Should you discount your rates in a downturn?

By making obvious cutbacks you will only damage your reputation with the people who matter most
Customers' expectation of price may change in a downturn, but their expectations of service levels don't drop. Lowering rates may be one response to weakening occupancy but the lower income generated may result in lower service levels which in the longer term can damage your brand - according to a recent article on Caterer Search on the pros and cons of lowering rates: "by making obvious cutbacks you will only damage your reputation with the people who matter most".

While many strongly advocate reducing rates, there are other avenues to explore.

It's all about value, not price
In discussions with our hotels, Bookassist has advocated the necessity to look at the mix in what you have on offer, showing more value, rather than across-the-board discounting of price which can damage not only an individual hotel brand but an entire sector. Hotels should "look at added-value options to hold price, such as including breakfast free of charge, and focus on increasing the overall revenue they get from clients during their stay", according to Caterer Search. Bookassist's advanced add-ons facility, allowing for upsell directly at the time of booking, is an invaluable tool for this approach to value rather than just price.

For a perspective from the British Hotelier of the Year conference, see: http://www.caterersearch.com/

Booking buttons from the channels - proof of the power of direct booking

The big name third party accommodation channels have served an important role in the online travel arena. In the years when search engines were only beginning (Google started in late '98) and hotels did not have the knowledge to market themselves properly online, third party channels were the very necessary middle-man between the online booker and the accommodation provider, facilitating indirect booking. Their generally high commission charges were justified by the delivery of business that otherwise was lost to the hotel.

As direct search moved to dominance, as online bookers became more savvy and in particular as hotels embrace online marketing, the need for customers to use third parties is rapidly diminishing and the opportunity for direct booking between customer to hotel is rapidly rising. Not only can this direct booking model providing better value for the online customer, it is also helping hotels strongly reduce their commission charges while allowing them build their own brand allegiance online to capture repeat business.

Bookassist was the first to push this direct booking model for hotels, since its foundation in 1999, constantly highlighting its growth and its importance as the key booking strategy for hotels. An average of 50% of hotel business is now generated online, and the more of this that comes direct, the better for the hotel.

In this changing environment, third party channels are beginning to recognise this shift in consumer habits which will begin to erode their indirect booking income stream. In recent months, two large third party accommodation channel sites have launched booking services of sorts to allow hotels capture bookings directly on their own websites, and others will surely follow. If anything proves the rising dominance of direct bookings on hotel websites versus indirect bookings on third party channels, it is the launch of these services by third parties. Hotels should recognise the reality in this move.

Typically, the third party offering has taken the form of a button or simple form which the hotel can embed on its website. The customer clicks to book and is taken back to the third party channel to complete the booking.

This is bad news for hotels, and here's why.

A booking button, form or link-off service to a third party channel is not a direct booking facility. It merely cannibalises the business that has already arrived directly at the hotel and which should be serviced by the hotel. The facility seriously devalues the service presented to the customer in the hotel's name, leaving the customer with a "passed over" feeling that the hotel would rather not deal with them. Usually, there is no way to continue navigating throughout the hotel website or returning to it with a single click. Customers can be re-directed to third party channel website where offers from other providers are displayed. Hotels will likely find it extremely difficult to request upgrades or new features and the technology will be limited, since this does not represent core business for the third party channel.

A booking button, form or link-off service to a third party channel is not a direct booking strategy. Direct booking is about more than a booking facility, it should be a key strategy to drive an increasing percentage of your online business to the hotel website and as such the booking facility chosen is only a small part of that. What a third party channel cannot and (for obvious reasons) will not do is aid the hotel in building a direct online marketing strategy and in reducing their reliance on high commission third party fees. This is where the long term damage can occur for hotels that do not adopt their own direct booking strategies.

We view this move by third party channels as a strategic move to increase control on the hotels as those hotels become more and more aware of the importance of direct distribution strategies and online marketing, and to placate hotels considering a direct strategy into thinking that their third party channel can provide one.

The fact is that while third parties can and do deliver valuable business to hotels, they are none the less in competition with the hotel website online. Using third party "direct" booking facilities can mean allowing those channels to have full information on the hotel's inventory, pricing strategies and yield strategies, as well as full access to the hotels customer's database. Such information could allow a third party channel to assess everything happening on a hotel website in comparison with a hotel's direct competitors.

Our advice for hotels is that they can still work with third parties on channel distribution, but when it comes to their direct distribution they should partner with a true technology company that understands their challenges and requirements, a company that shares the same goals as the hotels themselves: to build the hotel's own brand, to handle the customer online with the highest level of service and security, to make hotel websites the primary distribution channel with the lowest commission rate possible and the highest margin for the hotel.

Authors
Dr Des O'Mahony is co-founder & Managing Director of Bookassist, Yahya Fetchati is Head of Business and Operations at Bookassist.

What's your commission? The wrong question to focus on.

"What’s your commission rate?" is the wrong question to ask. "What value can you bring to my business?" is the question hoteliers need to be focusing on, in the current climate in particular.

