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The WWED effect on online hotel pricing
“What will Expedia do?” has become a key question for many hotel marketers, as the company monitors your every promotion and hauls you onto the carpet whenever you have the audacity to give a rate to anyone else – including private sale sites, according to this article.
Unless your property belongs to a massive chain with considerable clout, you’re probably living with an Expedia agreement with a margin of around 25%. Now, the mathematicians among us can quickly ascertain that means Expedia receives $1 for every $3 they send us. But I’m not that swift, so I did the whole spread using one hotel’s data, calculating Expedia revenues per annum, total transient revenues per annum, ADRs, Expedia’s cut, etc. No big surprise, Expedia’s ADR was 75% of the total transient ADR. Even I could have figured that out based on a 25% margin. But that 1 to 3 ratio thing really jumped off the page. Expedia earns just over $100,000 annually in margins from business sent to the hotel, for which the hotel pockets just over $300,000 in bookings annually.
That’s a payoff to the hotel of $3 for every $1 sacrificed. In other words, a very low return on investment. I have to believe we could use that $100,000 Expedia is making off the hotel each year to generate far more than $300,000 in revenue if it was invested in other marketing efforts.
Right off the bat, what would the other OTAs provide in exchange for pulling out of Expedia? Show me the positioning! Since other OTAs don’t require both block space and last room availability, nor do they demand parity with non-public rates, I’m thinking we can work together to recoup some of those lost Expedia revenues. Toss into that all the promotions and pricing strategies we could employ if we weren’t under Expedia’s oppressive thumb, and the ADR lift we could get by reducing the number of rooms sold at a 25% margin, which would mean we don’t even have to recoup the same number of room nights we get from Expedia in order to recoup the same profit….
Get the full story at Dynamic Revenue Management
