The current issue and full text archive of this journal is available at www. emeraldinsight. com/0959-6119. htm Online distribution strategies and competition: are the global hotel companies getting it right? Gabriel Gazzoli ? Institut Hotelier Cesar Ritz, Le Bouveret, Switzerland Online distribution strategies 375 Received 25 May 2007 Revised 3 July 2007 Accepted 18 October 2007 Woo Gon Kim International Center for Hospitality Research, Florida State University, Tallahassee, Florida, USA, and Radesh Palakurthi School of Hotel and Restaurant Administration, Oklahoma State University, Stillwater, Oklahoma, USA Abstract
Purpose – The internet has signi? cantly changed the ways hotels distribute and price their products. The imminent success of online intermediaries caused ? nancial problems for hotel chains since online travel agencies offered better prices than the hotel brand websites. The existing literature on hotel online distribution has focused on pricing strategies and room availability issues for different segments of hotels. This paper, however, aims to compare online room prices of global hotel chains across online distribution channels and their own brand websites.
Design/methodology/approach – By using only the internet, 2,800 room rates were collected and analyzed. Descriptive statistics such as means and percentage were used to answer the research questions. Personal interviews with a CEO of an e-business company and an area revenue director of a global hotel chain were conducted to con? rm our ? ndings and to gain additional insights in the related issues. Findings – Descriptive statistics indicated that US properties are doing a much better job than their international partners in regards to “best rate guarantee,” “rate parity,” and room availability across online channels.
The Essay on Is Poverty and Hunger largely a distribution of resources issue?
IntroductionIn our world today poverty and hunger are more prevalent than ever before, with developing countries suffering the most devastating statistics. Approximately 925 million people are living in poverty and hunger, with 98% of these people living in developing countries (World Food Programme 2012). Poverty can be defined by people who lack the means to satisfy their basic needs (Yapa ...
Rate consistency still remains a problem within US properties. Research limitations/implications – A limitation of this study is the use of convenience sampling methods, sample size, and currency conversion instruments. Originality/value – Findings of this study would bene? t revenue managers, general managers, hotel owners, and corporate brand managers to make decisions and to formulate new policies concerning their online distribution, revenue, and brand optimization strategies. Keywords Hotels, Distribution, Intermediaries Paper type Research paper
Introduction The development of the internet has greatly affected the ways hotels distribute and price their products. In the mid 1990s online travel agencies such as Expedia and Travelocity – also known as online intermediaries or online third party sites – partnered with airlines and hotels to offer travel products such as airline tickets and hotel rooms from multiple suppliers directly to consumers (Carroll and Siguaw, 2003).
By using different business models and smarter business practices, and by taking
International Journal of Contemporary Hospitality Management Vol. 20 No. 4, 2008 pp. 375-387 q Emerald Group Publishing Limited 0959-6119 DOI 10. 1108/09596110810873499 IJCHM 20,4 376 advantage of the poor management and application of hotels’ online pricing (Enz, 2003; O’Connor, 2002, 2003; Tso and Law, 2005), online intermediaries proved to be very successful. One of the main reasons for these e-intermediaries’ success was their ability to provide cheaper room rates than the ones offered by the hotel brands websites or their reservation of? ces.
Price disparities among the distribution channels of hotels have shaped the perceptions of the consumers who are now searching several online engines and shopping around for better deals (Enz, 2003; Murphy et al. , 2006; O’Connor and Frew, 2002; O’Connor and Piccoli, 2003; Thompson and Failmezger, 2005; Varini et al. , 2003).
The Business plan on Evolution Of Hotel Industry
... Easy accessibility Responsiveness to customer demands Extensive geographic coverage of the hotel network Online and centralized reservation systems Variables room rates Security Quality standards ...
Past studies have urged hotels to implement consistent pricing across all distribution channels (KPMG, 2005; Murphy et al. , 2006; O’Connor, 2003; Thompson and Failmezger, 2005; Tso and Law, 2005).
Rate parity is de? ned as setting the same rate structure across all distribution channels.
When the revenue management department of a property controls rate parity, rate integrity is assured. As a result, the customer becomes more con? dent and trustful of the hotel’s brand website while making reservations online (Hotel Online, 2004).
In addition, by setting consistent rates across all distribution channels, a hotel can assure its customers that no cheaper rates exist elsewhere. Therefore, besides delivering the “best rate guarantee” promise, rate parity also serves as a controlling agent of rate and brand erosion for the hotel companies.
