Written By:  Leora Halpern Lanz & Samipatra Das

Just over a year ago, when the hospitality industry was losing strength compared to previous years, hotel sales teams finally began to embrace Internet marketing tools.  With the downturn in international travel that occurred after September 11, 2001, many hotel marketers formed new friendships with travel web sites such as Expedia.com and the newly formed Hotels.com.

To boost travel amid economic and safety concerns after September 11^th, lodging facilities were quick to form reciprocal relationships with these web sites, which had traditionally offered discounted airline fares.  While hotels were able to sell chunks of their inventory to travel sites at discounted rates, travel sites were attracting more traffic, and consequently, more business.  Hotels could now cut their losses while travel sites could profit from the premiums they charged.

As the hospitality and tourism industries sought to fight the effects of the recession on their business, travelers sought deeply discounted rates to cut their own personal losses.  And so, as average rates were posted on the web, the “rate game” began, and marketing strategies were drastically altered.  To meet consumer demand, hotels were now forced to reconsider the meaning of the “best deal”; once deemed the best overall value, the “best deal” had now come to mean simply the lowest rate. As such, consumers typically did not remain loyal to one particular brand. To hotel and travel site marketing teams, it was a time to win over new customers who were now “playing the field.”

However, over the past year, this new marketing tool has compromised the integrity of the hotel industry – especially for those who haven’t been playing this Internet game properly.  To preserve our hotel’s brand integrity, our sales teams must check these sites daily, asking questions such as, “Is our hotel’s going rate consistent with our brand image?” and “How does our hotel’s going rate compare to other hotels in our market?”  We must make sure that these sites work according to our hotel’s marketing plan, attracting the “right” customers, and at appropriate rates.  It is a tedious process, but it is absolutely necessary to preserve the integrity of our brand image.

Here’s an idea of how some of these online intermediaries operate.  For more information on this Internet marketing strategy, contact the HVS Marketing Communications division.

Hotels.com

A majority-owned subsidiary of USA Interactive, Dallas-based Hotels.com was launched by Hotel Reservations Network (HRN) in March of 2002 to address the growing need for clarity among the company’s various hotel reservation web sites.  Specifically, Hotels.com has partnered with more than 25,000 travel-related web sites and three call centers to offer discount accommodations in more than 6,000 premier properties in over 210 major destinations worldwide.

In launching Hotels.com, HRN has made its first concerted effort to build its own brand. Prior to launching the site, which involved a $20-million marketing initiative, HRN employed a low-public-profile marketing strategy.  Reluctant to build a strong brand identity due to the high cost of advertising during the dot-com boom, HRN instead offered its services to other travel-related Web sites free of charge, in turn offering these affiliates a small cut of the company’s revenue.  While HRN benefited from the affiliates’ marketing efforts, these affiliates enjoyed the ability to offer their customers discounted hotel room rates without the trouble of developing a hotel reservation system. 

Hotels.com utilizes the “net rate” or the “direct rate” reservation channel, whereby the company contracts with lodging properties in advance for volume purchases and guaranteed availability of hotel rooms and vacation rentals at discount prices. Once Hotels.com purchases a block of rooms from a client hotel, the company resells these rooms at premium prices, thereby commanding a profit.  Meanwhile, customers receive the guaranteed lowest prices, saving as much as 70% off standard rates, and hotel partners benefit from the widespread Internet exposure provided by Hotels.com.  Additionally, hotel partners can sell their inventories during slow periods.

While most of the company’s competitors package hotel rooms and airline tickets, Hotels.com focuses on land-based demand, i.e. those consumers who drive or take the train to their destinations. Furthermore, the site focuses on leisure demand, while its competitors typically target corporate travelers.

Hotels.com is now one of the fastest-growing hotel reservation web sites; according to the Nielson/Netratings, this site was the sixth-most-visited travel web site for the week ending September 1, 2002.  Additionally, Hotels.com has recently accounted for as much as 25% of HRN’s total daily bookings.

