12Fall

HT-344 Hospitality and Tourism Marketing and Sales

Professor Eric Brey.Nov 16th, 2012

Hospitality Trend Assignment

Pu Zhao and Reem Nasraddin

HT 344-Hospitality and Tourism Marketing and Sales

1University of Wisconsin Stout | School of Hospitality

Before people started using websites to book a hotel room and customize their trips online a few years back, many of them used travel agencies through phone calls to book their trips. After the advance of the technology, and spread of Internet, hospitality business became a lot more accessible by the public. Then people started to rely more and more on the information that they accessed from the Internet. One of the most significant changes that the Internet brought to the consumer is the capability of specifying exactly what is needed, the services provided before consuming it, and it also added lots of variability to peoples’ choice. For instance, websites such as Travelocity.com, Priceline.com, and Orbitz.com are among the largest of the third party online travel agencies in the industry; these three companies founded respectively in 2001, 1996 and 1997. The online travel agency dominates the way people book rooms and trips to a large extend. At some point, the rating on these websites created worries because of the negative feedbacks than can be posted by customers; which influence hotels’ business sometimes unnecessarily.

After the introduction of the Smartphone, the hotel booking trend started to show a slight shift from computer based websites to a Smartphone based application. In the near future, we as a group believe that the trend of booking will still favor the computer based website strongly. Mobile application will have a long way to go before it develops itself to a level that enable customers to form a habit and a dependency over the advantages of what a computer can offer. Meanwhile, the way people book hotel rooms will still largely remain the same for a relatively long time.

The trend for the near future that we are proposing will not generate a dramatic change in terms of the experience that the customer gets, but behind the roughly same experience that people are getting from the online booking, there is a shift between who is dominating the online booking market shares. The competition between the online booking website will switch between the third party, online travel agency and “hotel owned website”. What we mean by “hotels owned website” is that a group of hotels establish and operate their own online booking website; to make the website offer as much as customers needed; and to draw more market shares of online booking towards them. Meanwhile, hotels will rely on the publication of the third party online travel agency much less, in order to reach a more cost-effective operation.

As we all know for a third party online travel agency to sell hotel rooms on their website cannot be cost effective to the hotel, especially smaller ones. In addition, the existing numbers of these agencies are many. In order for hotels to put their rooms to the public access as much as possible, they need to get involved with many of the identical existing online travel agencies in multiple costs. Namely, hotels are paying for the same type of fee, and all to serve the same purpose.

HT 344-Hospitality and Tourism Marketing and Sales

2University of Wisconsin Stout | School of Hospitality |

The challenges to existing third party online travel agencies are websites that has been created by hotels themselves, as a group. An outstanding example would be the website of a trend called Roomkey.com. Roomkey.com was established in January 2012. Hotels that are part of this website include “La Quinta, Millennium and many other independent, luxury, and leading name brand hotels in the world” (USA Today, 9/24/2012). Other hospitality groups within Roomkey.com include Choice International hotels, Hilton Worldwide, Hyatt IHG, Marriott, and Wyndham Hotel Group. The statistic in the article “The Curious Identity of RoomKey.com” showed that the percentage loss of bookings to an OTA (Online Travel Agency) since the beginning of this year has grown steadily from 17.2% to 23.9%. This indicates the competition between websites such as RoomKey.com and the third party online travel agencies is starting to favor the former type.

One of the advantages of the “Hotels owned website” over the third party online travel agencies is the financial aspect. Among the commonly existed operations, a hotel makes several separate payments to different online travel agencies in order to sell their rooms to the public in desired quantity and diversity. The fee that hotels are paying will cover the online travel agency’s operation cost, and in addition it will generate a profit over its operation cost. In the case of “hotels owned website” model, this will not happen. Hotels get together to form their own resources to run this website, but this operation solely serves the allied hotel’s interest, and most importantly it will not charge a fee to the hotels. The cost of operating this website is simply what it needs to stay in operation. Essentially hotels are self-hired, and there is a margin in switching into this method of marketing. Quoted from Vantage Hospitality Enters into Partnership with RoomKey.com by the CEO, Roger Bloss

“Vantage Hospitality is excited to join Room Key and distribute our family of inns, hotels and suites. Room Key’s inventive model allows the consumer to choose the hotel that is right for them and provides us with a valuable audience that will be able to book directly with our brands. Room Key’s platform enables us to continue to achieve our distribution strategy of reaching consumers where they are searching and booking hotel accommodations, which is a very cost-effective channel for our members.”

In the case of RoomKey.com in particular, it is cost-effective, and also user-friendly to the customers. Room Key’s representative quoted in the same article that “Room Key delivers a simplified search experience and the confidence of booking direct with our hotel partners like Vantage, so travelers can simply search, book and relax.” John F. Davis III, the chief executive officer of Room Key also stated “We’re thrilled to partner with Vantage Hospitality to offer over 1,000 new hotel properties to travelers who visit RoomKey.com to find their next hotel,” Said John F. Davis III, chief executive officer of RoomKey.com. The statement indicates that there is a common interest between hotels and websites such as RoomKey.com, which will form a different business landscape for the future.

