How TripAdvisor off-shoot Tingo could change travel AND retail forever

NB: This is a guest article by Matt Weisberger, chief operating officer of Travel Spike.

The wrong industry is paying attention to Tingo, the recent side project from TripAdvisor which is gaining notoriety from the travel trade.

Tingo’s spin is turning what others have deemed a feature into a product. Offering refunds on booked hotel itineraries if the price drops.

Its momentum alone is fascinating considering Orbitz Price Assurance, Yapta and TripIt Pro are all variant flavors of the same refund policy. And while none have it right yet, it’s worth noting that Tingo is the fourth player to endeavor this model.

If a company finally succeeds with this approach, its impact could be wide reaching even beyond travel.

The obvious buzz is coming from the travel category, whereas perhaps we should be hearing from RETAIL.

Why?

If Tingo proves successful, deductive reasoning draws a direct line to a cataclysmic sea change that impacts the retail industry. So while not an original offering, a Tingo victory could lead us down a unique path.

Though myriad differences separate Tingo from existing players, a new expectation is being created for travel consumers. The presumption that no matter when your itinerary is booked, you’re guaranteed the lowest rate.

Whether true or not is irrelevant – public perception guides the expectation. Which incites consumer demand for parity. And parity ultimately means the creation of a new industry standard.

The interesting subtext of this potential new standard is an exploration of what happens when Refunds for Price Drops becomes common practice among travel suppliers.

Finding our answer takes us on a journey beginning with the assumption that Tingo is a brilliant success. While far fetched this early in its history, we’ll make the hypothetical leap and say that they steal share from OTAs and independents alike provoking a strong competitive response.

Tingo is fuelled by Expedia, and we can expect the largest player in online travel to embrace this now successful policy. As Expedia goes, so goes the OTAs, who would be fast followers on the Tingo model if Expedia adopts it.

With the OTAs onboard, it will be nearly impossible for independents not to follow suit, since their value proposition can no longer be price-based, so we assume they do so.

If Tingo works in hospitality, it’s likely all players would translate the model into other travel mix like air, car, cruise, etc. As such, the online travel market (now one-third of global travel market value, according to yStats) is further commoditized.

Customer service and user experience become the only true gaiting factors for travel bookers. A coup for travelers!

Based on this path, every travel supplier would now protect any booking from price drops. Now we need to ponder how this impacts those establishing the actual price points: ie. revenue management.

Managing revenue – hopefully

For a great take on revenue management and Tingo’s impact on it, read Loren Gray’s recent article on Tnooz (Is TripAdvisor site Tingo a wake-up call for bad revenue management in hotels?).

Revenue management has been the profitability engine of travel and hospitality for decades. Its operators manage the delicate balance between inventory, demand curves, rack rates, best available rate (BAR), RevPAR, load factors, time to stay/flight/ride, promotions, discounts, pre-pay, opaques, blended rates, rate parity, cancelations, refunds, rewards programs, OPEC, seasonality, advance day fares, etc.

It’s endless the elements required for consideration when establishing a price of travel products. It’s a combination of science and art form.

Yet should Tingo prove victorious, revenue management teams will have their hands full figuring out how to adequately respond to this model.

That response could be as simple as “No More Price Fluctuations” – yield management disappears. Blasphemy! And most Revenue Managers would tell you keeping price points flat actually has a decrementing value against the forward-looking P&L.

However, if travel is now a commodity, and downward pricing is being refunded automatically, why bother chasing longer margins to gain nothing. How does Revenue Management respond when their most reliable arrows (price adjustments and time) are removed from their quiver?

For air travel, it’s slightly different in that last-minute purchases don’t always bring the best price. RMs leverage advance day purchases and often only respond to competitive price drops as needed. Regardless, our position remains that if Tingo is successful, all travel suppliers will need to adjust accordingly.