Expedia.com

A leading online travel service provider, Expedia.com has been a majority-owned subsidiary of USA Interactive since February of 2002. Since its launch in 1996, Expedia.com has grown to meet the needs of travelers worldwide, currently headquartered in Bellevue, Washington, with localized versions throughout Europe and Canada.  The site offers travel services provided by more than 450 airlines and over 43,000 lodging properties; major car rental companies; cruise lines; and destination service merchants including restaurants, attractions, and local transportation and tour providers.

Expedia.com operates under a diversified business model, utilizing both the agency and the merchant models. Under the agency model, Expedia.com acts as the agent in a transaction, passing the customer’s reservation to the travel supplier (hotel) in return for a commission from the travel supplier. Under the merchant model, Expedia.com receives inventory (hotel rooms) from suppliers and acts as the merchant in the transaction, thereby commanding higher per-sale profit levels than the agency model.  Furthermore, the merchant model provides customers with lower prices than the agency model.

To power its marketplace, Expedia.com has built the Expert Searching and Pricing (ESP) technology platform, which consists of two components: a fare-searching engine and a common database platform that enables the site to package all types of travel services dynamically, thus enhancing the site’s ability to cross-sell.  According to the Expedia web site, integrating merchant inventory with the ESP technology platform has enabled Expedia.com to offer products that benefit both customers and suppliers. In addition, Expedia.com recently introduced new display and promotional features to its Expedia® Special Rate program, thereby making it easier for hoteliers to showcase and differentiate their properties and providing customers with improved navigation tools.

Expedia.com’s target customers are well educated, have high discretionary income, and are veteran Internet users and savvy online shoppers. In addition to a substantial advertising presence in both online and offline media, the company’s brand-building campaign includes expansion of its distribution channels, including telesales operations, strategic partnerships with leading customer aggregators, expanded travel agent distribution through the recently acquired Classic’s travel agency network, and an affiliate program that enables partners to drive potential customers to co-branded Expedia.com/partner web sites.

As per their web site, Expedia.com was ranked the eighth-largest travel agency in the most recent United States agency rankings. The site was one of the top 75 most popular Internet sites, with 13,163,000 unique visitors in August, 2002.  The company recently announced its intention to acquire Newtrade Technologies, Inc., a provider of software development and integration services to the hospitality industry.  Newtrade’s XML interfaces provide seamless connectivity among multiple points of distribution, including hotel central reservation systems (CRSs), property management systems (PMSs), global distribution systems (GDSs), online travel agencies, and hotel web sites.  Newtrade’s technology will enhance Expedia.com’s competitive advantage over other travel web sites.

Orbitz.com

Launched in June, 2001, Chicago-based Orbitz LLC is a full-service online travel agency offering competitive fares on lodging, car rentals, cruises, vacation packages, and other travel services. Founded by leading airlines including American, Continental, Delta, Northwest, and United, Orbitz.com’s 160-employee team seeks to provide customers with a one-stop shop, with a niche in web-only airfares.

Orbitz.com follows a hybrid of both agency and merchant models. However, they are more concentrated on the agency model in comparison to the merchant model. The company has formed strategic affiliations and associate partnerships with several car rental companies; more than 50 airlines; and leading hotel and resort chains, including Hilton Hotels Corporation, Hyatt Hotels & Resorts, Marriott International, Starwood Hotels, and Wyndham International.  In 2001, Orbitz.com entered into a co-marketing agreement with Hotwire.com to save consumers time and money by allowing them to move seamlessly between the two sites. Orbitz.com also has an agreement with Pegasus Solutions, Inc., a leading provider of end-to-end reservation distribution solutions to the hotel industry worldwide. Under this agreement, travelers using Orbitz.com can reserve rooms at more than 38,000 hotels in more than 200 countries.

Orbitz.com’s target customers are primarily leisure travelers interested in cultural and sporting events, popular urban attractions, and spa and ski resorts. According to comScore’s Media Metrix Top 50 Internet Properties for May, 2002, Orbitz.com was ranked third with 9,000,000 unique visitors, indicative of the site’s continued success.

