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THE "MERCHANT
MODEL"
The
standard way for hotels to work with travel websites has been to ask for a
credit card as a guarantee against "no-show" or cancellation after the hotel's
stated deadline. In the event that the guest does not show, or cancels the
booking too late for the room to be re-sold, the hotel then has the option of
charging the credit card to cover its costs.
When checking out of the hotel
at the end of the stay, the guest pays the rate that has been booked online.
That rate may be the standard rate, or perhaps a special offer "web only" rate.
In many cases the hotel will pay a commission to the website operator in the
same way as if it had been a travel agency. Indeed, many travel portals operate
as travel agencies and have their own IATA numbers.
Now a new way of working has emerged
alongside the traditional method. Originating in the USA, it is known as the
"Merchant Model", and it uses "net" rates. Not all merchant model sites work in
the same way but in general these features apply: |
- The
hotel provides an allocation of rooms at a heavily discounted rate to the
website operator, who marks it up to include commission and any third party
travel agency commission.
- The
resulting rate that is offered to guests is still lower than the hotel's
standard rate, so the website can still promote itself on the basis of offering
savings to the guest.
- When the
guest makes a reservation on the website, instead of supplying a credit card
guarantee the website operator insists on full prepayment of the
reservation.
- When the
client checks out of the hotel, the accommodation has already been paid for so
it is only necessary to pay for additional services provided.
- The
hotel receives payment of its net rate from the website operator. In many cases
the website operator provides the hotel with its credit card number, against
which the net rate can be charged.
- The
website operator takes care of any travel agency commission
payments
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ADVANTAGES/DISADVANTAGES
Amongst the websites using the
Merchant Model are some of the biggest producers of bookings in the world such
as hotels.com - so hotels can benefit from
a lot of bookings. Some of these may be from existing regular guests, but many
others may be new business which would not otherwise have been
received.
The downside is that the hotel gives up control of a certain
proportion of its room stock at a relatively low rate, and thereafter has no
control over the rate sold to the guest. The "revenue management"/"yield
control" of those rooms has been passed to the website operator, who can charge
whatever the market will bear, and thus benefit from higher margins during peak
periods.
Percieved wisdom seems to be to promote the hotel's own
website, over which the hotel has total control, to the maximum extent possible
and thereby minimise the handing over of control to the Merchant Model
websites. That sounds fine in theory, but in practise the Merchant Model
websites have a huge presence in the search engines and can provide valuable
additional business which the hotel could not hope to generate on its
own.
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