Expedia announced at the end of May that it would pledge $275M in coronavirus relief to the industry, with $250M going to its lodging partners in the form of marketing credits and reduced commissions.
NB: This is an article from Pegasus
It has since begun piloting this “Revive and Relief” program in various markets, targeting independent hotels and small chains.
In the program, Expedia promises to provide:
- Accelerator credits to increase visibility in a hotel’s search results. The amount of credits is equal to 25% of the total 2019 compensation they earned from bookings from the participating hotel’s property.
- 10% reduction in commissions on new bookings made during the duration of the program (90 days from start). For example, if your hotel commission rate was originally 20%, it will drop to 18% for the program’s duration.
- Extended payment terms from 30 days to 90 days for Hotel Collect bookings.
To participate, partner hotels must agree to offer:
- 10% minimum discount for targeted travelers and refundable package rates
- Your lowest available rates
On its surface, the program appears innocuous. And Expedia does make strong promises to put their “marketing power behind your 10% discount, helping you engage the highest value travelers shopping in our marketplace.”
But let’s dig into the fine print. What is your hotel actually agreeing to give to Expedia here?
The blanket 10% discount
The 10% discount that will be marketed to Expedia’s traveler groups and refundable package rates is made to sound like a simple BAR discount in the promotional materials. But in the terms and conditions, the discount is specified as such (emphasis ours):
Promotions for High Value Travelers. As part of your participation in the Program, you agree to make available in our system (or we may make available on your behalf) (1) at least an additional 10% discount off all rate plans at your property (including any existing discounts and rates obtained through the auto match service) which Expedia may use for promotions to its traveler groups (e.g. loyalty members, mobile users, etc.), and (2) refundable package rate plans with at least an additional 10% package discount. This requirement does not limit any similar requirements in your Corporate Lodging Agreement.
Hotels must tread carefully here. The terms stipulate a minimum 10% discount across ALL publicly available rate plans across ALL channels. This is extremely problematic for any hotel that may be looking to offer strategic promotions based on target segments or geographies.
For example, say you want to run a promotion on your website to local residents to book a long weekend staycation at your property. Or say your country has opened up a travel bubble, so you want to specifically target South Korean travelers with a special rate for Agoda. By agreeing to Expedia’s program, Expedia can apply a 10% blanket discount to that publicly available rate and market that discounted rate to their “High Value Travelers,” which broadly includes groups such as “loyalty members” and “mobile users.”
Essentially, you are telling Expedia that not only can they undercut your promotional rate, but they can market it to anyone in their database, even if they are not the intended audience for that rate. On top of that, this 10% discount is being used to power Expedia’s loyalty program and keep travelers booking with them in the future instead of directly with you.
Some hotels use parity workarounds to compete against OTA channels, such as offering free upgrades or other perks for booking direct. However, Expedia has a clause against that as well:
Guest Experience. In this period of uncertainty, it is important that travelers that book on Expedia are confident that they will be treated the same as travelers who book on your own website. As part of your participation in the Program, you agree that travelers who book through Expedia will be entitled to the same benefits as travelers who book directly with you. This requirement does not limit any similar requirements in your Corporate Lodging Agreement.
Not only do these clauses severely curtail a hotel’s own control over its marketing and distribution strategies, but Expedia has also added another contractual obligation that strictly enforces these rules.
Enrollment into Expedia’s Auto Rate Match
As part of the Revive and Relief program, hotels will be enrolled into Expedia’s Auto Rate Match program. It’s euphemistically referred to by Expedia market managers as a way “to increase traveler confidence and save you time,” but the fine print reveals Expedia’s main intentions (emphasis ours):
As part of your participation in the Program, you agree to participate in Expedia’s auto rate matching service. The auto rate matching service is a service that we offer to properties that want their best rate to be displayed to future travelers on Expedia. This service will help you enhance the price competitiveness of enrolled properties. Here is how it works:
- When Expedia determines that the rates for an enrolled property in our system are not competitive with the rates at which that property is available through other websites, Expedia may, on behalf of the property, reduce the rates in our system (and on our websites) to match the lower rates that we identified elsewhere.
