When Booking started, as Pablo Delgado has recalled, “it operated exclusively under the agency model, unlike its archrival Expedia. In fact it was part of their huge early success, as hotels loved the numerous advantages that it offered, such as its positive effects on cash-flow, the elimination of the risk of the agency going bankrupt without paying the hotels, having more information about its clients before their stay and having for the first time the control over the final price paid by the guest.
Booking.com has thus become “the biggest OTA in the world” although, as a listed company, “it is pressured and even forced to grow constantly, no matter what or how”. A growth that in recent years comes from the hand of the “merchant” modelwith an increase of 241% in the first quarter of 2022, three times faster than the agency model, whose specific weight is stagnating or even decreasing.
The “merchant” model offers three undeniable advantages to hotels: it simplifies payment management, reduces fraud and chargebacks, and gives access to a new demand that wants to use alternative payment methods such as Paypal or Apple Pay; to which is added the ease of complying with frameworks such as the PCI and regulations such as the PSD2 of the European Union by taking responsibility for the OTA
However, this model, as the CEO of Mirai has warned, “has big negative consequences for hotels”, as a higher cost, since “the VCC or virtual credit cards that uses Booking.com to pay hotels have an additional commission of 3% on average”; in addition to “a negative impact on cash flow from non-refundable feesloss of differentiation, and possible disparities if the hotelier participates in “Payments through Booking.com”.
“The pros of the “merchant” model do not outweigh the cons, although Booking.com is very intelligently presenting the program as if it were the best decision for the hotelier”, despite the fact that it means “giving him control of the price”, as he has underlined. Thin
Keys to compete with the new Booking
These are Pablo Delgado’s recommendations, in addition to advising hoteliers to “get out of the comfort zone”because “Booking.com lives very well with them there”, suggesting that they apply the new OTA functionalities “exclusively to their direct channel”. To begin with, “stop participating in the “Payments through Booking.com”which is optional at the moment, although I fear it may become mandatory, as in the case of Expedia”.
Other recommendations of Mirai in:
– Keys to minimize the three barriers of direct sales
– Reservation requests denied: how to transform the challenge into an opportunity
– Direct sales of hotel rooms, winning horse in 2022
– Metasearch engines: the good (and the bad) that a hotel should know about them
– Metasearch engines in the new era: pros and cons for hotels
– Create a own loyalty program and move all the reservations through it in order to have access to the personal data of the clients, since “storing this data first-hand becomes a must for all hotels facing a world without cookies from July 2023”.
– Make sure show in the direct channel the best rate of all channelsboth on the website itself and in the metasearch engines, so that the most valuable clients for the hotelier find the most competitive rate. “The more visibility, the better”.
– Intelligently manage inventorysince his control “is the most powerful weapon in this battle, forgetting the rule of “inventory parity”, which mainly benefited OTAs in the past”; Y “prioritizing the most profitable channels”especially in the management of the last rooms for a given date through the CRS or channel manager.
– Offer the best cancellation policies and payment conditions in the direct channelemphasizing flexibility, highly valued by customers and which will help the hotelier to get more direct bookings.
– Implement a automatic upselling systemwhich “will improve the customer experience, increase the value of the average ticket up to 14% and differentiate the direct channel, all in one”.
– To accept Alternative payment methods such as Paypal, Amazon Pay, Wechat, Bizum or Google Pay (and wallets) on the hotel website, the demand for which is growing compared to traditional credit cards.
– Ask Booking.com to pay the hotelier via bank transfer instead of VCC since, despite receiving the money later, from 30 days after the purchase, it is free of charge. Or at least that you “pay non-refundable fees at the time of booking instead of on the check-in date.”
– Implement a IT solution at the CRS or PMS level to solve low quality reservations -due to “the possibility that they are finally canceled or, worse yet, end up in a no-show”- from Booking or any other channel, and thus alleviate “payment problems and possible chargebacks”.
– Group hotel+flight for selected destinations, in the same way that OTAs do. “Competing with Expedia and Booking.com in this segment is not easy, but it is feasible. At Mirai we have signed an agreement with Onlinetravel to offer this type of package to our customers”.
– Learn about payments, since “they are complicated and have hidden consequences. Some hotel industry associations offer ongoing educational support, such as the OpenPaymentAlliance from HEDNA or the HTNG Payments Working Groups.”
Reference information is available at Mira’s blog.