Hotel Industry Blog

Wednesday, November 19, 2008

What's your commission? The wrong question to focus on.

"What’s your commission rate?" is the wrong question to ask. "What value can you bring to my business?" is the question hoteliers need to be focusing on, in the current climate in particular.

If cost was the only consideration, everyone who travels would stay in hostels. Yet five star hotels do very well, and a whole spectrum of hospitality services is routinely bought into despite cheaper alternatives being available. Why is that? Because people rightly focus on value, not cost. An overall view of what is on offer is the intelligent approach to pricing because, despite possibly paying more, you stand to gain more. This is common sense.

Hoteliers are focused strongly on the bottom line at the best of times and in the current economic climate cost control is more important than ever. But often costs can be viewed too much in isolation by hoteliers or their financial advisors and, when considered out of context, can lead to very poor decisions being taken for the strategic strength of the business. There’s a reason why balance sheets have two sides.

As a company providing a booking engine capability to hotels, Bookassist operates on a commission-only basis. We feel this is the fairest and most equitable way to do business with hotels, since if we cannot generate revenue for the hotel, the hotel doesn’t pay. Thousands of clients agree. We don’t charge any other fees, like installation, monthly or annual fees, or upgrade fees, for the booking service.

Many other companies also operate on a commission-only basis, while others operate on what they may disingenuously refer to as a "no commission" basis, which means fees are payable whether the service delivers or not. In this latter case, the provider has no vested interest in growing your business at all so I won’t discuss that approach here.

For some third party websites and channels, hotels pay high commissions at 15 to 20% or more and indeed some of these channels have actually been increasing their commissions lately. Yet hotels seem happy to pay these hefty fees, typically on lowest rate rooms that they must invariably supply. And in terms of the GDS and travel agency services, hotels have traditionally paid relatively high commissions. Often a hotel is prepared to pay more when times are tight and their occupancy is low and this can be exploited by resellers. Hotels weigh the revenue against the cost of sale here and consider it overall an advantage, despite the tight margin. For some reason however, hotels seem less likely to apply the same basic logic to booking engine services on their own website where they can potentially generate more bookings for a lower cost, especially when they have low occupancy. Perhaps this is because they feel it is their website, their business, and any booking engine will do to capture it since the business "will come anyway". This view is very wide of the mark and shows no long-term strategic thinking. The industry is fast moving towards the direct model and it is advantageous to be embracing it as much as possible now and partnering with the relevant expertise to ensure you stay ahead of the game.



The Value Proposition

With a booking engine on their own website, hotels can capitalise on their own brand online, grow their online presence and direct bookings, enhance return business and project a customer-centric focus and an image of technical competence to their clientele. A good booking engine will do this well, facilitating the customer professionally. A bad booking engine will turn customers off. The simple fact is that not all booking services are created equal, and not all can be compared on commission alone. Commission charge is a red herring when viewed in isolation - the comparison to make is the potential upside on revenue versus cost, not cost alone. This is too often overlooked by those focusing on the cost side of the balance sheet only.

Does the booking engine allow you to showcase your product properly, with photographs, customer reviews, multiple languages, multiple currencies and secure transactions? If it does, this speaks volumes for how your treat your increasingly worldwide base of customers. If it doesn’t, well then it also speaks volumes for how you treat them and you will pay the price. Does it allow you to upsell additional services, offer vouchers, offer instant confirmed reservations via SMS for convenience? Think about these things, because these are likely to increase customer confidence and satisfaction and lead to return custom, therefore lowering your overall cost of sale. These represent the true value proposition inherent in a good booking engine service for the hotel website.

But equally important is the information gathered by the booking process and how it can help you improve your business strategically. Does the booking engine allow you to monitor and analyse how your online business is doing, what is working and what is not, where your customers are coming from? Does it use intelligence to warn you when your availability is low, so that you don’t miss a sale? Does it genuinely inform your online strategy so that you can work with it to grow your on line business to its full potential? Does it allow you to e-market to a confirmed customer base?

From a technology perspective, does it continue to develop, adopting best practice in design and security, relieving you of any concern or worry about being left behind with old technology? Continued development costs money and takes expertise. All of these things are significant advantages that can drive your business more towards direct bookings and therefore lower your overall cost of sale across your business. These are the things that you are paying commission for ultimately, the whole value proposition.

With all these advantages in mind, driving your online strategy is what direct booking engines are about. As a hotel, don’t make the mistake of thinking that any old service on your website will do and compare on commission or price alone. The success of the online strategy and the increasing delivery of low cost-of-sale bookings to your hotel is the true value of the online service provided.

That said, our commission rate is pretty competitive :-)

Des O'Mahony, BookassistDr Des O'Mahony is co-founder and Managing Director of Bookassist

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