If cost was the only consideration, everyone who travels would stay in hostels. Yet five star hotels do very well, and a whole spectrum of hospitality services is routinely bought into despite cheaper alternatives being available. Why is that? Because people rightly focus on value, not cost. An overall view of what is on offer is the intelligent approach to pricing because, despite possibly paying more, you stand to gain more. This is common sense.

Hoteliers are focused strongly on the bottom line at the best of times and in the current economic climate cost control is more important than ever. But often costs can be viewed too much in isolation by hoteliers or their financial advisors and, when considered out of context, can lead to very poor decisions being taken for the strategic strength of the business. There’s a reason why balance sheets have two sides.

As a company providing a booking engine capability to hotels, Bookassist operates on a commission-only basis. We feel this is the fairest and most equitable way to do business with hotels, since if we cannot generate revenue for the hotel, the hotel doesn’t pay. Thousands of clients agree. We don’t charge any other fees, like installation, monthly or annual fees, or upgrade fees, for the booking service.

Many other companies also operate on a commission-only basis, while others operate on what they may disingenuously refer to as a "no commission" basis, which means fees are payable whether the service delivers or not. In this latter case, the provider has no vested interest in growing your business at all so I won’t discuss that approach here.

For some third party websites and channels, hotels pay high commissions at 15 to 20% or more and indeed some of these channels have actually been increasing their commissions lately. Yet hotels seem happy to pay these hefty fees, typically on lowest rate rooms that they must invariably supply. And in terms of the GDS and travel agency services, hotels have traditionally paid relatively high commissions. Often a hotel is prepared to pay more when times are tight and their occupancy is low and this can be exploited by resellers. Hotels weigh the revenue against the cost of sale here and consider it overall an advantage, despite the tight margin. For some reason however, hotels seem less likely to apply the same basic logic to booking engine services on their own website where they can potentially generate more bookings for a lower cost, especially when they have low occupancy. Perhaps this is because they feel it is their website, their business, and any booking engine will do to capture it since the business "will come anyway". This view is very wide of the mark and shows no long-term strategic thinking. The industry is fast moving towards the direct model and it is advantageous to be embracing it as much as possible now and partnering with the relevant expertise to ensure you stay ahead of the game.



The Value Proposition

With a booking engine on their own website, hotels can capitalise on their own brand online, grow their online presence and direct bookings, enhance return business and project a customer-centric focus and an image of technical competence to their clientele. A good booking engine will do this well, facilitating the customer professionally. A bad booking engine will turn customers off. The simple fact is that not all booking services are created equal, and not all can be compared on commission alone. Commission charge is a red herring when viewed in isolation - the comparison to make is the potential upside on revenue versus cost, not cost alone. This is too often overlooked by those focusing on the cost side of the balance sheet only.

Does the booking engine allow you to showcase your product properly, with photographs, customer reviews, multiple languages, multiple currencies and secure transactions? If it does, this speaks volumes for how your treat your increasingly worldwide base of customers. If it doesn’t, well then it also speaks volumes for how you treat them and you will pay the price. Does it allow you to upsell additional services, offer vouchers, offer instant confirmed reservations via SMS for convenience? Think about these things, because these are likely to increase customer confidence and satisfaction and lead to return custom, therefore lowering your overall cost of sale. These represent the true value proposition inherent in a good booking engine service for the hotel website.

But equally important is the information gathered by the booking process and how it can help you improve your business strategically. Does the booking engine allow you to monitor and analyse how your online business is doing, what is working and what is not, where your customers are coming from? Does it use intelligence to warn you when your availability is low, so that you don’t miss a sale? Does it genuinely inform your online strategy so that you can work with it to grow your on line business to its full potential? Does it allow you to e-market to a confirmed customer base?

From a technology perspective, does it continue to develop, adopting best practice in design and security, relieving you of any concern or worry about being left behind with old technology? Continued development costs money and takes expertise. All of these things are significant advantages that can drive your business more towards direct bookings and therefore lower your overall cost of sale across your business. These are the things that you are paying commission for ultimately, the whole value proposition.

With all these advantages in mind, driving your online strategy is what direct booking engines are about. As a hotel, don’t make the mistake of thinking that any old service on your website will do and compare on commission or price alone. The success of the online strategy and the increasing delivery of low cost-of-sale bookings to your hotel is the true value of the online service provided.

That said, our commission rate is pretty competitive :-)

Dr Des O'Mahony is co-founder and Managing Director of Bookassist

Your online rates and perception of value

Kieran Fives came across this interesting article by Neil Salerno on perceived "value" on the internet, which underlines much of what Bookassist has been advising its clients on for some time now. The idea that you can easily become commoditised in a simple hotel listing based on cost is a real threat to one's brand online, which is why direct sales is such an important channel to be driving.

From the article:
"In a public forum, such as the Internet, your rates will either validate the quality of your hotel or diminish it. Most travelers are looking for the best value, not, necessarily, lowest rates. Value management is the process of positioning perceived benefits to meet or exceed posted rates. Your rates contribute to raising or lowering consumer perception of your property."

See hospitality net