News for the Hospitality Executive
In markets with severely failing demand characteristics, it is important to analyse overall pricing strategies and implement an approach that will ensure revenue growth.
From an OTA’s perspective, Orbitz Worldwide’s VP Revenue Management, Julie Szudarek, highlights that as an OTA, Orbitz does not have a lot of control over prices.
“In most cases, pricing is passed to us by our supply partners. However, we are greatly impacted by falling prices as commissions are frequently calculated as a percentage of price. We look at falling prices as an opportunity to promote great prices to our customers. For customers still willing to travel, falling prices provide them the ability to try a destination or a room category that might previously have been too expensive,” said Szudarek, who is scheduled to speak at EyeforTravel’s Travel Distribution Summit North America 2009 to be held in Chicago (September 16-17) this year.
She added, “Our job is to match those customers with the deals that exist. During the current economic downturn, we’ve actually seen an increase in the percentage of 4+5 star properties sold vs. prior years, as well as an increase in the length of stay. This is happening due to the tremendous offers Orbitz is able to provide customers in conjunction with our hotel suppliers; customers can afford properties that they otherwise would not have been able to afford.”
In order to ensure that revenue grows in line (or as close in line as possible) with falling prices, the company relies on improved conversion; reduced pricing and improved conversion in one market / destination may lead to cannibalisation of other, substitute markets / destinations.
“Before heavy promotion of any one market, we make sure that we are comfortable with this potential cannibalisation,” Szudarek told EyeforTravel.com’s Ritesh Gupta.
Szudarek, in an interview, spoke about pricing strategies, protecting brands in such environment, discounting and other issues. Excerpts:
It is said that there are segments of the market that can be stimulated by aggressive pricing over off-peak periods. How do you assess the same?
There are always customers looking for deals. At Orbitz, we are always looking for situations that help our supply partners while serving an unmet customer need. We frequently promote off-season deals as a specific way for customers to travel to places they otherwise would not be able to go.
This also helps our supply partners fill rooms during need periods. Orbitz has had particular luck promoting off season travel in resort markets such as Mexico and the Caribbean.
A senior RM executive last year told me – a consumer's reaction to price strategy changes can vary so much depending on the price sensitivity, demand situation and market segment that the only way to answer that question is to track consumer behaviour changes in relation to demand and include the result of this analysis in the next pricing discussion. What's your viewpoint regarding the same?
It is always important to consider past experience when putting forth new strategies. At Orbitz, we do a lot of testing of different strategies before rolling them out. We look to understand the demand impact of a pricing decision and the financial implications it will have before we roll the strategy out more broadly.
How can you protect your brand and provide value-added components instead of discounting?
Using value-adds can be powerful, but it is integral to find something that customers will truly find to be valuable. In addition, if the cost of the value add is too great, a straight discounting approach might work better.
The problem with value-adds is that many are not really that valuable because providing something of true value costs too much. For example, many hotels in Europe will offer breakfast inclusive rates that might be worth 20 – 50 Euros for two person occupancy. To many Americans who are used to grabbing a coffee and bagel from Starbucks, this is probably not worth it. This customer segment doesn’t think of breakfast as being worth 50 Euros.
At Orbitz, we’ve had the best luck using value ads where we can share the cost with a partner. For example, we offered hotel purchasers a $50 gift card to a restaurant with a qualifying hotel purchase. We were able to work out a deal with the gift card provider that made the deal a win-win to Orbitz, the gift card provider and our customers. In addition, we drove incremental demand which benefited our supply partners, especially during these tough economic times.
We’ve also added Price Assurance to our air and hotel products. When customers book a pre-paid hotel room on Orbitz and another Orbitz customer subsequently books the same hotel stay at a lower rate, Orbitz will automatically send a check for the difference. We have a similar programme for air. We believe this to be a value added feature that offers significant value and peace of mind to our customers. Through these programmes, we send our customers refund checks by the thousands every month.
Till last year, OTAs were saying they have to be sensitive to hotels needs about increasing distribution costs. If there’s a reason for a hotel to pay a higher commission and it makes economic sense to the hotel, then higher commissions will be negotiated. But how do you assess the situation now with entire business model of OTAs in the US undergoing a major change as far as fees is concerned?
At Orbitz, we pay close attention to supplier distribution costs. We know that these costs are considered by suppliers in making choices around who they will distribute through. We take these issues that our suppliers face seriously in looking at our connectivity decisions. We are aware that in these tough economic conditions, suppliers are more sensitive to distribution costs than ever.
On the consumer side, we know that customers shop multiple sites before deciding where they will make their purchase. With our total pricing concept and fee cuts, we provide consumers with all the information they need to make a purchase decision. On hotel, we now include the total price, including taxes and fees up front. We believe this provides considerable transparency to our customers. In addition, should the customer make a hotel reservation on Orbitz and should another customer book the same hotel for a lower price, we will send the customer a refund. On Air, Orbitz offers a similar product, where if another customer books the same flight for a lower cost, we will refund the first customer the difference automatically.
Read more: Orbitz, commissions, fees, distribution costs, pricing, discounting