- Each enrolled property is responsible for the accuracy of its rates. Expedia will tell you about any changes that we make to your rates through this service and you agree that they are made on your behalf.
- You can opt-out of the auto rate matching service at any time in Partner Central. Please note that it may take a few days to disable the auto rate matching service for properties after your request.
In short, hotels are completely ceding control of their rates to Expedia through this auto rate match service. Hotels have no insight into which websites that Expedia is using to compare and match rates. If a wholesale rate has dubiously landed on a non-contracted OTA (AMOMA having been a notorious example), Expedia’s rate match service could bring the hotel rate down by 20-30% below BAR without your explicit agreement.
Add to that the automatic application of the 10% High Value Traveler discount, and you’ve already lost a significant portion of your room rate just using this auto rate match service. And that’s of course not including the additional 18% of commission that you will need to pay out on any booking. While this is an extreme scenario, it illustrates just how little control and oversight hotels will have over their rates in this Revive and Relief program.
Although Expedia says that you can opt out of auto rate matching, it is not clear from the terms and conditions if opting out disqualifies the hotel from participating in the rest of the program. We also suspect that choosing to do so may have a negative impact on your hotel’s visibility on the platform.
Who really benefits here?
In the short term, we can see some hotels benefiting from Expedia’s Revive and Relief program, which for now is scheduled to run until the end of the year. For properties desperate to boost occupancy rates, Expedia’s wide reach and marketing savvy may help hotels drive bookings at a time when hotels need them most. However, hotels may end up increasing their dependency on Expedia for the long run just to get a minor boost in demand that simply isn’t there because of the pandemic.
The brilliant part of this plan is that it costs Expedia next to nothing. The Accelerator credits offered to hotels to boost their visibility (i.e. manipulate their hotel display ranking by selectively increasing commission rates) are arbitrary numbers, not actual costs incurred by the OTA. Since they are based on a hotel’s total 2019 compensation to Expedia, the Accelerator credits will favor those hotels that already have a strong dependency on Expedia. And because your comp set is also being offered Accelerator credits, you may end up getting into a visibility bidding war for no good reason, canceling out the effectiveness of these credits.
As for the temporary 10% decrease in commission rates, it’s likely that Expedia is betting that they will more than make up for the slight decrease in commission revenue with the boost in bookings that they will get from the 10% “High Value Traveler” discounts from partner properties.
For Expedia, the biggest win here is that they have found a clever way of guaranteeing consumers the lowest possible hotel rates, without having to deal with the controversial OTA rate parity clauses that have already been struck down by courts across Europe and Asia. If they find a way to keep hotels on the auto rate matching program long-term, Expedia will solidify a major market advantage over its competitors, but at the expense of independent hotels and small chains sacrificing control over their own pricing and marketing strategies.
Control your own destiny with your own Rate Match
Expedia may have been one of the first distribution channels to roll out a prominent COVID-19 recovery program, but it certainly will not be the last. OTAs took advantage of the 2008 Great Recession to shore up their market power, and the 2020 pandemic will be no different. It’s on hotels to approach all channel partnerships with a healthy dose of skepticism and a close eye on the fine print.
Technology can be a big help here, especially if your hotel is already working with reduced staff and is spread thin. At Pegasus, we’ve developed our own Rate Match platform to help hotels closely monitor rate parity across OTA channels every single time a guest searches your booking engine for stay dates. Rate Match’s Parity Reporting tool tracks each and every search, alerting you in real time to any rate disparities and running reports on top out-of-parity OTAs and price discrepancies.
And just like Expedia’s own tool, Rate Match by Pegasus can also automate your best rate guarantee on your brand.com website. With our Price Compare and Price Match tool installed, your hotel can show guests comparative prices from OTAs to instill consumer confidence, and it can automatically match or beat any lower OTA rate and make it instantly bookable. But unlike Expedia’s auto rate match, Rate Match by Pegasus is fully under your control. You set the terms of your own offers, the price windows you’re willing to match or beat, and when and which OTAs and rates to display to the consumer.
Remember: the recovery will be a marathon, not a sprint. Don’t sacrifice control for short-term gains at the expense of your long-term sustainability and success.