Superdiscount + Supercommission: New faces of an old problem

A well-known story for hotels: Powerful middlemen that dominate the market and put pressure on the hotel manager to lower the prices and increase the commission. Before it was the tour-operators, now it is Booking or Expedia, that have managed to continue with the same model adapting it to the new ways of doing things.

However, they are not really interested in having innovation break the structure of the market. As long as it is the middleman who is in charge of deciding what the innovations have to be, these changes won’t do away with middlemen.

Starting this year, the new episode in the series is called Expedia-Groupon and Booking-Facebook.

Many hotels have already received a call from Booking to participate:

Expedia has come to an agreement with Groupon, a web that is quick-growing and bases its activities on the hope that users register to receive their offers. The special feature of the site is that they send them out in vouchers.

Booking.com has launched Flash Deals: 50% discounts only for Booking’s fans on Facebook. They have already 183,000 fans as I am writing.

It doesn’t matter how advanced the new social networking platform, online vouchers, etc look, there is nothing innovative about the market model. It’s the same vicious circle:

1. Hotels need clients, many and every day

2. Middleman offers clients and the hotel accepts them happily

3. Clients are never enough. There are many beds, the year is long and the fix costs put pressure

4. Middleman offers more clients in Exchange of more commission and less money

5. The competing hotels also need more clients and they also accept the offer

6. Hotel competition is forced by intermediaries by price lowering and the commission raise.

7. In the short term, this works, it gets them more guests, stolen from the competitors

8. Client base doesn’t grow because the other hotels react and do the same thing

9. The hotel pays more and more to the middleman to find it clients

10.The clients get the message: if they want to book, they have to do it through the middlemen

11. The middleman reinvests the huge commission in marketing and making himself visible

12. The hotel doesn’t invest the same amount to do the same things to promote itself directly

13. The middleman, fed by the hotel, increases his market share

14. The hotel loses market share on direct sales, because it can’t afford the same level of investment

This free-fall operation is as valid now as it was 30 years ago with the market dominated by the tour-operators, now substituted by the allegedly sophisticated operations of Booking and Expedia. The Expedia-Groupon vouchers or Booking’s Flash Deals are not going to save any hotel from the free-fall, on the contrary, they are likely to push them down. In the past, the middleman invested its mark-up in brochures, traditional ads and commissions for retail. Now Booking and Expedia use the commissions they get from the hotels to pay for Adwords, SEO and affiliate and loyalty schemes. New names for similar actions.

Great ideas are not that great after all.

The different middlemen that have been present in this sector throughout the years have always found an innovative excuse to convince the hotel that the next step would be up instead of down. Time has come to prove that the so called technological revolution has only benefited commercially to those more astute middlemen. The hotels, years on, are still as subdued as usual. Some examples of false revolutions:

• “Selling on the internet”, just like that. An allegedly great and liberating technological advance. Many online agencies sold this idea successfully as the next push that no hotel could turn down. 15 years on, the same old dependence pattern has emerged in the new platform, the price is still low and the commission and dependence have been increasing.an

• Opaque prices: The attractive in this case is an invention that avoids the loss of prestige of showing the public a superdiscount. Isn’t it the same argument that used the tour-operators when they hid the superdiscounted net price of the hotel in holiday packages with flight?

Every one of these ideas has had some special condition that has made it slightly different and that has helped ease the hotel manager’s conscience when having to lower the price and increase the commission for this new way of distribution. Besides, there is always a powerful argument behind “Going with the times”. What happens if I stay behind? What would happen if my competitors do it and I don’t? What happens if it really works? And of course, it does work in many cases… short term.

Now, “going with the times” is vouchers and Facebook through Expedia and Booking.

Their attractive is a common concept for both cases. They only distribute to “registered users”, which would justify being able to get lower prices than those that are public. This is what Booking tells the hotel, “give me superdiscounts, because they are confidential.” It’s a double trap:

• They are asking the hotel to break their price policy in their favour, when they don’t want it to do the same for its direct sales.
• For users, registering on Flash Deals is so easy as clicking “I like it” on Facebook, calling them confidential would be a joke.

The good news

Not everything is black and dark in this situation.

Probably, Flash Deals or vouchers are successful, but only in moving clients from one hotel to another. Fortunately, a quick check of the participating hotels shows that there is hardly any in Madrid, Barcelona or Paris, all the opposite to the huge offer of holiday hotels. Is that proof that traditionally urban hotels are more advanced than holiday ones?

Other reason for optimism is that 20 years ago the hotel did not have any alternatives to the middleman’s dependence, today they do. There is only one thing to do, take a step forward and allocate the same amount or more of financial resources to direct sales than the amount given to Booking and Expedia. Currently, the hotel can do on its own official site the same promotional actions that Booking does:

• You pay Booking a lot to place Google ads. Do you pay the same or more to advertise your own webpage?
• You pay Booking to optimize its webpage and make it user friendly and easy to use. Do you invest and worry equally about your website?
• You pay Booking to redistribute to third parties. Do you do the same on your webpage?
• You pay Booking to be on Facebook and offer the best conditions. Do you have a page on Facebook? What do you offer?
• You pay Booking to continuously target thousands of users with its newsletters. Do you get direct subscribers from your hotel? Do you send them your news and offers every month?

The contradiction

This doesn’t intend to be a criticism of Booking or Expedia, not even of traditional tour-operators. They have carried out a great work promoting our hotels and our destinations and they’ve been successful at making a lot of money off hotels. They have always being innovating and adapting to every new idea and to the different stages of electronic commerce that the tourism sector pioneered.

It’s not either a criticism of the hotels that enter into the game, if they do it consciously and fully aware of the drawbacks. Although I doubt this is the case. I tend to think that it’s got to do with bad decision making in a moment of desperation.

What is a bit more difficult to understand is the contradictory behaviour of some hotel managers; they complain and complain about these middlemen, but at the same time they keep feeding them WITH BETTER CONDITIONS than they give their official website. With this, they only manage to send a message to the user, go to Booking.

Nowadays, the alternative is there, waiting to get the hotel manager’s undivided attention. Analysing this path thoroughly would take many other articles, but this article gives us three rules to follow:

1. Innovate in your direct sales.
2. Allocate it as much or more financial resources as you do with the most expensive middleman.
3. Watch out for those weak spells during the low season. If you give superdiscounts or supercommissions, do it in every channel.

…and if all of this turns out to be very expensive for you, then you should start thinking about any solution based on superdiscount and supercommission.

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