How asset managers can help mitigate the impact of wholesalers’ new ‘bad’ pricing practices

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16/08/2018 - Hospitality

Wholesalers are one of the highest producing distribution channels for a hotel, but some have introduced new ways of working that are disrupting this successful business model. It is about “bad” pricing practices. 

Traditionally wholesalers bought rooms in volume to negotiate favourable prices that were lower than the publicly-available rack rates.

These rates were then sold to wholesalers’ private B2B partners only, such as tour operators and travel agents, who then dynamically packaged them with other travel components to sell-on to the end consumer.

However, since the emergence of Online Travel Agencies (OTAs), wholesalers’ rates are now being sold online direct to the consumer, to the detriment of the B2B segment – and the hotel industry.

With the rise of meta-search channels acting as a one-stop price comparison platform for consumers, smaller OTAs have gained full visibility of pricing. 

These smaller OTAs don’t have the capacity to negotiate with each individual hotel. They normally contract all pricing of all hotels in bulk with a specific wholesaler and publish those rates online. 

Since large OTAs, primarily Booking.com and Expedia.com, started offering wholesale prices direct to the consumer, it has caused friction with the hotel industry.

It causes rate parity issues, with a hotel no longer in control of published prices, which can damage its brand value, market positioning and profitability.

Unfortunately, OTAs are increasingly controlling rates and it’s becoming a challenge for hotel sales departments whose team members are still incentivised to drive direct business at specific price points.

These sales reps sell through the B2B channels and their performance is measured. 

Mixing the B2B with the B2C segment also creates tensions among the revenue management team and the sales team. 

From a hotel asset management perspective, we must work closely with our hotels and operators to identify these ‘leaks’ in pricing practices and limit their impact. Hotels should constantly monitor their online presence and published rates. 

Breaking the rate parity will lead to major loss of business from the major OTAs partners. So how the hotels can identify this problem? 

One way to find the true source is to book online and track how the reservation is reflected in the hotel’s central reservation system (CRS).

The front desk can also detect reservations from unknown travel agents and wholesalers. It is a strong indication that rates are being sold online and to other wholesalers. 

Sometimes it is hard to identify the source, but constant scrutiny will provide the relevant information to hotel management.

Although it may have a strong impact on the hotel’s overall revenues, sometimes the best action is to limit and control wholesale bookings. Hotels should limit the number of wholesalers with whom they work and choose their partners carefully, focusing on those that attract the hotel’s target segments and avoiding those that only provide the highest allotments.

Wholesalers remain an important distribution channel for hotels, but the ‘bad’ practices of some is harming all stakeholders who are marketing and selling a room. 

Hotels must take control to protect ADRs and profitability and it is the responsibility of the asset manager to ensure property management is taking all necessary action to mitigate the impact of wholesalers’ bad pricing practices.