All companies face the same basic problem when devising a product or service. It’s make or buy. Few companies can do it all themselves, and even when they do, it’s often not the best option. The division of labor improves everyone’s profits, as other companies are regularly more efficient at certain tasks.
This is especially true when it comes to sales, marketing and distribution. Few companies have the know-how and reach to uniquely serve every potential customer. This is why Nike sneakers aren’t sold exclusively in Nike stores, but farmers sell their produce to wholesalers. Rather than catering to all consumers themselves, wholesalers deliver to numerous local shops.
Of course, this is not an either/or decision, and in practice companies utilize a variety of distribution channels, including direct-to-consumer sales. The Internet has made the latter much easier, and many businesses now have their own online storefronts.
Accommodation is no exception. Hotels advertise in travel magazines, sell rooms to tour operators such as TUI and ThomasCook, work with travel agencies, promote their websites on Google and social media, and promote national and local You can partner with tourism marketing organizations or enhance word-of-mouth marketing. By providing unforgettable service. In fact, direct-to-consumer sales continue to be the most important sales channel for hotels.
The Internet has also given rise to online platforms such as Booking.com that aggregate product offers and consumer demand. This brings great benefits to everyone. First and foremost, consumers find it easy to find, compare and book hotels and other lodging options. It also allows hotels to gain visibility that is otherwise difficult to reach to a large number of consumers around the world.
In a nutshell, this is the modern version of a traditional travel agency, but with much greater scale and reach. Until now, travel agencies could only serve a limited number of local users within their capture area, but online travel platforms offer nearly unlimited global reach and dozens of languages. available. And consumers always have one-click access.
Despite technological advances, the modus operandi remained essentially the same. Online travel platforms, like physical platforms, operate on a pay-per-performance basis, the so-called agency model. The agency will only get paid if you book a hotel room with us. This practice has long been valued in hotels because it is completely risk-free and has no upfront costs. Travel agents provide the necessary services and hoteliers retain full entrepreneurial freedom.
Hotels set room rates and determine terms and conditions. For example, you can charge higher rates during peak seasons, lower rates during off-season, and then change rates as needed. Also, online travel platforms are often cheaper than other forms of delivery. For example, Booking.com’s standard commission rate is 15% on average. In contrast, tour operators typically demand his 25-40% discount on hotel room rates as their own sales margin.
However, the Internet has brought new challenges to this business model. The agency business model is based on trust. That is, the implicit expectation that the efforts of travel agents and travel platforms will be rewarded when they generate additional business. This trust is undermined when hotels try to free ride by encouraging consumers to find hotels on online travel platforms and then (re)book directly to avoid paying fees. Freeriding has always been done to some extent, but the convenience of the Internet, where everything is one-click away, magnifies the scale of this problem.
In the past, consumers faced high costs if they first used a travel agent and then turned back and tried to book directly with the hotel in hopes of getting a discount. There was no real-time online booking engine, so you had to call the hotel to inquire about prices and availability, or email or fax and wait for a reply. In many cases, the level of effort did not justify the level of profit, which discouraged most people from becoming freeriders. Now all she has to do is add real-time booking functionality to her website for specific hotels and make a concerted effort to change consumer behavior.
According to EY-Parthenon research, “41% of direct bookings for small accommodation are from customers who found accommodation on platforms. We offer an additional %.These are bookings where the accommodation provider pays no commission to the platform.” In other words, free riding has become widespread. It undermines the business model of online platforms and reduces incentives to invest in technologies and services that have brought significant benefits to both consumers and hotels.
Online travel platforms have greatly improved the choice and transparency of services available to consumers, ensuring that consumers are getting the best value for their money. As a result, in 2019 alone, the EU consumer saved him €20 billion.
Conversely, in the same year, hotels benefited from 133 million additional nights. Even in his two most difficult years for the travel and lodging industry, the online platform continued to generate additional bookings for lodging partners. The biggest challenge facing hoteliers is the highly perishable nature of unsold rooms. In other words, the main driver of revenue is occupancy. This applies to all establishments, even small independent hotels.
Free riding undermines all these benefits and undermines trust between the platform and the accommodations listed there. Hotels are consciously choosing to partner with sales and distribution platforms. This partnership requires fairness and mutual trust. Without an online platform, everyone would be in trouble. Let us all work together to sustain this mutually beneficial business model.