The issue of inconsistent pricing can be related to the theoretical perspective of perceived fairness. Kahneman et al. (1986) have used the concepts of “reference transaction” and “reference price” to investigate the fairness of ? rms’ practices. In the case of online pricing, a “reference transaction” is how customers believe the online sale of rooms should be set by the ? rm, and the “reference price” is how much the service/product should cost them. Customers formulate their reference price from past experiences with the ? m, posted prices, and market prices. For example, if a customer of a particular hotel in New York (market price) has always paid for a standard room (past experience) through the company’s website $150 (posted price), the reference price will be $150. Therefore, if the same customer ? nds that particular room being sold on Expedia. com for $120, this customer may think that the online pricing posted on the company’s website is unfair, and as a consequence, the customer’s dual entitlement is breached. According to Kahneman et al. 1986), fairness is governed by the principle of dual entitlement, which supports the argument that customers are entitled to the terms of the “reference transaction,” and companies are entitled to their reference pro? t. The principle of dual entitlement is also based on two hypotheses: customers think that it is fair if companies increase their prices if costs increase as well, and customers view it as an unfair practice if companies increase their prices when the cost of production is not increased.
The Business plan on Raffles Hotel
... equipped luxury hotel. A large business conference or convention can increase the occupancy rate to 100% easily, and the price is relative ... can learn through various channels: trainings from training department, internal trainings, cross-department trainings and trainings online. The employees not only ... and there were as many as 1200 new Hotel rooms. 70% of the hotel is located in Sentosa and the bay ...
Therefore, if a hotel increases the rates for the rooms due to a corresponding increase in the cost of selling that room, and set a consistent rate increase across all its online channels, customers will view this increase as fair. However, if that particular room is sold at the company’s website at an increased price compared to the other online intermediaries, then customers will view the price posted on the brand website as unfair. Therefore, hotels offering differential prices for the same room on different channels may negatively shape the perception of the consumer.
Several researchers have investigated the topic of perceived fairness (Campbell, 1999a, b; Kahneman et al. , 1986; Kaufmann et al. , 1991; Kimes, 1994; Kimes and Wirtz, 2002, 2003a,b; Mcguire and Kimes, 2006; Rohlfs and Kimes, 2007; Urbany et al. , 1989, Wirtz and Kimes, 2007) and some of them suggest that perceived fairness is a major factor contributing to consumer loyalty and satisfaction, and to the ? rm’s pro? tability. Although rate parity and the “best rate guarantee” promise have become the norm for the hospitality industry over the last ? e years (Starkov and Price, 2007a), currently hotels have not been able to put these two strategies into practice (Brewer et al. , 2006).
Online pricing practices have become a major issue for hotel companies, but still there are few published studies in this area (Tso and Law, 2005).
Therefore, the purpose of this paper is to collect online prices of hotel rooms of ? ve global hotel brands and to compare them with four online travel agencies. Speci? cally, this paper intends to answer the following research questions: .
Are US and international hotel properties within the same group setting consistent rates across their online distribution channels? . Are the global hotel companies offering the lowest hotel room rates through their own websites? . Is room availability consistent across online distribution channels? This article contributes to previous work in the area of online distribution and its issues in the following ways. The primary contribution of this study is in its design, which allows for a more accurate picture of who is in control of hospitality online distribution.
The Essay on Hotel Reservation
1.1 BACKGROUND DESCRIPTION Hotel like any other business opens up socio-economic opportunities for both owner and customer An online hotel reservation system is a web based software that gives an easy opportunity for customers to book for all what is suitable for them before they lodge in to a hotel. The suitabilities include rooms, food, car rentals, car park, conference rooms, boutique etc. ...
In this study we conduct an analysis of online room rates, rate parity, and room availability, in which we make a cross-comparison within the brands of ? ve hotel groups across ? ve online channels. In addition, this study compares American properties versus their international brand partners. Most of the prior research has analyzed online room rates of hotel properties in general across distribution channels without comparing the brands of the same hotel group. Finally, this research ontributes to the advancement of knowledge generated by previous studies by adding a theoretical perspective of perceived fairness and dual entitlement to answer the research questions based on the issues of online distribution. Review of literature Through the use of a focus group consisting of top hotel executives, vendors, and consultants, Brewer et al. (2006) identi? ed in order of importance the issues and challenges that hotels face in online room distribution. This qualitative study was divided into two sessions, and the top ? ve issues according to the participants of the ? st session were: (1) Consolidated/non proprietary real time connectivity. (2) Uncontrolled distribution channels. (3) Rate erosion (ADR).
