NB: This is a viewpoint by Melissa Maher, senior vice president of the Global Partner Group, at Expedia.
One of the questions that raised a great deal of discussion was Question 4: “Why might publicly available loyalty rates be bad for hotels?”
Whether hotel owners choose to affiliate with chains or not, Expedia still considers them as partners and works to provide them with a service that meets their needs effectively and cost-efficiently.
To better understand the potential impact that these public loyalty rates could have on owners’ revenue, Expedia created an analysis based on reasonable assumptions and data to illustrate the hypothetical revenue cost of public loyalty rates.
This conservative scenario shows an 8% loss in revenue to owners.
- The Pre bar represents revenue based off online bookings for a hotel. In this example, it’s made up of 75% direct brand.com revenue and 25% OTA revenue.
- The loyalty rate discount is the discounted rate offered to the booking public. This equates to a reduction of revenue due to the lowering of the rate. This discount can vary from 2-10%. This chart assumes 3%, so when applied to the 75% of revenue from the brand.com-generated revenue, it equates to a 2.3% revenue reduction.
- The brand.com price elasticity illustrates incremental revenue to increased volume driven by lowering the rate. This assumes a 75 cent revenue increase for every dollar of discount from the member rate discount for brand.com bookings. That equates to 1.7% increase in revenue.
- The OTA Bookings bar showcases the loss of overall OTA production, based on the natural effect in Expedia’s Marketplace algorithm as an example. The graph assumes a conservative 30% dip in bookings on an OTA. It’s important to note that this is a natural consequence of how Expedia’s Marketplace works. A hotel’s visibility on the Expedia Marketplace is calculated by offer strength, quality score and compensation. Therefore, when a hotel is, for example, not offering its most competitive rate to consumers shopping and booking via Expedia, those consumers are more likely to book a room at a hotel that is offering its most competitive rates. Expedia’s algorithm recognizes this natural shift in consumer preference and adjusts the visibility of these hotels in the marketplace accordingly.