Hotel Online  Special Report

Merchant Model or Web Booking Engine?
Turning over unsold inventory to third-party distributors is an option, but it may not be the only or best solution for hotels that want to maintain control of rates and inventory and improve yield
By Ed Brill, Chief Operations Manager, USA, Fastbooking Internet Booking Engine & Services, December 2003

According to a report from PhoCusWright Inc., Online Travel Overview: Market Size and Forecasts 2002-2005, 15% of all travel was booked online in 2002, and steady growth is predicted for the next few years, assuming improved economic conditions by early to mid 2004. 

With online travel on the rise (PhoCusWright predicts that between now and 2005, travel booked online is likely to double and reach more than 30 percent) hotels need to take a long, hard look at their electronic-distribution and channel management strategies. 

If one of their goals is to stop the ADR (average daily rate) bleeding that has been caused by giving up ownership of inventory to third-party distributors/wholesalers, then it’s time to seriously look at alternative solutions—namely teaming with companies that can provide the hotel, chain or management company with technology that will make the hotels own Web site work harder through a dedicated Web booking engine for each property.

Granted, faced with a sluggish economy many hotels feel that they have no choice but to turn over unsold inventory (or what they perceive to be unsold looking forward) to third-party resellers such as, Expedia, Travelocity, PlacesToStay, Orbitz and Priceline, to name just a few. But rate disparity is staggering, management of these rates and inventory is time consuming, and many hoteliers are finding that they have "given up the farm" unnecessarily – especially when competitors within their own market segments are optimizing rates and increasing occupancy because they are using the e-commerce abilities of the Web smarter, and to their advantage. 

Understanding The Merchant Model

The "Big Three" third-party distributors –, Expedia and Travelocity – control approximately 74 percent of the online hotel sales market. With that comes a source of frustration among hoteliers. Why? 

According to industry experts, when hotels turn over a portion of their inventory to the online wholesalers– anywhere from 5 percent to 20 percent of rooms or more – they also give a wholesale rate typically 30% or more off the lowest published rates over specified dates. 

Mark Haley, partner with the Boston consulting group The Prism Partnership, explains: "If a hotel is offering a best-available published rate of $99 per night for a given rate season, the distributor’s contract requires the hotel to accept a $70 or lower rate for the same room during that period if booked through their third-party Web site or affiliate network."

Haley says that in most cases, once the inventory is released to these third parties, the hotel has little control over rates–even if demand changes. 

"The third-party distributor can set the rates according to their ability to yield the entire market," Haley said. "They can set the rates as low or as high as they want to, even above the hotel’s rack rate if they think the demand is there. The only thing the hotel can do is give an even greater discount or even more rooms." 

"Payment to hotels from the third-party distributors also seems to be an issue," Haley said. "A few third parties give a credit card number to the hotel at the time the reservation is made so that when the guest checks out, the hotel charges immediately for the agreed-upon room rate. Other operators require a hard copy invoice after departure, then pay the hotel typically net 30 days."

Some companies within the Merchant Model claim to be "hotel friendly" and give properties the ability to yield manage their rates and availability. But unfortunately, it’s not working well across the board, he said. What may be deemed "friendly" to the hotel may not be what customers are looking for. The bottom line is that consumers want value. 

Today the majority of eyeballs rest with the "Big Three" sites. However, that may soon change as more and more companies look at partnering with companies such as Fastbooking to host their Web booking engine and consult in the yield and channel management process. 

Web Booking Engine Alternative

A hotel’s own Web site is its lowest-cost, highest-return distribution channel. The challenge is getting the best technology out there to book rooms that make sense for the hotel while at the same time updating the property’s Web site design, content and promotion to the extent that it will attract and retain coveted customers. Neither of these needs to be a big expense. 

According to Trent Blizzard, president of Blizzard Internet, a provider of Web site design, hosting and promotional services to hotels, Web sites are critical to improving sales results at properties today. Those that contain the right rates and the right packages with the right pictures and property descriptions are the ones that will attract and retain customers and get the bookings. 

"Because travelers have become more sophisticated in their online booking habits, they will make a purchasing decision based on the attractiveness of a site, its functionality and its flexibility to book a reservation," Blizzard said. "They also want information immediately, and they want instantaneous room availability." 

This instant information is only valuable to travelers if it is presented in their language. Keep in mind that two-thirds of the world does not speak English. Yet, almost all booking engines are written in English. 

Fastbooking, for example, facilitates bookings in 22 languages. 

Finally, many customers still operate with dial-up modems, not high-speed broadband. Booking engines with flash technology can make the process much slower for users. In fact, none of the big discounters use flash for that reason. 
With 65 percent of online hotel buyers searching more than three sites before making a purchase (according to PhocusWright), optimization of the hotels Web site combined with the right technology and the proper communication and promotion will bring eyeballs to a site and customers to hoteliers’ doors. 

Accessing Real-Time Information

With its own Web booking engine, hotels enable their customers to check hotel availability with the hotel directly — not through intermediaries — with just a click. This gives the hotel complete, real-time control of its inventory.

It also adds perceived value to the customer because he or she is informed of the hotel’s cancellation policies, and eliminates the need for the customer to prepay and avoids snags with cancellation or change-date policies.

Almost 2000 hotels around the globe have opted for a dedicated Web booking engine through Fastbooking in order to provide a seamless reality of what is happening on the property level. When their customers want to book a room, they are dealing directly with the hotel and not an inventory. The hotel in turn has the ability to communicate room availability, room type that coincides with the offer or promotion, policy and rates directly back to the guest.

This also gives a hotel the ability to apply yield management strategies at any given time. The moment demand changes, rates change and therefore inventory changes -- instantly.

Working with a company such as Fastbooking also enables hotels to offer a last-minute rate, a long-term stay rate, and offers advanced purchase options and promotions or packages that a hotel wants to sell. 

While the hospitality industry continues to struggle, hoteliers need to understand that their option to fill rooms does not lie solely with giving up inventory to third-party distributors. More options actually are available to sell a property through their own Web site because they have control over last-minute rates. In essence, based on certain market conditions, the hotel is creating its own "merchant model."

Partnering with a company that provides your hotel with its own Web booking engine, and spending a few minutes a day on Web site enhancement, promotions and yield management, will result in more business booked and more qualified traffic to your Web site—Guaranteed. 

Ed Brill is Chief Operations Manager USA for FastBooking, based in New York. FastBooking is the European leader in Internet hotel booking engine with a portfolio of 1,500 top-quality hotels ranging from 3 to 5 stars, including independent hotels, hotel groups and voluntary hotel chains.



Ed Brill
FastBooking USA
Phone 212 459 9191
Also See: Fastbooking Facilitates Friendly, One-Page Booking In 22 Languages / December 2003
FastBooking- Internet Booking Engine Giant Enhances Its Unique One Page Booking Screen and Facilitates Bookings In More Than 20 Languages / September 2003
Internet Hotel Booking Engine Giant Launches Americas Push / January 2003

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