October 2016, Las Vegas
Why Red Lion-Expedia-Marriott raises some curious questions
Expedia has made two quite different but interesting moves in recent weeks, but what exactly do they mean? Pamela Whitby goes in search of answers
Direct, direct, direct is best is a well-worn mantra in the hotel business. So why then has Red Lion recently gone and handed over its loyalty programme, and all its future direct business, to Expedia?
In essence, as we discovered last month, this smaller US-based chain has climbed into bed with Expedia and sister site Hotels.com by allowing them to show members only rates. At the same time, the OTAs are also allowed to auto enroll non-members in Red Lion’s Hello Rewards programme. In exchange, Red Lion gets the customer's email address and, very likely, to pay much lower commissions.
Responses to the move from hoteliers, former hoteliers and other industry commentators have ranged from ‘pretty strange’ and ‘a move in the right direction for data sharing’ to ‘setting a dangerous precedent for the industry’.
Says Marco Corsi, Third Party and Distribution Manager at Sokos Hotels: “Honestly, the decision seems a little odd.”
So, again, the question why?
What seems clear is that Red Lion has got a pretty sweet deal out of Expedia. Why else would a hotel chain give away the only piece of armour – its loyalty programme - that to date has prevented more business going to the OTAs? Indeed, no hotel until now has ever given in to OTA demands to hand over loyalty benefits, and it seems highly unlikely that they would unless their was very clear upside such as greatly reduced commissions, which in the short term could lead to significant gains.
One obvious benefit for Red Lion is the data-sharing piece, says Asa Murphy, formerly of Nordic Hotels and now CEO of travel advisory firm BizStrat, who takes a middle of the road view.
“For the first time, in the public domain at least, we see an OTA passing on guest information to the hotel and that is a big step. This means the hotel can now communicate with the guest at all stages of the customer journey,” she says.
For the first time, in the public domain at least, we see an OTA passing on guest information to the hotel and that is a big step
According to Murphy, the importance of data collection and data sharing is an issue that has not always been fully understood. In the past negotiations between hotels and OTAs often centred on rate parity and discounts, but she hopes this deal will give way to more data sharing in the future.
On the other hand, however, she acknowledges that there is a risk that the customer is being taught to repeat business with the OTA. So if a new customer finds a Red Lion hotel on Expedia and is promised loyalty points from both, then why would they ever book direct? Probably only if they are going to be a regular repeat customer at the very same hotel, and some very clear additional benefits are on offer.
It’s this that alarms some industry executives. One, who prefers to remain off the record, argues that the move sets a dangerous precedent, likening it to 2003, after the downturn in 2001, when a global glut in hotel rooms led the industry to give away inventory “which created all the problems we have today”.
His argument is that Red Lion, in a bid to prove to its owners that its ailing loyalty programme can work, has sold its direct business down the river for very short-term gains.
Low hanging fruit
Red Lion-Expedia is being viewed as a test case and what happens in the longer term is anybody’s guess. What we do know, however, is that the OTAs are well known for picking off the lowest hanging fruit. With all the big chains all now ratcheting up their own loyalty programmes, Expedia (and other OTAs will likely follow) will be actively looking to the next most vulnerable loyalty programmes. Expedia has already admitted to being in ‘deep discussions’ with other hotel chains about members’ only rates.
According to Murphy, for those smaller chains that don’t have a big enough marketing budget to attract customers or invest in a loyalty programme this might work.
The really big question though is whether the large chains will eventually throw in the loyalty towel, and hand over member rates to Expedia too. Murphy thinks this is unlikely, though others aren’t so sure.
Corsi shares this view: “Quite a few hoteliers are tired after the long ‘war’ over rate parity which in the end only led to a ‘defensive victory’. No borders were moved, and only some formal concessions were achieved. Now, quite a few may want to reestablish non-belligerent relationships with the OTAs, and may even take this one step further, as Red Lion and Marriott have done, and enter into holy matrimony with Expedia.”
In the case of Marriott, Corsi is referring, of course, to another quite different but ‘interesting’ recent move on the part of a big chain to do a white-label technology deal with an OTA. In essence, this means that travellers can now bundle flights, ground transportation and tours and activities, provided by Expedia, with a Marriott hotel and earn Marriott Rewards when they book.
The OTAs have been doing affiliate deals with other travel companies for a long time, but this is the first of a kind with a hotel.
Says Murphy: “For this both Marriott and Expedia must be commended. It’s a great opportunity and I am surprised that we haven’t seen this kind of deal before.”
Clearly Marriott has recognised the importance of providing its customer with as much flexibility as possible in its loyalty programme. This, argues Christopher Barnard, President at Points, a firm dealing in loyalty currency management, ‘flexibility’ is a big opportunity for hotels that many are still missing - more on this later this week. As another example, under Southwest Rapid Rewards programme, members are able to reach their redemption goals faster by exchanging points earned in hotel programmes like Marriott Rewards and Hyatt Gold Passport.
“Not only does this solution make rewards programmes more valuable to members, but also increases their engagement and the likelihood of a repeat purchase,” he says.
….it’s never really been the hotels versus the OTAs, it’s always been hotels against hotels
What Marriott, which will soon complete its merger with Starwood, has recognised, is that the real competition is the other big chains, and the power lies in smart partnerships with the big players in distribution. Says Corsi: “After all, it’s never really been the hotels versus the OTAs, it’s always been hotels against hotels.”
Expedia on the other hand has clocked that the days of being a big bad mean distributor are over. Booking.com got to this party first and to date has trounced Expedia in getting hotels onside. CitizenM’s Lennert de Jong has said that booking.com is the “is the only OTA which is playing – and has to play - the game fair and square because it only sells commissionable agent rates”. Booking.com is also the only distribution channel that Premier Inn works with, for the 7% of its bookings that don’t come direct. Expedia's latest moves show that it can also be a hotel benefactor and best friend.
What is clear then, is that distribution landscape is more interesting than ever. Could the next step be for a major hotel chain to begin selling all-inclusive tours on its own site? Through its acquisition of Fastbooking last year, Accor is already selling other hotels on its website so why not? In this new world order, any thing is possible.