(4) Rate parity. (5) Brand erosion. In the second session participants rated the top ? ve issues being: (1) Control of rate. (2) Education of staff. Online distribution strategies 377 IJCHM 20,4 (3) Customer loyalty. (4) Interface (hotel – channel).
(5) Control of hotel image. The results of this study also provided the “top ten channels perfect world solution” for the challenges generated in the sessions, and rate parity and best price guarantee were ranked the ? st and second solutions respectively. To the best of our knowledge, only a handful of studies explored and compared the issues of rate parity, room availability, and “best rate guarantee. ” O’Connor (2003) studied 45 international hotel brands’ pricing strategies using ? ve major types of electronic channels and one voice channel. The online channels were Expedia, Travelocity, Travelweb, the WorldRes, and the hotel brand websites. The voice channel used in his study was the toll-free number of the central reservation departments of the hotel companies. His ? dings revealed that Expedia’s rates were marginally lower than the other channels and that WorldRes rates were the highest. The price range from the highest to the lowest rate was $29 indicating that rates were not consistent across the channels. The channel providing the second lowest rates was the hotels’ brand websites. The hotels’ website rates were, on an average, $3 lower than the hotels’ own voice channels. Travelocity offered the second highest rates with an average of $14 more than Expedia. O’Connor’s ? ndings also revealed that economy hotels offered the cheapest rates through their own websites in about 26 percent of the cases.
The Business plan on Good Hotels
She received a message inquiring that rumors were true that the owner of Good Hotel and the two other properties that Janusz managed since November 2009. Best Western Americania and Best Western Carriage Inn, had foreclosed on their holdings and sold the three properties, all of which were in JdV’s South of Market Street (SoMa) group to a new ownership group. She will be helping with the ...
Mid-priced hotel websites offered the lowest rates in about 47 percent of the cases, and luxury hotel brand websites offered the lowest rates in less than 14 percent of the cases. The KPMG (2005) global hotel distribution survey studied hotels in North America, Europe, South Africa, Asia, and Australia. Their results revealed that online intermediaries presented the cheapest hotel room prices in 36 percent of all cases, a 1 percent increase from a similar study in 2004. Indirect channels like online agents and corporate travel agencies offered the cheapest prices in 58 percent of the cases.
The study also found that a consumer has a 55 percent chance to get the best hotel room price using online channels instead of traditional channels such as in-house and central reservation departments. Moreover, only 1 percent of hotels priced their room rates consistently across all channels. Another interesting ? nding was that 43 percent of hotels surveyed advertised the “best web rate guarantee” promise on their sites. However, only 27 percent of all cases delivered their promise. In the USA, the best rate guarantee was offered in 68 percent of the cases, compared to 20 percent in the UK.
Thompson and Failmezger (2005) researched 137 possible booking dates using four different hotel segments in 18 markets in the USA. The study compared prices offered by online channels namely Expedia, Travelocity, Orbitz, and hotel brand sites. Thompson and Failmezger (2005) also included a voice channel by calling the hotel property directly. Their ? ndings revealed that Travelocity offered the lowest cost of booking for luxury and upscale properties in 61. 5 percent of the cases. Hotel brand websites offered the lowest rate in 52. 3 percent of the cases for the same market segment.
The Research paper on Boutique hotel
Boutique hotels focus on the experiential nature of service delivery. Factors helping to deliver upon the experience include a cap on the number of rooms, a design or cultural aspect to the property and attention to the location of the property. The subsector however, lacks a singular definition. This is in part due to structural changes undergone by the subsector since conception of the concept. ...
The overall results using the four market segments were as follows: The hotel brand sites offered the best rate in 54. 7 percent of the cases compared to 48. 1 percent for Travelocity, 28. 4 percent for Expedia, and 27 percent for Orbitz. Calling the hotel directly yielded the lowest cost of booking in 40. 1 percent of the cases. The study also compared room 378 availability across all channels. Overall, the companies’ websites were the most reliable online sources for ? nding a room, followed by Travelocity, Orbitz, and Expedia. Tso and Law (2005) investigated the online practices of hotels in Hong Kong.
