Expert’s Voice: Are you ready to hand over your hotel’s pricing strategy?
Jens Egemalm from Pandox AB explains the “Booking.com Basic” programme and the impacts it might have on hotel businesses in the long run
If you’re in any way involved in your hotel’s online distribution you’ve most likely come across Booking.com Basic by now. Through this programme, Booking.com pulls wholesaler rates to sell publicly on their platform. The programme is neither on an opt-in nor an opt-out basis – participation isn’t negotiable. The concept isn’t new, the likes of Amoma have been bothering hotels for years with this strategy. The difference is that on Booking.com it will have a significant impact on your hotel’s business.
Now, there is an obvious and easy way for hotels to avoid being pushed into the programme – to simply stop distributing static, opaque wholesaler rates. Might be easier said than done though if your hotel is dependent on that fully independent traveler (FIT) business or even tied to a contract, but at least there is a way out.
The bigger concern: Early Payment Benefit
I would actually argue that the Early Payment Benefit (EPB) test that Booking.com is currently running in several major cities in Europe is much more concerning. With this initiative, Booking.com discounts the rates hotels send to them by taking part of their commission margin. In essence, Booking.com is now actively deciding what the price for a room should be. They have determined, that you, as a hotel, are no longer the one to decide how much a guest should pay for one of your rooms.
The critical difference to Booking.com Basic is that there is absolutely nothing you can do to prevent it from happening other than closing the channel completely. Static FIT rates being distributed all over the place were a kind of grey zone in terms of who’s to blame. For the EPB it is quite clear what is happening – Booking.com is undercutting the rate you send them to offer a better deal to the guest.
Now once you raise this topic with Booking.com the response is (reactive, not proactive) that the there is no need to panic – the rate you’ve given them is also the one that you will receive e.g the hotel sends €100 to Booking.com, guest paid €90 but hotel receives €100.
For hoteliers with a short perspective there is indeed no need panic, but anyone with ambition to drive more direct bookings will know that this development is devastating for your hotel’s website contribution. In the last years OTAs have done a terrific job in terms of educating the public they get a cheaper price on an OTA than on a Hotel Website, despite that not being true most of the times. You don’t have to be a rocket scientist to figure out what will happen to your hotel website contribution when it is in fact true.
Why my hotel?
So why is this happening to my hotel? Well, Booking.com refers you to the Price Quality Score (PQS) screen on their extranet. Here, hotels are encouraged to provide “Fair Prices” to customers. If you are not fair, you will get a low score (and possibly penalized with an EPB discount).
It is not clear how the PQS is calculated and what is indeed fair prices. Arguably, it has something to do with rate parity. Taking our new independent hotel as an example: We distribute two rates, across 3 room types, on 3 channels. Everyone gets the same. There are no wholesaler contracts or opaque rates floating around anywhere and no sneaky discounts on OTA backends. In other words, it’s relatively straightforward (which is also the idea). I feel confident saying that our hotel probably provides some of the fairest pricing in northern Europe. As you may have guessed, our PQS is in the red.
What is fair?
So, we can conclude that Booking.com has a different definition than we do of what fair prices are. Now, in contrast to what Booking.com thinks, we like to think that we (the hotel) should still have some input on what our own product should be sold for. So we had to act. Through some research, we managed to find out what the discount pattern was of the EBP and consequently we are now matching that unfair (according to our definition) discount with a promotion set up on our other channels. That for us, seemed like fair pricing practice. Presumably, Booking.com won’t agree and it remains to be seen what impact this will have on our EQP. The good news is that we are almost at 0 now, so it really can’t get much worse.
The most troubling part of the EPB and Booking.com Basic is the message it sends to hoteliers – that you are no longer in charge of your own pricing. This, I think, will be hard to swallow for hotels, especially those, that have net revpar, book direct and advanced revenue management strategies in place.
It should be mentioned that Booking.com is not alone in pursuing this strategy. The Add On Advantage on Expedia and Coupon Discounts on Agoda are other programmes that undercut rates by cutting into their commission margin or sourcing third party rates. However, few will have an impact as significant as Booking.com, at least in European markets.
I’d be keen to hear from the fanatics that were screaming for rate parity laws to be removed in the last few years. I am not sure if they considered that it obviously goes both ways, and we are now finding us in a situation where hotels have even less control of their pricing than ever before.
I’ve always said that I find Booking.com less partner and more (end) customer focused than for instance Expedia, and that that approach makes sense to a certain point. I am afraid though that Booking.com has crossed the line with these latest developments and may end up alienating many of its partners. The hotels that decide to accept Booking.com’s definition of fair and hand over their pricing strategy may want take a good look in the mirror and ask themselves: who’s actually in control?
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― About the Author ―
With over 10 years of experience in working in the hospitality industry, Jens Egemalm has committed himself to getting the hotel industry to actively start driving more profitable revenues and optimizing distribution cost. Since 2015 he is the Director of Distribution at Pandox AB (publ), where he is looking after distribution strategy for the Pandox operations portfolio with a strong focus on optimisation of the digital and e-commerce performance of the hotels.