Priceline.com:

Priceline.com is the “Name Your Own Price” Internet service that offers travel services including leisure airline tickets, hotel rooms, and rental cars; personal finance services including home mortgages and refinancing; automotive services; and a long-distance telecommunications service. Based in Stamford, Connecticut, Priceline.com LLC is a privately held company. Founded in March, 1996, the company’s web site was launched in April, 1998.

Priceline.com employs a “demand collection system,” which enables consumers to use the Internet to save money on a wide range of products and services while enabling sellers to generate incremental revenue. Using the “Name Your Own Price” consumer proposition, Priceline.com collects consumer demand (in the form of individual customer offers guaranteed by a credit card) for a particular product or service at a price set by the customer and communicates that demand directly to participating sellers or their private databases. Consumers agree to hold their offers open for a specified period of time to enable Priceline.com to fulfill their requests from inventory provided by participating sellers. Once fulfilled, offers cannot be cancelled. By requiring customers to be flexible with respect to brands, sellers, and/or product features, Priceline.com enables sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures. In August, 2002, Priceline.com announced the launch of its enhanced “Name Your Own Price” global hotel service product, which features over 8,000 quality hotels in more than 1,300 cities and towns. Priceline.com’s enhanced hotel service includes new features such as amenity listings for every category of hotel and resort; examples of actual Priceline.com transactions; and the best-price guarantee, wherein Priceline.com can deliver savings of up to 50% off prevailing retail prices. 

Priceline.com targets savvy Internet users and shoppers in order to leverage the unique attributes of the Internet for the benefit of consumers and businesses. Prior to submitting their travel requests, Priceline.com customers have researched brands, rates, and availability. Therefore their offer is well researched, and probably their way of finding out the best deal for their travel plans.

According to Opinion Research, Priceline.com is one of the top five Internet properties. Additionally, the site attracted 12.7-million customers in the fourth quarter of 2001, with customer savings ranging from 20% to 80% off published prices.  The company also benefits from its extensive supplier network, efficient cost structure, and continuous growth initiatives.

Travelocity.com

Headquartered in Fort Worth, Texas, Travelocity.com was launched in March, 1996. Travelocity.com is wholly owned by Sabre Holdings Corporation, a provider of technology and marketing services for the travel industry. Travelocity members can access reservations and information for more than 700 airlines, 55,000 hotels, 50 car rental companies, and 6,500 cruise and vacation packages, all backed by more than 1,000 customer service representatives. 

Similar to Expedia and Orbitz, Travelocity utilizes both the merchant and agency business models. The company also engages in advertising and promotional campaigns and participates in an affiliate program. For hotels to be listed on Travelocity, they must participate in either Sabre Hotels or the Hotel Reservations Network.

Travelocity.com’s target clientele includes consumers and small-business professionals with disposable income for travel, and web-savvy individuals with experience in shopping and buying online. Due to the strength of their online travel services, distribution arrangements, and substantial investment in advertising, Travelocity.com has a significant audience with a high propensity for buying a wide range of travel-related products and services online. According to Media Metrix Q2 2002, Travelocity.com registered 35.5-million members and 11.4-million unique visitors. With more than 35 million members and more than $3 billion in gross sales in 2001, Travelocity is the sixth-largest travel agency in the United States; it has been named the World’s Leading Travel Internet Site for five consecutive years at the World Travel Awards; and it operates or powers web sites in seven languages across four continents.

Travel is the largest and fastest-growing e-commerce category on the Internet today. Consumers are confident about booking and purchasing travel, online and more of them are doing it every year. According to Media Metrix, the online travel sector is expected to grow from $18 billion in 2000 to $63 billion in 2006. With these significant growth levels anticipated in the future, it essential that hotels employ excellent yield management systems and marketing strategies to further their goals, maintain their brand integrity, and reap the benefits of this expected boom in online travel shopping.

Leora Halpern Lanz
Samipatra Das
HVS International
372 Willis Avenue
Mineola, NY  11501
516-248-8828
516-742-3059 Fax
 

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