Three rating categories of hotels were selected (three-, four-, and ? ve-star hotels) and for each category the researchers selected 15 hotels. The study recorded 30 rates for each hotel and compared them with ? ve indirect channels, all of them online, and two direct channels, the brand website and a voice channel. Their results showed that the most expensive prices were recorded on the hotels’ own websites. In addition, the study found a signi? cant price difference among all the seven channels. Murphy et al. (2006) focused their study on four direct channels used by the 130 Swiss hotels.
The channels selected were email, web request forms, hotel website price lists, and a voice channel directly from the properties. Prices were collected from two- to ? ve-star rating properties, and each property was investigated during the low and high season. The results show extreme price differences between email request and website prices, some cases achieving a 216 percent differential price for the same room and date. Methodology Data collection In order to compare online room pricing, rate parity, and room availability, we selected ? e global hotel groups, namely Hyatt, Marriott, Starwood, Hilton, and Cendant. From these ? ve hotel groups we selected at least 30 properties from each of their following brands: Hyatt Hotels, Marriott Hotels, Courtyard by Marriott, Hilton Hotels, Doubletree Hotels, Hampton Inn, Embassy Suites, Westin Hotels, Sheraton Hotels, Four Points by Sheraton, Days Inn, Travelodge, and Ramada Hotels, resulting in a total of 406 US properties. We also selected at least 30 international properties (outside the USA) from Hilton, Starwood, Hyatt, Marriott, and Ramada brands, resulting in 155 international properties.
After choosing the hotels, we selected four online intermediaries to compare against each hotel’s own website; these were the four largest online travel agencies in the market, namely Expedia, Travelocity, Orbitz, and Priceline. We attempted to book one room for one night choosing the same date and other relevant information at every online channel. In order to get more accurate results and reduce bias, rates for a particular room were observed in a time frame of no more than ten minutes across all channels. To answer the ? st research question, “are US and international hotel properties within the same group setting consistent rates across their online distribution channels? ”, the lowest rates displayed in each of the ? ve websites were recorded. According to an Area Revenue Director of a major hotel group, any rate with variations of more than $4 across distribution channels should be considered an inconsistent rate. Since this executive’s property has a rack rate at $225 and $4 is approximately 2 percent of the rack rate, we establish a 2 percent rate variation threshold across all channels to analyze rate consistency issues.
Therefore, in our results rates with variations of 2 percent or less were considered to be consistent, and consequently rate parity was applied. To answer the second research question, “are the global hotel companies offering the cheapest rates through their websites? ”, we recorded the lowest rates provided on each of the ? ve channels. For example, a hotel property was included in the analysis if its room rate was available in at least three other channels (sites).
If only one or two websites listed the room as available and all the other sites had that particular room online distribution strategies 379 IJCHM 20,4 380 isted as unavailable, then that particular property was excluded from the analysis. For research questions one and two, discounted rates such as AAA, AARP, military, government, and other corporate rates were not considered. Moreover, special rates provided by online intermediaries such as “name your own price” from Priceline were not selected. However, the hotel brands’ “fenced rates” (i. e. the Hilton “net direct” rates and the Days Inn “day light savings” rates) were recorded whenever available on the sites. Fenced rates are special rates with restrictions such as a requirement of full pre-payment and no cancellation refund.
Due to currency conversion issues and rounding for international properties, we considered a rate to be higher or lower from the hotels’ own websites if it varied by more than 2 percent. For US properties, we used $1 as a threshold when analyzing the lowest rates. No threshold was established when analyzing US hotels’ rate parity. With regards to room availability, our third research question, we only considered “sold out” rooms as unavailable inventory. Hotels not listed on the third-party websites were not included in the room availability analysis.
