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How Pricing and Distribution Become Key
9/11 caused a dramatic shift in how consumers booked their travel. The instability caused a large drop in demand for airlines, hotels and car rentals leading to ever-lower prices. This low demand factor forced travel suppliers to introduce unprecedented discounts. Travel suppliers struggled to sell seats, rooms, car rentals to a significantly shrunk leisure and business travel market. Every air seat, room and auto not booked cost their companies money. Better to sell dirt cheap than not to sell at all. But how to get
word out?
Smart, proactive suppliers adopted Wal-Mart business model—sell low and distribute inexpensively and efficiently. But how?
The Internet allowed them to reach consumers, sell inventory outstrip their less progressive competition. Those suppliers who had no clear Internet strategy or understanding of how Web and online distribution works suffered.
Discount hotel sites attract millions of buyers with their special rates leading to stratospheric sales through these channels. They thrive on hoteliers selling their distressed inventory at a fraction of their normal rates. Occupancy is lowest its been in years, hoteliers continue to work with leading online retailers to move inventory at lower price.
The $6.3 billion in online hotel sales (2002) with are split roughly evenly between discount agency sites and hotel Web sites. PhoCusWright projects that around 75% of discount agency hotel site sales are via merchant model, where agency typically takes a 20-30% “margin” on hotel net rate (instead of usual 10% commission). This approach has helped profits at Expedia and Hotels.com, who have roughly 60% of online discount agency hotel sales. Travelocity and Orbitz are instituting same successful approach. Other notable players thriving in this arena are Hotwire.com, http://www.hotels-and-discounts.com , Lodging.com and Travelweb.com.
What is Future? Online travel growth will continue to grow in 2003-2005, but it will slow down year by year compared to record gains see so far. However millions of travelers haven’t yet made their first purchase so market is not near saturation. Technological improvements will soon make it possible to more easily dynamically package vacation deals including air, hotel and car leading to even lower prices but higher average sales. So growth is projected to come from customers buying more, higher-ticketed products online.
The growth of online distribution channel will prove beneficial to end user when suppler finds it easier and more cost-effective to distribute their inventory there than over traditional distribution channels. As technology becomes mature in online distribution sector, it will become more effective and user friendly for Buyers and thus will attract more Suppliers. Due to its low cost of distribution and emerging ability to package and cross sell inventory, prices will be attractive for years to come, until this channel eventually becomes a commodity.
By Yatin Patel Published in http://www.siliconindia.com July 2003
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