As we all know hotel distribution channels are constantly evolving; on a near weekly basis we hear from new channels that want to help you sell your product. So it is no surprise that the biggest player of all is lining up to change the game.
Expedia has revealed a new business model under the banner of “Expedia Traveler Preference Program”. Here is a brief summary of the program:
- The new program will provide the consumer an option of whether they wish to pay now or pay later when checking out of the hotel
- Based on the premise that some people like to pay now while others prefer to pay once the service is rendered
- The invoicing cycle is reversed; where normally the hotel invoices Expedia the new model has Expedia invoicing the hotel
- There is no variance to what the customer will pay; if the room is $199 per night plus tax it would be the same in both cases
- There are no expected changes in margins
- Early adopters Hilton, Marriott, La Quinta, Barcelo Hotels more to be announced shortly
While this is not a new model to the industry with Priceline and Booking.com offering a similar option to consumers; it is a significant strategic move for Expedia in their continued growth. This will allow them to compete with the agency model players and more importantly the hotel direct booking channel while maintaing merchant model margins.
The selling points that Expedia will approach you with are as follows; consider how the change will impact your business before having the discussion:
- Increased Conversion Rate – with the option to not pay immediately the conversion rate would be expected to increase; with this there may also be a chance of higher cancelation rates.
- Increased ADR – with the pay later model the hotel will recognize the full rate as revenue rather than the net rate; the net result hover is the same revenue. Bring your controlled into this discussion as this will change the ADR and expenses for the property which will need to be considered in your forecasting process.
- Cash Flow – with the increased ADR and collecting of funds on property the cash flow will improve.
- Increased Length Of Stay – there is potential, look across your channels; the LOS will likely remain similar to your current trends.
- New Customers – this will certainly mean new customers for Expedia; it may mean channel shift for your property, watch your direct channel closely.
There is little doubt that Expedia will be successful at launching this new business model globally with the current participants and the current influence they have over the supply market. The best thing to do is consider the impact on your business and be prepared for the discussion with your Market Manager.
- Review your web direct revenue management strategy to determine means in which you can continue to grow this channel and compete with 3rd party channels.
- Determine any expected distribution channel shift from current channels to Expedia and the impact on the net revenue.
- Review your current agreement with Expedia and what you have committed to.
Have the conversation with your Revenue Management team; the timeline is not clear so good time to get prepared.