HT 344-Hospitality and Tourism Marketing and Sales

3University of Wisconsin Stout | School of Hospitality

Furthermore, some of the third party online travel agencies can hardly afford to lose the income generated from advertisements. Whereas websites like RoomKey.com will probably benefit more in another way if they don’t incorporate advertisement in their website. “Launched earlier this year, RoomKey.com is an innovative hotel search engine that offers a simplified search experience. The website provides hotel information straight from Vantage’s brands and brings the visitor directly to the Vantage sites to book.” (Vantage Hospitality Enters into Partnership with Roomkey.com, Hospitalty.net)

Moreover, there is another advantage of being a part of an allied system. It is that hotels now can have more control over the pricing and gain more influence among customers. Hotels have the power to compete with the online travel agency by actively lowering the price on the “hotels owned website” compare to the third party owned website; to draw more business for the desired period of time. Also if necessary, they have the initiative to possibly start a price war with the third party websites when the conditions allow them.

There is another type of competition that is also against the third party online travel agency in favor of the traditional trend. It is more geographically oriented, and it also follows the same ideology that RoomKey.com followed. A case example is Lasvegas.com. Lasvegas.com is a model we believe that lays under the principle that hotels have more direct control of their business. In the case of Lasvegas.com, many local hospitality businesses take part of owning or contributing to the website in terms of content diversity, and financial side of operation. Lasvegas.com has successfully combined nearly all the presentable hospitality and tourism business within the area and concentrated on its website. Lasvegas.com, the website itself might not be operated in a non-third-party way, but the result and the competition it brings to the general third party online booking agencies is nevertheless identical.

Organizations who found themselves benefiting from following this trend of having their own public websites, will likely be looking for corporation within or even outside their industry in order to form a strong proposition and business variety to compete with the third party online travel agencies.

Yanqin Chen works for SciteHotel in Beijing, China. She is in charge of the hotel’s financial control and strategic planning associated with the financial aspect of the hotel. The interview was conducted through email. We introduced the market environment of the United States to her and she commented that “because of the hospitality industry is still growing fairly fast in China, and currently the market environment and business landscape of the hospitality industry in China will probably have a few years of time in order to experiencing what the United States are experiencing at the moment; namely the competition between “hotels allied website and the third party online travel agency.”

After the introduction of our trend, she humbly approved the trend and stated a point that is helpful to guide the hotel during a decision making processes to illustrate to which level in order for a hotel to realize there is a margin, or it is worth of forming a competition with the third party business in the long term. She claimed that “it is probably only worth to establish the “hotel allied booking website” if the hotels involved together is large enough and they online travel agency is charging higher enough consistently throughout the industry.

HT 344-Hospitality and Tourism Marketing and Sales

4University of Wisconsin Stout | School of Hospitality |

She further commented other possibilities to ease the financial burden between the hotel and the online travel agency. And that is by acquiring online travel agency’s company share. And she mentioned that there is two possible ways if acquiring is favored over forming a direct competition. One way is by acquiring the online travel agency to a level, which allows the hotel to influence their decision making thus on the same cost basis to the hotel, the result would benefiting their hotel as much as possible. Another direction could be takeover a travel agency and hoping to use this particular travel agency to extend its reach to the market, rather than using many online travel agencies to achieve relatively less in many different website.

Another model that we mentioned to her is the lasvegas.com model. Whereas taking the benefit of a highly concentrated tourism destination area to exclude the participation of third party online travel agency. This method works and also serves the customer a better way to explore the tourism destination area, and it can bring the website an addition unique selling point.

The future trend of acquiring more market share of online booking by websites such as Roomkey.com and Lasvegas.com is that certain percent of market would eventually and gradually reach a balance where the customers will locate themselves with the type of website and service that best fits their preferences and needs, therefore before reaching this balance, the market share of online booking will have more room for “hotel controlled website”. However, this does not necessarily mean the third party online booking website will disappear from the world of commerce; instead, they will likely to experience a decrease in market share unless they can discover a way to battle the potentially more cost-effective marketing strategic such as RoomKey.com.

HT 344-Hospitality and Tourism Marketing and Sales

5University of Wisconsin Stout | School of Hospitality

References:

Lasvegas.com. Official Website.http://www.lasvegas.com/

“RoomKey.com Hotel Search Site Adds More Chains.” September 24th, 2012. Travel, USA Today.http://travel.usatoday.com/hotels/post/2012/09/la-quinta-millennium-leading-hotels-join-roomkeycom/70000994/1

“The Curious Identity of RoomKey.com.” September 18th, 2012. Competepulse.comhttp://blog.compete.com/2012/09/18/the-curious-identity-of-roomkey-com/

“Vantage Hospitality Enters into Partnership with Roomkey.com.” October 17th, 2012. Industry News, Hospitality.net.http://www.hospitalitynet.org/news/4058144.html

HT 344-Hospitality and Tourism Marketing and Sales

6University of Wisconsin Stout | School of Hospitality |