At the end of June, the UK’s Competition and Markets Authority (CMA) launched a crackdown on a number of hotel booking sites due to concerns they were breaking consumer protection law. Concerns included search results rankings, pressure selling, discount claims, and hidden charges. The CMA has sent warning letters to a “range of sites”, demanding that these booking sites review the way they rank and display information, and comply with the law. It says “the next step is to take any necessary action – including through the courts if needed – to ensure people get a fair deal.”
EHL assistant professor of marketing Dr Meng-Mei Maggie Chen examines the implications, not only for the hotel booking sites, but for the travel industry as a whole.
Hotels search results rankings
Major e-commerce sites generally use algorithms to determine search result rankings. As these algorithms are effectively their trade secrets, this makes them difficult – if not almost impossible – to decode. For example, who can accurately decipher Google’s search engine algorithms? Are users influenced by Google results rankings and do they trust Google? Such questions demonstrate the complexity of search results rankings.
The rankings can be influenced by all sorts of factors, ranging from customer reviews to conversion rates and other factors. In other words, even if a company is willing to pay the highest commission rate in percentage terms, if its conversion rate is low or customer reviews are negative, it will not be able to buy its way to the top spot in the search results. Some hoteliers blame the commission percentage for not being able to have a prominent ranking in the sites of online travel agencies or OTAs, but ignore the opportunities they have to optimize their offerings and customer relationship management on travel booking sites.
Pressure selling on travel sites
Conduct a quick search on Amazon and eBay and you will find similar practices. For example, a search on Amazon shows “only one left in stock” for a printer, while another on eBay shows “almost gone” for a monitor. On the other hand, travel sites, such as those of airlines or hotels, also apply pressure selling tactics. With regard to the CMA’s recommendations, do all industries need to review the way information is presented on websites?
In the hotel industry, hoteliers set rack rates as their highest listed prices, but hardly any charge customers these rates. Hoteliers tend to charge “discounted” rack rates, only charging rack rates during short, high demand periods.
The CMA used an example of discount claims based on a higher price that was only available for a brief period. This may then impact how hotels display their discounts online and require them to identify what is being used as the basis for the room rate discount, so the CMA recommendation would not just affect travel booking sites.
Hotel booking hidden charges
The concern about unexpected extra charges is well justified. Some travel sites only show all extra charges towards the end of the booking process. When consumers do eventually see the final price with all extra charges, they have the option of abandoning the booking process to start all over again. The practice of not showing these extra charges upfront may waste customers’ time. The implication is not limited to travel sites but the entire hotel industry.
Trust creates the market
Consumers shop at travel sites because they want a comprehensive list of available travel products. Andrea Coscelli, Chief Executive of the CMA, stated in a news release that “booking sites can make it so much easier to choose your holiday, but only if people are able to trust them”. Do consumers trust these travel sites?
According to the CMA, about 70 percent of people who shop around for accommodation use hotel booking sites. This high percentage should serve as evidence of consumers’ trust.
Because of this level of trust, travel sites become markets full of potential travellers interested in buying travel products. To retain and grow these markets, travel sites invest heavily in advertising and technology. To gain access to these markets, hoteliers pay commissions to travel sites for business generated from these sites. Hoteliers need to leverage, not fight against, these travel sites.
Although the CMA’s observations focus on travel sites, its implications are industry wide. Hoteliers should review how their own website displays information and optimize that information and customer relationship management on travel sites.