So we assume all travel pricing becomes static. Suppliers offer a flat price for a single product that remains in perpetuity. And we further assume it’s a resounding victory. Should we not also assume the Retail category takes notice of such success?

They’ve already done it to some degree, amateurishly.

Retail reality

Retail has price matching, 110% guarantees, list pricing with deep discounts, MAP pricing from manufacturers (Apple). Anything to make you feel your purchase is guarded against the inevitability of price drops.

That is of course, unless the price never drops. All of these marketing mechanisms are intended to restore confidence in our purchase, exploiting our fear of getting taken, robbed, hoodwinked. Imagine a consumer market where that was never in question.

There are far more gaps in retail since they often aren’t dealing with finite inventory and a long booking window. Most retailers are thinking about store inventory, warehouse inventory, competitive pricing, turns and GMROI.

If more product is needed, they contact the manufacturer who happily delivers. If the manufacturer is out, they produce more. The model is certainly not a direct parallel, but the structures are similar.

Refunds in retail aren’t automatic like Tingo is offering. The burden of proof rests with the consumer.

Scan an item in-store with an app that searches competitors, reveal your lower priced finding to customer service, and most big box retailers will honor the lower price. Imagine buying a new TV, and 90 days later you see $100 back on your credit card statement because the price dropped $100.

Wouldn’t you be more likely to buy a TV at the retailer that offers this kind of service?

Placing enough pressure on retailers to embrace such a policy would be like moving an iceberg by hand. Our loudest voices and preferences don’t have the PSI for that kind of battle. For such a model to work, retailers would need to realize the benefit for themselves.

After all, I once sat in a room with a revenue manager who said:

“Why charge $250 for something they’re willing to pay $350 for.”

Tingo is another player challenging that antiquated but profitable thought process. I don’t know that I’m a Tingo-supporter yet, but I’m enjoying the trend it’s yielding off of.

For a moment, we’ll imagine commerce, based not on what someone is willing to pay for a good, but a fair and economical valuation of the cost of goods, labor to create it and a reasonable profit?

Dream of such a marketplace, then wake up, and realize the cost to you as a consumer is typically based on what you’re willing to pay for it. But wouldn’t that dream be a pleasant reality, if only for the momentary lifespan of a small travel brand.

NB: This is a guest article by Matt Weisberger, chief operating officer of Travel Spike.

NB2: Barcode image via Shutterstock.

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Viewpoints

About the Writer :: Viewpoints

A founding principle of tnooz was a diversity of viewpoints from across the spectrum. Viewpoints are articles by guest contributors from around the travel and hospitality industries. The views expressed are the views and opinions of the author and do not reflect or represent the views of his employer, tnooz, its writers, or partners.

 

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  1. Chris De Waele

    great innovation and… happy not to be in hotel revenue management for the moment :-). However 2 me the success of this is fully linked to the cancellation policy that hotels currently use, free cancellation up until x hours before arrival, change this and the model collapses, as the price drop needs to compensate the cancellation fees. That’s also why I truely believe that this will not affect for example air. In Europe, most airlines have a near to 100% cancellation fee, except for high priced business class , meaning that rebooking at lower prices becomes in most cases no longer interesting.

     
  2. Robert Gilmour

    Hoteliers should point blank refuse to play ball with OTC’s and their derivatives (like Tingo) who promote price erosion and take no inventory or product risk. But they will (play ball) if their competitors do, its a nonsense ‘sheep follow sheep’ concept with no commercial substance for the whole industry to win from.

    Off all people Trip Advisor initiatives are the last thing they should follow without good reason. Trip Advisor is the arch enemy of the hotel industry, and again they plunder it without taking any risk whatsoever.

    if there’s one thing that should end forthwith in this business, its OTA’s pulling all the strings without taking any inventory or product risk. Hoteliers, are we just plain stupid or what., And to compound matters we have the flash selling sites going ,mainstream.

