Insight: Online hotel wars heat up - but at what price?

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By: RickFerguson |

Posted on July 14, 2016

The Wall Street Journal reports that the tension between major hotel brands and online travel booking sites has escalated into a shooting war, with hotels now pursuing aggressive pricing tactics with discounts offered to loyalty programme members to encourage direct booking. Offering preferred pricing to loyalty programme members is a tried-and-true soft benefit - but at what point does a loyalty tactic become an irreversable discounting death-spiral?

The Journal reports that major operators such as Marriott and Hilton are offering standard discounts of around 10% to loyalty programme members, and promotional discounts that can amount to 25-30% off the standard room rates. The aggressive pricing comes in response to the continued growth of online travel sites such as Priceline and Expedia, which continue to take a bigger slice of the bookings pie while charging double-digit commissions. The contracts between hotels and travel sites typically don't allow the hotels to offer lower prices accross the board - but allow them to offer special pricing to loyalty programme members.

Two quotes in the article illlusrate how entrenched has become the competition between the two sides. The first quote comes from Hilton CMO Geraldine Calpin: "It’s time to be aggressive. Now, we go big on marketing."

The second quote comes from Cyril Ranque, president of lodging partner services at Expedia: "The [franchise] owners are going to be the ones to pay the price for the discounting strategy. We believe that [loyalty member discounts are] not a sustainable situation."

Complicating the situation are macro-economic forces: upstarts like Airbnb, for example, and Millennial travellers who exhibit much less brand loyalty than their parents did. The irony lies in the reality that each side needs the other: hoteliers want the bookings from consumers who turn to travel sites to save them time and money, while the travel sites need the hoteliers to provide the product. On a deeper level of irony, the two side are often their own worst enemies: the travel sites promote price so aggressively that they risk commoditizing hotel rooms, while hoteliers in turn are so obsessed with thwarting the travel sites that they're giving away margin in large chunks to loyalty programme members regardless of their individual value to the brand.

If one side doesn't break the cycle of discounting, the hotel industry risks a prolonged price war that could seriously harm profitability for everyone. Both sides need to take their collective foots off the discounting gas by leveraging data to offer dynamic pricing to customers according to their price sensitivity. Instead of offering discounts across the board to every member, why not segment customers according to their elasticity? Leisure travelers, for instance, often shop solely on the basis of price - but some may pay a higher price for a room with an ocean view. Road warriors, meanwhile, may trade those discounted member prices for preferred status for redemptions on in-demand properties.

Bigger brains than ours will figure out what works. Our message is simple: both sides should pause, take a breath, and work together to make sure those discount dollars are being deployed where they can do the most good. That effort will pay dividends for both sides.

-Rick Ferguson



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