In all, we analyzed 2,025 rates for US properties and 775 prices for international hotels. Results Descriptive statistics such as frequency and mean were used to answer the research questions. Our ? ndings from our research are presented below. The outcome of rate parity and best rates of US and international properties across all channels are shown in Table I. Hotel groups Overall results USA (n ? 406) Overall international (n ? 154) Hilton Group USA overall (n ? 120) Hilton Hotels (n ? 30) Doubletree (n ? 30) Embassy Suites (n ? 30) Hampton Inn (n ? 30) Hilton International (n ? 0) Cendant Group USA overall (n ? 100) Ramada (n ? 31) Days Inn (n ? 34) Travelodge (n ? 35) Ramada International (n ? 34) Starwood Group USA overall (n ? 90) Westin (n ? 30) Sheraton (n ? 30) Four Points (n ? 30) Starwood International (n ? 30) Marriott Group USA overall (n ? 66) Marriott Hotels (n ? 31) Courtyard (n ? 35) Marriott International (n ? 30) Hyatt Hotels USA (n ? 30) Hyatt International (n ? 30) Rate parity across all channels (%) Best rate guarantee (%) 66 16 60 50 73 77 40 17 62 61 65 60 35 68 73 67 63 23 67 61 71 37 90 3 94 65 94 93 97 100 87 50 98 97 97 100 88 92 93 90 97 47 86 87 86 87 100 60
Table I. Percentage of rate consistency and best rate across online channels: US and international properties Rate parity comparison across online channels: US hotel brands We only considered rates to be inconsistent if they were more than $4 different from the hotel brand websites. Overall, only 66 percent of US hotels presented rate consistency across all channels. The Hyatt group topped in rate consistency with 90 percent of the cases, followed by Starwood properties with 68 percent, Marriott with 67 percent, Cendant with 62, percent and the Hilton group with 60 percent.
The best hotel brand within the Marriott group was the Courtyard brand with 71 percent compared to 61 percent of the rest of Marriott’s brands. Within the Starwood group, Westin hotels topped the list with 73 percent, while Four Points properties achieved only 63 percent of rate consistency. The Days Inn brand achieved the highest performance within the Cendant group with 65 percent, while Travelodge, the worst among Cendant properties, had only 60 percent. Embassy Suites had the best performance with 77 percent among the Hilton group brands, while Hampton Inn was the worst performer with only 40 percent rate parity enforcement.
Best rate comparison across all channels: US hotel brands Overall, the US hotel groups provided the lowest rate across online channels with an average of 94 percent of the cases. Looking at the groups individually, Hyatt stood out as the best performer, providing 100 percent of best rates across all channels. Starwood and Marriott groups under-performed the overall US average with 92 and 86 percent, respectively. Among the three sub-brands of Starwood group, the Four Points by Sheraton showed the highest performance (97 percent), while Sheraton was the worst performer with 90 percent of the cases.
Embassy Suites from the Hilton group and Travelodge from the Cendant Company were the top two brands with 100 percent best rate scores across online channels. The worst performer for lowest rates among the Hilton group was again the Hampton Inn brand (87 percent).
Rate parity comparison across all channels: US versus international properties We also compared the “rate parity” of US hotels and international properties. The results present a noticeable difference between U. S. and international hotels within the same brands.
Overall, US properties had consistent rates across all channels in 66 percent of the cases relative to only 16 percent of their international partners. As stated above, Hyatt US had the best average for US properties with 90 percent consistency rates. However, Hyatt International was the worst international performer with only 3 percent consistency rates across all channels. Among the international hotel groups, Marriott International topped with 37 percent consistency rates, followed by Ramada with 35 percent, Starwood 23 percent, and Hilton with 17 percent.
Best rate comparison: US versus international properties International brands, with the exception of Marriott and Ramada, showed less encouraging outcomes while US properties generally showed a decent performance. Hilton International’s best rate guarantee percentage was only 50 percent compared to Hilton US properties with 94 percent. Hyatt International performed unimpressively with 60 percent compared to 100 percent of Hyatt US Starwood International had the least impressive results among all brands with only 47 percent relative to Starwood US with 92 percent. On the other hand, Ramada
International showed results with 88 percent of best rates being provided on their brand site. Surprisingly, Marriott Online distribution strategies 381 IJCHM 20,4 international properties achieved 87 percent against 86 percent of Marriott US. Overall, international properties performed very poorly with 65 percent best rate against 94 percent of US hotels. Best rate rankings: overall US and international hotels versus online travel agencies US properties, compared to their international counterparts, are doing a much better job providing the cheapest online rates on their own websites.
Table II shows the mean ranks and range of best rates for the ? ve online channels. US hotel brand sites had the lowest overall mean amount of $161. 73. Among the four third party sites measuring US properties, Orbitz was the frontrunner with a mean of $163. 56, followed by Travelocity with $164. 19, Expedia with $164. 47, and Priceline with $167. 32. Internationally, Orbitz provided the lowest room rate mean of $202. 00 among the ? ve channels. Expedia came in second place with a mean of $204. 37 followed by the hotel brands websites with $209. 43.
