Sunday, November 18, 2007

WTM Pegasus Sessions: Merchant vs Retail – customers don’t care but hotels do

Second in my series of posts coming out of my interview with Michael OConnell of Pegasus at WTM (Senior Director – Global Partnership Development).

I don’t need an introductory paragraph to tell you about the rise of the retail model in online hotel sales. In the online travel world immediately after 9/11 and Expedia’s acquisition of Travelscape the push for all online hotel retailers was merchant, merchant, merchant. However the retail model is back and in a significant way. Not only with the rise of European and Asia based retail model companies such as the amalgamated, Venere, HRS and in Germany and Rakuten and others in Japan, but also with the efforts of the GDS companies to extract Best Available Rate promises from hotel chains.

I talked this over with O’Connell and expressed two interesting points of view

Firstly he believes that consumers do not really care which model so long as they can book the room they want at the price they want. Arguing that the choice of model is a decision made by the retailer and the hotel based on considerations other than what is more desirable to the consumer. I thought about this a lot and am torn right down the middle. This premise is supported by the continued success in Europe of both merchant and retail model players. Further there are plenty of markets where paying up front has played a historical role in travel purchasing. However on the other side in the world of online consumers having “too much information” in booking travel, trust plays such a huge part in a consumer deciding to whom they will give their credit card number. That said, I am confident that more often than not a consumer looks at both merchant and retail sites and makes their purchase decision more on the basis of rate, availability, cancellation requirements and trust than on whether you have to pay upfront or at the hotel.

The other area we looked at was which model the hotel’s preferred and why. O’Connell’s view was that hotels clearly prefer the retail model because there is no payment collection issue and the hotel has a greater chance of establishing a relationship with the customer – effectively “stealing” the customer from the retailer. Therefore the rise of the retail model is more due to the economic good times and shift in power from the retailers to the hotels than specific model decisions made by retailers. On the former point I have always seen the merchant model as being just as beneficial to the hotels as the retail model. While the retail model removes collection issues the merchant model drastically reduces cancellation rates and shifts the fraud and credit card process fee burden to the retailer. But I agree that the hotels are dictating the growth of retail driven by the strong global hotel demand. Merchant will survive and grow in a prosperous times but should/when the market softens then merchant could become dominant again.

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