is not necessarily evident across the board. Other than that, what we are witnessing is pure carelessness – somebody isn’t thinking this stuff through and as a result money is being left on the table, rates are being suppressed not by falling demand, but by careless manage‐ ment – guests are getting great deals, but rather than feeling re‐ warded, they walk away from the booking exercise feeling vaguely slimed. It seems that hotels have become so focused on the technical as‐ pects of pricing, that the human aspect has Laurence Bernstein is the gone away. When people shop for hotels it is founder and managing the same as any other shopping experience, partner of Protean Strateand the way to turn shoppers into buyers is by gies/The Bay Charles wooing them. Hotel marketers should think of Consulting Group Limited. all the booking channels as shops (travel agen‐ He has been a leading cies on the high street, perhaps), and try to proponent of the “new envision how people would like to be treated order of differentiation” in these shops. Bear in mind that not only will and has written and lecthis impact whether or not the customer buys tured on the subject of your room, but also how the customer feels experiential branding and intrinsic/extrinsic about the entire experience: booking the hotel research methodologies in Canada, the US and is as much part of the brand experience as China. sleeping in the superior bed or using the auto‐ mated check‐out machine. Laurence has held senior positions in major global agencies Saatchi and Saatchi, TBWA, Young and Rubicam. In addition he has worked
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on the client side with Westin Hotels and was the EVP of the Canadian Restaurant Association. Laurence attended the University of the Witwatersrand in Johannesburg and Cornell University in Ithaca , New York
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