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Another Point of View Concerning
the Merchant Model 

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by William D. Peters, VP Reservation Services, Outrigger Hotels & Resorts/OHANA Hotels & Resorts, March 2005
 
 
What do the following have in common?
Merchant Model, dynamic packaging, Internet, Tour Operators, Online Merchants, CROs, Travel Agents, Global Distribution Systems, CRMs, Alternate Global Distribution Systems, Meta search engines, Search engines, Booking engines.

I’m sure you figured it out already.  It is the customer, consumer, guest, or whatever nomenclature you would like to call them.  These channels, pipelines, sources of business or whatever nomenclature your company may use to identify them, are what our industry spends millions of marketing dollars to acquire.

Some soothsayers and industry visionaries are calling for the death of the merchant model, the death of travel agents, the death of commission payments, and the demise of the global distribution systems as we know them today.

Many, many reasons are given for the demise of these businesses.  Unfortunately in my opinion, they are industry self serving reasons.  Some of these industry self serving reasons are actually hurting the overall recovery of our businesses on an industry wide basis.

Instead of creating ways of working together to better all businesses in the hospitality industry and attain more customers, some soothsayers and industry visionaries continue to point fingers of blame at our industry partners.  I guess if you say it enough people start to believe it even though the hard evidence points in another direction.

Merchant Model

This way of doing business has been around the industry for as long as there has been an industry, first through traditional wholesalers and then through Internet merchants.  To blame industry losses on the Internet merchants is wrong.  These industry merchants have spent hundreds of millions of dollars marketing travel.  Since 9/11 they have been on the consumer’s, customer’s, guest’s television every evening advertising travel.  It was these merchant’s commercials that kept Americans traveling during the past four years.  For several years after 9/11 most of all travel related commercials were either airline companies or Internet merchant commercials.  Very rarely did one see a hotel company advertise on television.  Those that did advertise did so at very odd times and channels.  The Internet merchant commercials were very helpful to the hotels. The hospitality industry in general rode on those marketing dollars spent by the Internet merchants to acquire new business.  These marketing dollars actually came from the profits that these Internet merchants were making off of their merchant model business with the hotels.

The hotels and resorts that controlled their room’s allocation to the Internet merchants did very well.  Most saw the value of the business being driven by the Internet merchants as much needed additional business during the slow years.  I think we all forgot that we can not control the method in which our customers want to do business with us for very long.  Eventually the hotels saw some of their own return customers coming through this new channel.  It became almost impossible for hotels to compete “with their own” net rates.  This created an adversarial approach by the hospitality industry in regards to the Internet merchants.  The hospitality industry continues to point their finger at the Internet merchants as to the cause of all their revenue problems when in fact these merchants kept a lot of hotels and hotel companies out of chapter 11 by supplying occupancy and revenue when both were needed. 

Since the Internet merchants have had less merchant model inventory to sell their profits have been lower than forecasted.  What we have seen as a direct result of this is a lot less advertising to the consumer.  We have seen some of the hotel companies pick up some of that advertising slack but more is needed to continue to drive the American consumer to keep travel on top of their minds in these trying economic times. 

The merchant model and the Internet merchants are here to stay.  They will continue to evolve every year.  They will do so by creating new spectacular programs such as the dynamic packing programs and others that will entice the consumer at large to use them.  Some of the consumers, customers or guests will always find it more convenient to book using Internet merchant site while other customers will continue to use travel agents and others will continue to book directly at hotel sites and others continue to book via a CRO. 

GDS/ADS

Travel agents are not going out of business and will continue to be connected via a GDS or a new AGDS, or both depending on their customer needs.  Most of the remaining travel agents in our industry have changed their business paradigm after they were slapped around by the airline industry.  It is important that the Hospitality Industry does not follow the Airline Industry’s non-sales valued path.  These agents have always added value to the hospitality industry and will continue to do so in the future.  There are still large numbers of customers that rely on professional help when they are traveling far from home and are on their leisure time.  Some of these travel agents may turn into Internet merchant travel agents.  One of the busiest portions of any mega Internet site is their CRO in which the customer can contact them via a 800 number.  A human being will continue to want to do business on another human being’s recommendation.  That is what sales is all about.

As an industry we need to pull all of these customer touch points together.  We need to work together and not point fingers.  The industry needs to pick up on improvements and grow with them.  As the industry has been concerned with Internet merchants, they should also be concerned with the new AGDS, such as G2 and ITA that are starting to propagate amongst the travel agent community.  As an industry we need to look at how to interface and control our inventory with them as we did with the airline global distribution systems.  As an industry we need to look at how to interface better with the Internet merchants so we can control our inventory, ADR and RevPar the way we did with the airline global distribution systems.  As an industry we need to get back to a seamless sale.  No matter what channel, pipeline, etc our customer uses to make a reservation with us, we need to show the customer that they made the right choice.  As an industry we need to show our customers that all these new high tech merchants are our representatives and we value their services especially because it brought them as a customer to our property.

As in baseball we need to keep our eye on the ball, except in this case the ball is the customer.  It brings to mind one my college professors that was lecturing on Hotel Sales and Marketing back in the 1970s.  “A hotel or hotel company will never be able to control which portal a guest will use to contact and stay at a property”.  “No matter how the guest reserved their accommodations, always remember that they are your guest and what will make your business grow strong is the guest’s word of mouth to other potential guests about the experience they had at your property.  This is more important than any advertising and marketing campaign could ever accomplish”.   I believe this still stands true in today’s business environment.

With all of these new electronic customer touch points one can start to lose the importance of hospitality.  If that happens at the executive level you can bet it has rolled down and is happening at the front desk or at other direct customer touch points within the property.

When you attend your next conference, sit down with a potential vendor or even a current one and really listen to what they have to say.  You may be surprised to see that they are on the same song sheet as you are and they want to help grow your business as they grow theirs.

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Contact:

William D. Peters
Vice President Reservation Services
Outrigger Hotels & Resorts/OHANA Hotels & Resorts
3443 South Galena Street, 3rd Floor
Denver, Colorado 80231
Office - 303-743-3219
bill.peters@outrigger.com

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Also See: The End of the Merchant Model as We Know It / Max Starkov and Jason Price / March 2005
The Hotel Industry Should Stop Treating the Channels of Distribution as Their Enemy / William D. Peters / July 2003
The Internet verses Company CROs; That Is Not the Question! / Bill Peters / June 2003


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