If a hotel doesn't appear on the first page of Expedia's hotel displays, there is little chance of getting any bookings.
Thus said Brian Ferguson, Expedia Inc.'s vice president for supply, strategy and analysis, according to an account by Shawn Turner in the HotelNewsNow blog.
Ferguson, who was speaking at the Cornell Hospitality Research Summit earlier this month, indicated that the five top hotels display attract 47% of bookings, and page one hotels can boast of 95% of all transactions, Turner writes.
Thus, getting into those top five display slots is all-important.
Getting into the secret saunce of Expedia's hotel displays, Turner quotes Ferguson as claiming that hotel displays are prioritized according to:
- Long-term rate competitiveness;
- Participation in Expedia packages;
- Peak season inventory levels;
- Distance from a user’s desired location; and
A very interesting list to ponder.
But, hotel consultant Robert Cole of RockCheetah claims missing from the prioritization list is a key factor -- the merchant discount provided to Expedia by the hotel.
“If two identical hotels are selling for an identical retail price, I can guarantee you that the hotel that offers Expedia a lower net rate (that is a higher percentage discount off of retail pricing, assuming rate parity) will be listed higher on the results page,” Cole says. “They would be stupid business people if they did not and Expedia management is anything but stupid.”
Cole argues that the merchant model shouldn't be seen as the bogeyman in driving down average daily rates.
"Again, Expedia is not evil," Cole says. "The merchant model is not inherently a bad thing, and no one is trying to drive industry pricing down. Since most merchant model net rates are based on a percentage discount off the retail price, Expedia and the other OTAs actually make more money on higher-rate transactions."
His views stand in stark contrast to those of many hoteliers, who counter that Expedia, its OTA peers and the merchant model they got sucked into are some of the chief causes of ADR degradation.
Instead, Cole says, the growth in OTA market share -- and not the merchant model itself -- is driving down rates.
"As opposed to a traditional travel agent commission based reservation where 100% of the rate is reflected as room revenue, a merchant model booking’s room revenue is based on its net rate," Cole says. "So, even if a 10% travel agent commission percentage was equal to a 10% merchant discount and the hotel earned the same net revenue, the commission booking would reflect $100 in revenue, where the merchant booking would reflect $90."
Cole contends blame should be apportioned differently.
"If there is one group that should be fingered for huring the hotel industry the most, it's the desperate hotels making irrational pricing decisions that drive down pricing in a market," Cole says.
And, he sees parallels to an earlier era.
"Just as the hotel industry blamed hotels.com for becoming too powerful in the late 1990s, it was actually smart business people getting blamed for actions that were voluntarily undertaken by the hoteliers themselves," Cole says.
He adds: "Hotels lost control of their pricing and distribution. I don't see a lot of difference today."