Understanding the true capabilities of online distribution channels

Published: 18 Nov 2009

Interview with Rob Rosenstein, president and COO, Agoda.

It is said that pricing integrity is a combination of several different factors, with the most important being BAR parity.

What it ultimately comes down to is the word "integrity" which can be simply defined as "adherence to a strict ethical code". As long as you don't neglect the meaning of integrity in your pricing strategies, the end result should be one that is a mutual win for both the consumer and the business, and this in turn will build trust and loyalty.

From an OTA’s perspective, Agoda’s president and COO, Rob Rosenstein, says pricing can be designed to achieve an optimal customer mix or perhaps encourage the development of new markets or achieve other financial or operational objectives.

Rosenstein, who is scheduled to speak at the forthcoming Sales and Marketing in Travel Asia Pacific conference, to be held in Sydney (November 18-19), spoke to EyeforTravel’s Ritesh Gupta about pricing strategy and distribution strategy. Excerpts:

How do you assess the utility of opaque pricing channels in today’s environment as far as pricing strategy is concerned?

Rob Rosenstein: In classic opaque models such as packaged, mystery or name your own price I think opacity in general does have advantages for hotels. The purpose of these models is to allow hotels flexibility in pricing while maintaining rate integrity across other channels. The factors that a hotel needs to consider is really what are the core objectives of the hotel and to what degree is the opacity actually achieved. Unproven models in which the customer can easily game the system to identify the property will have a lesser degree of opacity and may be less attractive to hotels. In general, any online system avoids the problem of published inflexible rates, and the more dynamic the rate management and promotions of the hotel, the less transparency there is in the hotels rates, which helps maintain price integrity. In considering opaque opportunities, hotels might consider other objectives that they may have such as geographical, seasonal or other targeting.

Recently, a hotelier told me: pricing integrity is not just about BAR parity which is a common mistake I come across at times. It is pricing to support the most optimal customer mix that best suits the brand and at the same time logically differentiates the different price points that are available to the potential and targeted customer base. What’s your take on this?

Rob Rosenstein: Once a revenue manager is clear about the real capabilities of his distribution channels, I agree that pricing can be designed to achieve an optimal customer mix or perhaps encourage the development of new markets or achieve other financial or operational objectives. The problem is that it takes time and investment to really understand the true capabilities of your distribution channels and to understand where overlap exists. This requires experience and data. The risk is that you have overlapping distribution with various price points and you end up with disparity which is the worst possible outcome – it’s ineffective and upsets OTAs. To really be successful, hotels need to investigate what various channels can do them and help validate their claims over an extended period of time. At this point, you can start designing more sophisticated pricing models tied to objectives.

When it comes to bundling, do you think today it is necessary to clearly demonstrate objective value by combining several elements of the customer’s stay and thereby making the rate opaque? What should one be wary of?

Rob Rosenstein: The message from the online world is avoid confusion. At Agoda, we operate across so many languages and cultures, we see hotels attempt to create something that makes sense to their own internal team, but once it is out there in so many markets and translated into other languages, it reduces the overall success. This can hurt relative performance against the competitive set who may be keeping it simple. Things that work when discussed verbally among the marketing people don’t always translate online. Testing can help.

Some senior RM executives say the entire equilibrium of pricing is based on several factors including elasticity of demand being one. Sure, this is influenced by several considerations right from product, value, relevance that makes price elasticity determination a bit more complex. In addition there are also compelling cases that also are an exception to general function of price elasticity and one needs to consider the same. How do you assess the situation?

Rob Rosenstein: The best advice I can give is to remain flexible at the property level and experiment frequently. Strict guidelines, with the exception of price parity, from centrally organised bureaucracies are a disaster. I would encourage the properties to experiment and evaluate data and see what works and doesn’t work. Sure, you’ll make some mistakes, but then again, you may find the exact strategy you need and gain critical insight into what drives pricing at a specific property. In my experience, the local people at the hotel have a wealth of ideas that should be tried and evaluated.

From distribution perspective, with online channels more responsive to discounting, how do you think online channels impact ROI and CPA?

Rob Rosenstein: Online is the key today to getting higher better ROI and lower cost per acquisition. The more committed to online distribution, the more a hotel will develop its own online channel which is a very lucrative channel. It is surprising that some small 3-star properties understand this and some giant organizations still do not.

Hotels that play more aggressively with OTAs and drop rates in an effort to steal market share damage the market conditions for their entire destination and it will take them years to build the rate back up to normal levels. The role of OTAs (and wholesalers) should not change according to economic conditions. How have OTAs generally played their part?

Rob Rosenstein: Even in a weak economy, there are peak periods and the reverse is also true. In high occupancy environments, OTA’s help hotels to raise prices and help them achieve specific developmental objectives. In low occupancy, OTAs offer growth and impulse-driven demand, where pricing and promotional strategy can be highly effective, with a fair degree of opacity. Hotels don’t need to steak market share and risk these important relationships. Maintaining overall price parity with OTAs is a highly effective strategy for both maintaining these relationships and developing the hotel’s own online channel, which will surely be the most profitable distribution channel in the years to come. There’s enough growth in online for both channels, OTA and hotel brand website, to be successful.

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