Reacting to competitive pressures, Expedia.com began integrating sister company Hotwire’s opaque hotel offerings within Expedia.com’s hotel-booking path in some markets.
The new program is branded Expedia Unpublished Rate hotels and uses the company’s call centers for customer support, but offers inventory from Hotwire, where consumers know the star rating, the general location and the discounted hotel rate — supposedly up to 55% off published rates — but not the name of the hotel before they book.
As Expedia tests its new opaque product, it is available to a subset of users only.
Priceline long has mingled retail and its Name Your Own Price distressed inventory, and Travelocity did likewise in March 2010, when it officially launched Top Secret Hotels.
“We need to do something to remain competitive,” says Jay Hubbs, Hotwire’s director of revenue management, citing Priceline’s and Travelocity’s products.
Travelocity, which introduced Top Secret Hotels in soft-launch mode in Spring 2009, is said to be pleased at its early returns and would take Hubbs’ statement as a compliment.
John Morrey, Expedia’s vice president of ecommerce, however, insists that what he describes as Expedia’s experimentation with opaque inventory this summer is not a response to other companies’ moves.
Instead, Morrey notes that Expedia has eliminated air booking fees, as well as change and cancellation fees, for consumers “and this was another step down that road.”
Hotels use Hotwire to unload rooms at that might otherwise go unoccupied when the market is soft and thus Expedia will display their offerings in select markets, when rooms are available and when its revenue-management algorithms give a green light.
In theory, the fact that Hotwire and now Expedia won’t display brand names for these kinds of offerings up-front means the brands and their published pricing won’t take a hit.
But, won’t mixing published and opaque offerings be a drain on the higher published rates displayed on Expedia.com?
Morrey says the published rate and opaque offerings likely will attract different sets of customers.
“We believe this will be very incremental to both Expedia and our partners,” Morrey says.
Expedia’s new opaque program, powered by Hotwire, will be a US hotel program for now, and Expedia won’t divulge any plans to expand the program internationally.
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Unfortunately, integrating a generic unbranded hotel price into the booking path will have a detrimental effect on the hotel revenue booked in the transaction for two reasons:
1) It introduces a new product alternative at a comparatively low price into the universe of candidate properties, and
2) It is relatively easy to figure out the Hotwire hotel that is being sold. I am personally correctly guessing the Hotwire property with 90+% accuracy on several recent bookings – and I book using Hotwire a lot because of it.
Here is a guest blog post I did for a friend’s foodie blog “Into the Soup” on the topic: Hotwire Hotel Hedge.
It’s hard to say how many people are actively using this sort of technique to make Hotwire’s product opacity much more translucent, but putting it in Expedia’s booking path will certainly make the process more popular.
The real question is how much is a consumer willing to pay a price premium to guarantee a specific property as opposed to a generic quality level in a specific neighborhood?
The gamblers and brand agnostics will take their chances. The interesting group will be the brand loyalists. Will the Hotwire price differential (and it is often significant) be sufficient to have them take the risk if there is a better than average chance that they will be selecting the same property?
I don’t believe this is very good news for hoteliers trying to raise prices as demand begins to recover following the worst year their industry has ever experienced.
Robert: I agree with most of what you are saying. However, Expedia says it will only be using the unpublished/Hotwire rates in select markets. So, if these markets are soft anyway, then wouldn’t it be advantageous to at least some hoteliers? I guess the question is whether it will do more good than bad to the wide swath of hoteliers in a given market.
I am conflicted on Hotwire –
On one hand, I see two great benefits to Hotwire:
1) As a traveler, I love it – I use it often to get amazing deals;
2) As a hotelier, I can also see its value for efficiently moving distressed inventory.
On the other hand, there are two big issues with Hotwire:
A) The platform is designed to offer only the lowest priced hotel in a particular quality class / neighborhood combination, only the hotel that offers the deepest price discount against its competitive set will secure the booking.
This is not Hotwire’s fault, it is a very clever model. However, hotels that become too reliant on Hotwire as a crutch to shift share from competitors often pit themselves in a race to the bottom. In many cases, I get deals through Hotwire that are simply too good.
Example – last year I booked a 4-star hotel for 5 nights in suburban Chicago for under $50 per night (including taxes.) I was originally booked to stay in a competitive 4-star hotel that was hosting my daughter’s dance competition – the group rate was $140+ per night including taxes. I was definitely making the trip, but Hotwire shifted my booking. BUT that does not illustrate the biggest challenge for the hotel industry.
First, the hotel I booked through Hotwire had a Best Available Rate of $130+ including taxes. The Hotwire rate not only represents a massive discount, but the Hotwire rate for that 4-star hotel was lower than rates for the 2.5-star tier. In essence, they were probably pulling share from 2,3 & 4-star hotels. I don’t consider that as a responsible (or sustainable) revenue management strategy.
One could argue that this level of discounting is excessive and does not make good business sense, however, due to Hotwire’s fundamental structure, hotels can sometimes only be as smart as their dumbest competitor as they are fully commoditized.
B) By including TripAdvisor customer ratings as a data point to the geo-area, hotel amenities and hotel classification, it has often become laughably easy to identify the hotels being sold in Hotwire. This allows consumers to more easily shift bookings for the same property to Hotwire, as well as from other competitive properties.
This creates a challenge for a hotel – significant differentiators (for example, a swimming pool in Manhattan) may help convert a booking, but may also help to reveal the property being sold.
Hotwire clearly understands that this new data point increases booking conversion as it further removes opacity. It also serves to shift bookings from Priceline. A smart traveler friendly move for Hotwire, not so good for the hoteliers.
Hotwire may genuinely create new hotel demand by providing consumer value that enables individuals to take trips they otherwise may have passed on. That is a good thing.
However, given that I have anecdotal information on three companies that are now incorporating Hotwire into their Corporate booking process, that form of cross-channel leakage and rate erosion, if widespread, could derail the rate recovery so desperately needed by the hotel companies.