    I have a hotel client who Booking.com would not allow priority placement for unless they gave an allocation of 6 rooms at weekends with last room availability (so no release). These scandals need exposed. and the inventory risk issue – that hotel is left with 6 rooms potentially at its busiest trading period.

     
  3. Frank

    Hi
    I have some real concerns about what TripAdvisor does ( or rather does not do in reviews around verification). I think more authorities around the world should follow the UK ASA exmaple and hold them to task about how they sell themselves.

    I see it too in Tingo. Have just looked at hotel via Tingo. it says ” the average nightly rate is $90, there was 143 price drops over the last 30 days and the average price drop was $9.66.

    This is highly deceiving. first an avegre nightly rate is a nonsense. people need to know what the high and low rates are. Second how does it work out there were 143 drops?. that is 7-8 per day. If it is collected from OTA rates etc they it is all smoke and mirrors. The price drop is also a concocted figure.
    What it does not do is tell for the type of accom I am thinking of booking actual figures for that room type. it might be for that type there has been no change at all. certainly even if it has gone down it will not be the average drop of $9.66. Logic says that most of the drop will be made up from very expensive rooms so using the average in terms of normal rooms is overstating the drop most people will achieve.

    it is effectively false advertising to get people to use the site.

    the normal punter reading this would think “gee better book with Tingo as this hotel does lots of drops and on average I will save $9.66 and on $90 that is over 10%”

    in the old days you hung snakeoil salesmen from the nearest tree. Is there an equivalent in the 21st century on the web?

     
    • Frank

      oops one calculation was wrong 143 drops over 30 days is 4-5 per day not 7-8 per day but my overall points remain valid

       
  4. Martin Soler - wihphotel.com

    If this does change the industry it will go one of two ways:
    1. We’ll go back to fixed prices like it was 25 years ago and guests will just have a high or low season price. Or
    2. Hotels will yield just like the airlines do and the last minute idea will go away.

    Thats IF this does disrupt anything. In both cases it’s not to the benefit of guests. I dont really believe this is to the benefit of anyone except try to create a new product. Especially considering that it’s not being released by an entity that has any financial transactions with guests.

    I for one will pay my room at the price I paid, if there is a lower price later I dont necessarily care. If i wanted a lower price I would have booked elsewhere.

    Now that we’re talking about Apple, what about a refund guarantee if Apple releases a new version of the product for the same price with better specs within 30 days? How many people buy a Mac only to discover a few days later that a new and better version was just released for same price or less?

     
    • Peter Daams

      Apple does actually have a price protection guarantee – from their policies:

      “Should Apple reduce its price on any Apple-branded product within 14 calendar days from the date you receive your product, feel free to visit an Apple Retail Store or contact the Apple Contact Center at 1-800-676-2775 to request a refund or credit of the difference between the price you were charged and the current selling price”

      So although that doesn’t mean you can just upgrade for free, at least I guess you’ll get back some cash.

       
  5. Robert Gilmour

    Interesting. Whats good for the goose &c comes to mind. The hotel is the most threatened enterprise right now in travel, both from consumers, and huge merchants and intermedaries alike, and now deal sites. How many of these threats actually care a jot about consumers. (consumers only care about themselves, not other consumers). Tingo is just another source of revenue and market control for greedy Trip Advisor, masquerading as some god given gift to consumers (and certainly not hotels) – there is nothing morally defensible about this.

     
  6. Loren Gray

    Matt,

    I like the extension of the thought, very nice indeed. Heres a few crossover ideas; From an adjacent article called “Big Data” it refers to “PNFTP” (People Not From These Parts) as an ever growing segment of business. I think we can all agree that as an industry we are a leaderless commodity, not much worried about ourselves as a whole but only the part that is ours. We probably can also agree that we as consumers really do have certain preferences that just are not considered in the purchase model, (i.e amenity choices, quality levels, location preferences, brand choices etc.,) yet we subject ourselves to all that ‘useless data’ in the process of our 22 sites, 5 hours of time researching travel selections, (i’m sure we all see the same stats). That said, what would it be like if to use the hip new phrase’ “big data” I as a consumer don’t have to see the stuff I already know I won’t consider but rather only the data that I would. Now wonder if say that interface was controlled by a certain “PNFTP” like Google per chance!?! See the other new tnooz article from Dennis Schaal about Google repositioning its Hotel Finder result’s in its SERP’s back to the top.