Priceline and Travelocity were the least impressive performers with $225. 91 and $233. 69, respectively. The range between the highest and lowest US room rates among online channels was only $5. 59 compared to $31. 67 in international room rates. These results support the proposition that US hotels manage their rate consistency across all channels much better than their counterparts in the international market. Consistency in room availability: US versus international properties Our results for room availability also show interesting patterns as demonstrated in Figure 1.
Rooms were recorded as “not available” if one online channel listed the room as “available” and the competitor website showed the same hotel room as “sold out. ” Overall, US hotels had 93 percent of cases where room availability was consistent among all channels. International hotels, however, presented 79 percent of consistency in room availability. Rooms were available across all channels in 88 percent for Hilton properties compared to 77 percent on Hilton International hotels. Hyatt US had a rate of 100 percent compared to 77 percent of Hyatt International.
Marriott US also achieved 100 percent consistent room availability while Marriott International properties resulted in 87 percent. Ramada US results showed 93 percent of cases where rooms were consistently available across all online channels against 82 percent of Ramada International properties. The least impressive performance was showcased by Starwood US properties where 93 percent of the hotels investigated provided consistent room availability compared to only 73 percent of the hotels Starwood International properties. US hotels Rank 1 4 3 5 2 International hotels Mean ($) Rank 209. 43 204. 7 225. 91 233. 69 202. 02 31. 67 3 2 4 5 1 382 Channels Chain Site Expedia Travelocity Priceline Orbitz Range $ Mean ($) 161. 73 164. 47 164. 19 167. 32 163. 56 5. 59 n 395 373 385 381 383 n 147 129 147 126 124 Table II. Best rate ranking: hotel chains versus third parties Note: n is equal to available rates Online distribution strategies 383 Figure 1. Online room availability across online channels: US vs international hotels Room availability: overall US and international properties versus online distributors Table III shows the results of unavailable rooms listed on the online channels.
Expedia had the highest score and in 5 percent of all cases the Expedia website reported a room as “sold out” when it was actually “available” on other websites. Interestingly, the hotel brand websites reported rooms to be sold out in 1 percent of the cases when intermediaries had the same hotel room listed as “available” on their sites. Conclusion and managerial implications Compared to similar previous research, our study revealed that US hotel properties improved their ability to provide the lowest rates through their own websites.
In addition, US hotels are doing a much better job than their international peers in terms of rate parity, lowest rates offered, and room availability across online channels. However, rate parity is still an issue among most US brands with the exception of Hyatt hotels. Although the big chains experienced on average a much higher direct Percentage of “sold out” rooms listed on suppliers’ sites but “available” on competitors’ sites Hotel sites overall Expedia Travelocity Priceline Orbitz Note: n equals 561 room listings 1 5 1 2 2 Percentage of rooms not listed on suppliers’ inventory 0 1 2 4 2
Table III. Room availability: overall hotels versus third parties IJCHM 20,4 384 (81. 4 percent) versus indirect (18. 6 percent) online reservation ratio as stated in Starkov and Price (2007b), the indirect channels still represent a large part of the whole when looking at the total online reservations’ revenue achieved by these companies. In order to reduce the indirect online reservation margin, hotel companies must provide strict rate parity across all their channels and ensure the best rate guaranteed, thus taking advantage of their direct business-to-consumer (B2C) transactions.
In addition, it is also time for hotel companies to work with fewer online intermediaries; increase special product offerings only found in the companies’ sites such as bed-breakfast-dinner packages, romantic gateways, and sports’ and cultural events combinations; and enhance its loyalty programs and rewards for direct channel bookers. By increasing direct B2C transactions, hotels will depend less on third parties to sell their rooms, and as a result, commissions and other fees charged by intermediaries will decrease, thus increasing the hotels’ pro? ts.
Moreover, the increase in B2C transactions may lead to an increase in consumer loyalty to the hotels’ websites. However, as Reichheld and Schefter (2000) stated, in order for companies to gain the loyalty of consumers they must ? rst gain their trust. Therefore, in order to gain consumers’ trust, companies must implement rate parity and deliver the “best rate guarantee” promise. Another important point is that hotel companies must implement and invest in the latest technologies for their websites in order to increase user-friendliness and optimization.
In addition, as cell-phone sales increase daily reaching a peak in 2006 of almost 1 billion devices worldwide (Slocombe, 2007), hotel companies must create mobile friendly websites and target this gigantic market with not only marketing messages, but also booking access and updates. The poor performance of international hotels presents a challenge to these global hotel companies. We cannot forget that the internet made these companies global and that their customers are also global.
