Monday, 13 August 2018

The most opaque market within the travel industry: hotel rooms

There is a reason why would be the one of the most valuable Dutch companies if it were still Dutch. It has a huge market share in the worldwide hotel booking market. And it's also the champion of obfuscation: hiding the truth, in this the truth that, these days, hardly ever offers the lowest hotel rates. A combination of the two gives it an impressive profit margin.

What are its strengths? To name a few:

  • It is omnipresent in Google. Its organic and paid search results are always in the highest regions.
  • It focuses on hotel rooms. No cross selling here to rental cars or airline tickets.
  • It creates urgency by emphasising limited supply of a specific hotel, of rooms in general, of low prices, of competing bookers (18 persons booked this hotel in the past hour).
  • It crowdsources reviews based on actual bookings (which adds to their reliability).
  • It has elaborate information on rooms, surroundings etcetera, including a selection of photos.
  • It partners with airlines and other travel industry companions where it whitelabels or cobrands its search results to mimic an 'airline specific' hotel search.
By a combination of these, a user visiting this website might get convinced that they don't have to look further, or even can't look further, because of 'fear of missing out'. They book the room, and gets a whopping 15% or so of the total booking value. That's platform economics at their best, sucking out basically all oxygen for any competition. Is it that bad?

No, not for a travel hacker of course. If you are willing to accept the fact that you will never find the lowest hotel rate, just optimised ones, here are a few tips to lower your spend on hotels:
  • Use comparison websites, but be careful. I use Trivago all the time, but be aware that this copies all the tricks Booking uses as well. You'll have to change settings and filters to really let it work for you.
  • Never use the default ranking for booking websites. That ranking is optimised for the site's profit, not your benefit.
  • Be aware that everyone in the hotel industry benefits from high review scores, except the customer. So avoid everything below an 8, and try to get hotels with a review score of 8,5 or even 9 or higher.
  • If there is a few hotels that you would prefer to stay in, widen your search. If it's chain hotels, check the chain's own booking site. This often has lower rates, especially when you're a member (becoming a member is always free, except of course that you get spammed via e-mail if you don't check/uncheck the right tick boxes).
  • Don't forget blind or opaque supply of hotel rooms. Hotels want to optimise their yield so they dump cheap rooms via tour operators and operators such as Secret Escapes, channels that are not supposed to be visited by business travelers - partly because they're always nonrefundable.
  • Most of the 'best price' guarantees are loaded with requirements, such as identical reservation conditions and 'public availability of the rate'. In other words, once you have to leave your mail address to get a specific rate, it no longer counts for a 'best price' guarantee claim.
As always, there would be a huge benefit in having a premium search engine - one you pay for - listing hotel rooms on merits rather than on kickback, but markets do not work like this. In my next blog post, I will shed some more light on yield optimisation relative to time, and how this works out for airfares and for hotel rates.

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