    Matt, just trying to find some place to add the “droid” army to our ever growing analogy… anybody else hear the “empire” theme music playing?!?

    Loren

     
  7. Jonathan Alford

    Max made several good points.

    It’s been interesting to watch how loosely the terms “disruptive” and “change the industry forever” have been thrown around the past couple of years. Disruptive, in my simple mind, characterizes things like the conditions and technologies that enabled the origin of the OTAs themselves and the impact of boutique hotels.

    Tingo seems to be what could amount to a potential slight shift in marketing costs for hotels. Since it’s not a sustainable advantage or disadvantage for any particular hotel, wouldn’t the net impact be negligible?

    As Max alluded to, occupancy rates are rising, and ADR’s follow. Hotels blew it in the mid-2000’s by creating too much capacity too fast, and the resulting real-estate lessons hit hard – they seem to be smarter about their construction pipelines and capacity management, just like airlines are.

    If anything, this marketing cost could prompt hotels to either raise rates slightly or increase other charges – so while some consumers might save money on a one-off basis, overall they could end up paying more. Which of course is good for the hotels…

     
  8. Max Starkov - HeBS Digital

    Matt,
    I am skeptic regarding the uniqueness and survivability of Tingo’s business model. Let’s analyze the viability of Tingo.com:

    To begin with, Tingo.com has no unique content, pricing or inventory of its own. Its only value proposition – refunds when and if a lower hotel rate becomes available – is based on factors that are at the mercy of the other OTAs and the travel marketplace as a whole. Expedia could replicate Tingo’s offering within five minutes or less. As you pointed out, Orbitz and other OTAs are already offering and widely publicizing similar automatic refunds.

    Tingo.com’s business model does not take into consideration the following:

    • Hospitality is experiencing rising travel demand and miniscule new supply, which results in increases in all three performance metrics. As reported by STR, in February 2012, which by default is the lowest of the low seasons for most of the country, the U.S. hotel industry’s occupancy rose 3.5, its ADR was up 4% and RevPAR increased 7.7%.

    • With travel demand rising, how many hotels will lower their rates to begin with? Increasing rates over time as occupancy rates rise is the prevailing trend today, not the other way around.

    • In addition, booking windows, i.e., how well in advance people book hotels, have shrunk to their lowest point ever, due to the full transparency of the online channel and the exploding mobile channel, where 65%-80% of all mobile hotel bookings are made for the same day!

    In other words, Tingo.com’s main selling point – that it will refund the difference to customers if the price of the room they have booked drops after booking – is practically mute and irrelevant.

    There is a bigger picture here that involves the fierce battle of the industry with the OTAs. Rising demand means that the OTAs’ merchant commissions are already shrinking due to fierce push back from the major hotel brands and the industry as a whole. Contracts with the OTAs are up for renewal this year and the major hotel brands will be pushing for commissions below 15%. Hilton has already suspended its merchant agreement with Orbitz over commissions, last room availability, etc. Independent hoteliers would not be willing to pay merchant commissions above 20%.

    Sooner or later, to counteract decreased merchant commissions and the growth of travel demand as the economy improves, OTAs will be forced to re-institute booking fees that were dropped back in 2009. How would the Tingo.com business model work when there are non-refundable booking fees involved?
    I am not even discussing how the paltry 7%-8% affiliate commission would allow Tingo.com to be a sustainable business venture. The cost of establishing a new travel consumer brand is staggering! In my view, Tingo.com will most probably not “explode” as a new travel site, but linger out there.