With globalization companies must be careful and project a consistent brand image worldwide by providing equal rates across online channels and preferably at a lower price than third party sites. Furthermore, all the effort of US brands can be jeopardized if their international partners do not embrace the same strategies. If consumers book hotel rooms through third-party sites abroad, they might become loyal to these online agencies and use them anywhere in the world.
The forward looking statement of Starwood Hotels and Resorts Worldwide annual report claims the following: Some of our hotel rooms are booked through internet travel intermediaries such as Travelocity. comw, Expedia. comw, and Priceline. comw. As the percentage of Internet bookings increases, these intermediaries may be able to obtain higher commissions, reduced room rates or other signi? cant contract concessions from hotel companies.
Moreover, some of these internet travel intermediaries are attempting to commoditize hotel rooms, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identi? cation. These online travel agencies hope that consumers will eventually develop brand loyalties to their reservations system rather than to the lodging brands. Although we expect to derive some portion of our business from traditional channels, if the amount of sales made through internet intermediaries increases hotel business and pro? tability may be signi? antly harmed (Starwood Hotels and Resorts, 2006).
After presenting our results to an Area Director of Revenue Management of one of the ? ve groups included in our study, the executive stated that the revenue team of each property is responsible for assuring the best rate guarantee promise, enforcing rate parity, and ensuring availability across all channels. Major US hotel companies have established agreements with third party companies that ensure on a daily basis that rates are consistent across all channels and that the properties do provide the lowest rate through their websites.
We surmise that the major difference in room rate between US and international properties is due to a lack of personnel training and technology. Today, online travel agencies pull and quote rates directly from the hotel chains’ reservations systems in the USA. For international properties, this practice may not be fully implemented yet. Therefore, international properties must only work with online intermediaries that are willing to access the properties’ inventory in a real-time fashion and not via outdated extranets.
When manual extranets are used, revenue managers lose the control of their rooms’ inventory, thus creating a chaotic situation when rate parity is put into perspective. Therefore, the corporate of? ce of these chains must pressure the management companies and independent franchised properties to invest on up-to-date technology that will allow these companies to manage their inventories in a more effective way. In addition, corporate must not allow management companies and hotel owners to determine their own prices and distribution strategies as it might negatively affect the entire company’s image.
During another interview, a CEO of a major E-business company concluded that the reason for such a discrepancy between US and international properties is that the US properties are probably three-years ahead of any country in regards to online distribution due to better technology and leadership. We can conclude that consumers around the world may be very confused still when booking a hotel room online due to rate inconsistency, product availability, and price. All these issues may lead to consumer perception of unfairness, which n turn may have a negative effect on consumer satisfaction, loyalty, word-of-mouth, and repurchase intentions toward the hotels’ own websites and direct distribution channels. Therefore, as hotels’ rates and brand name erosion continue to increase, companies’ pro? ts may decrease.
Further, we can also conclude that if consumers shop around there is a good probability that they may ? nd the best rate using online third-party sites. Limitations and research avenues This study, of course, is not free of limitations. A convenience sample was employed to select hotel properties to test our research questions. Thus, generalization of the ? dings may be a moot point. While calculating the lowest rate, a property was included in the analysis when the room rate was available on at least three other channels, which could have created a selection bias. Further, only 561 hotel properties may be too few to represent the entire portfolio of these ? ve giant global hotel companies and the entire lodging industry in general. More hotel companies could have been selected and added in this study to have a better representative sample. Also, currency conversion may have affected the results of our international properties. Even though we used the same converter (XE. om, The Universal Currency Converter) to translate international prices into US dollars, some online distributors offered international rates already converted into US dollars. Since we do not know what instruments they used to convert the currency, some bias may have crept into the research. Online distribution strategies 385 IJCHM 20,4 386 Another limitation of this study is that it only included the cheapest rates including “fenced” rates in its research question analyzed. Therefore, future research should include non-fenced rates, also known as best available rate (BAR), in its analysis and compare them with fenced-rates.
Moreover, researching the results of corporate versus franchised properties of the same brands may present interesting outcomes. Furthermore, a comparison of extensive room rate data sets covering weekday, weekend, and seasonal ? uctuation should be included in the analysis to increase the reliability of the studies.