     
    • Loren

      Good Stuff Max, (as always)

      So my geeky analogy wasn’t half bad huh? “Phantom Menace”….smile

      Loren

       
    • Robert Gilmour

      Totally agree Max

      + we need to show some modicum of strength against these OTA sponsored initiatives. its Trip Advisor after all

      + there are ‘things’ called deal and flash sales sites fighting in the same market place, don’t we know it

       
    • Matt

      Great points Max. Thanks for posting.

      Its the trend and the direction that piqued my curiosity. Not that Tingo will succeed on its own merits, but what would happen IF they did. And why does TripAdvisor think so highly of the refund model to launch a new product? When, to your point, it would take Expedia a short-windowed product launch cycle to test it and if it worked, take it to full scale. They can read the tea leaves as well as we can, if not better. I don’t think Tingo will be the last to attempt this. The idea will persist, even if the initiators and fast followers fail (wow, say that fast).

      The shorter booking window for mobile seems a function of platform over preference, need over desire. I’d be curious to learn the percentage of business vs leisure travelers on this statistic? If we adopt the consumer view, ten steps ahead, shorter booking windows could actually play into this model’s wheelhouse. Less time to shop, less fear of overpaying, higher conversion rates, volume greatly overtakes item per capita profitability.

      If I may redirect our focus for a moment, let’s go to the source and recall the original purpose for creating classes in itineraries, airfares (ala non-refundable). Squeezing pence from the penny (sorry, mixing currencies), protecting inventory and mitigating risk associated with shifting consumer preference and potential abandonment. While most caring about this discussion represent enterprises and therefore our favor would be in theirs, focusing on solving a problem for the consumer will rarely lead us astray. After all, they are our true clients.

       
  9. Loren

    Matt,

    Love the article and the insights, (and the ‘shoutout’ to my related article!) Having had time to field all the responses both here and social that my article created. It gave me some time to consider how our industry might respond should this blending of trends were to take hold. Since we as an industry tend to be a bit ‘knee jerk’ish’ about how we respond to a threat, (sans Oct 2011 OTA use) It unfortunately takes me to a place I thinking the OTA’s have been trying to ‘herd’ us to as an industry for awhile, opaque packaging, (Expedia’s persistent marketing push since 2009). It reminds me of the Star Wars plot and the evil emperor, create the threat, (Tingo) create the solution of a clone army, (opaque packages to mask price points) then take control of the whole thing (no dynamic stand alone pricing!) Ok, maybe that’s too geeky of an analogy but the idea is about right. The best way to not adjust rates publicly is to either ‘blend them’, or mask them, nulling the effect of the apparent ‘threat’ of refunds we as an industry would have to shoulder. Crazy!?! yeah maybe but so was the thought of OTA’s in 2000….

    Thanks again for the excuse to jump on the bandwagon!

     
    • Matt

      Loren, fantastic analogy. You’re after my heart. Let’s take it further. Automatic Refund Policy is the threat (Tingo et al). Opaques usurp control (Emperor). Battalions of the clone army develop a new consciousness, become cognizant of the injustice and revolt (Hoteliers/Airlines). A civil war ensues (circa 2000). Citizens become disenfranchised but have no real power to enforce change (Consumers). A new regime further destabilizes the region attempting their own coup (Room Key). They fail (Room Key). And like a phoenix rising from the ashes a new leaderless government is born (????).

      It’s not a page-one rewrite but hey, why not. — Matt

       
  10. Steve Reynolds

    You ain’t seen nothing yet. Take the Tingo idea, apply a heavy dose of steroids and you get a new service coming out this summer called tripBAM. Takes hotel pricing assurance to an entirely new level. Travelers can shop and purchase anywhere they want. Lord knows there are 1,000 of websites chasing after that market. The real value is making sure I have the best rate where I’m booked or at the hotel down the street and give a PM the chance to get me to move while maintaining revenue parity. Hotels love it because is reduces the dependency upon the OTAs and the huge incentives paid for last minute bookings. Watch this space.

     
  11. Karl

    I don’t like this model…

    Yes this is nice idea for the consumer and for monsters like Expedia that want to indirectly squeeze the market but there are a lot of businesses that could not afford operate such a model.

    A lot of smaller/independent businesses in travel (and other industries) are selling products based on a number factors such as exchange rates, pre-paid wholesale pricing, availability, demand etc, so making refunds based on retail price fluctuations does no favor for the smaller/independent business owner. It is likely that the contributing factors at the time of product sale could have changed during the time period between purchase and consumption so a refund could result in a potential loss.

    It is a model that (if employed on a universal scale) would limit earning potential and enterprise.

     
    • Robert Gilmour

      The model should be killed at birth.

       
    • Matt

      Karl,

      Very much appreciate the response and opinion. And you are correct that earnings potential would be limited on a per item basis. I submit to you that enterprises may win more favor, more customers, more volume to offset the loss. I do agree enterprises employing such a model could be confounded by new market conditions or circumstances like the cost and availability of a part coming from Japan after a Tsunami (ala Audi). I think with retail adoption (however small a chance there is), Risk Management will enter the arena heavily, protect against such losses by building the small percentage of those variables into the price of the product globally, including the insurance to mitigate the risk. — Matt

       
  12. kp

    As a reminder Farecast pioneered the model of refunds with its FareGaurd product- also don’t overlook what Decide.com is doing regarding refunds – they have consumers’ back on electronics. In general, I’m a big fan of companies that can legitimately bolster customer confidence through product marketing. Tingo is spot on.

     
    • Matt

      Good points KP. Farecast was a personal favorite and analogous to the refund model in general. With Microsoft’s acquisition, they essentially turned the Farecast product into a feature. Not dissimilar to Tingo’s product/feature offering. It will be interesting to see how Tingo evolves and whether or not the model can sustain the persistent issues surrounding them. — Matt

       
  13. Gary Arndt

    Airline and hotels are unique in that they are usually purchased in advance and there is a lag between the time of purchase and consumption of the product.

    Price guarantees take into consideration fluctuations in price between the time of purchase and the time of consumption.

    Hotels vary in terms of demand by time of year and in terms of the quality of the property, location, etc.

    Retail is totally different. There is little to no lag between purchase and consumption. Most price guarantees are dealing with competitors selling the exact same product who pay identical or near identical wholesale prices.

    Post purchase refunds for price reductions make no sense because the price of technology is always dropping. If Apple decides to drop the price of the iPad, why should retailers have to suddenly lose money on previous sales that they paid a higher wholesale price on?? Makes no sense.

    I do not see this extending far beyond the hotel space, assuming this in fact ever catches on in the hotel space.

     
    • Robert Gilmour

      Totally agree wit you Gary, and to be honest I don’t think Tingo will ever really happen in travel, and I’d urge hoteliers to totally resist it, especially the big brands (good luck Roomkey)

      When will hoteliers ever learn to combine to curb the apparently inexorable growth and domination of the OTA’s. ‘Travel agents’ – they don’t know the meaning of the word. They are greedy numbers game parasites, control freaks who add absolute zero value to the business of travel, and hotels pander to them line defenceless animals.

       
    • Matt

      Thank you Gary for the response and insight. I do agree, the parallel to retail is indirect. What’s interesting is that retail is already doing this, they just don’t market it or execute it the same way. Apple is a MAP priced vendor and price drops align generally with new product releases. Lets build on your keen example though. As an ordinary consumer, not an enterprise affiliate, if you purchased an iPad today and the price dropped tomorrow, I presume you would be dissatisfied. Then the discussion moves to a refund time window after purchase, which retail already does. Some big box retailers offer a guaranteed refund of the difference for price drops inside 30 days, you just have to bring in your receipt to execute the transaction. — Matt

       
 
 

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