A few years ago, I was in Orlando, US for work and I was interested in buying a newly released camera. I did some online research and finally purchased the camera for $1045. It was on 30% discount and I was very happy with the deal that I got. It was a premier brand, made in China camera. A few weeks later, I was in China and I wanted to check what is the price of the same camera in China, where it was made. I was pleasantly surprised to see that the same camera was at least 10% costlier than the same product in US.
Though, I was happy, my consulting brain started going crazy. For a product which was made in china, after adding the export duty, import duty, transportation cost and many other costs. Still, the price in US was cheaper than in China, the country where it was manufactured. How is that possible?
I started doing a bit more research and found that there are more buyer for the product in US than in China. The people who can afford to buy the product in China, would be “RICH” and will buy the product anyways even if the price is 10% higher. But in US there are more people who have the buying power, but at the same time they are more price sensitive. Overall there are more people who would be buying the product in US if they perceive it to be cost competitive. In simple terms, in US, even if the manufacturer make just $50 from one product because of the volume of sales, it is profitable. Whereas in China, only certain class will buy the product and reducing the price may actually damage the brand apart from impacting the margin.
This is the basis of volume discount websites like Groupon. From customer’s perspective, while it is true that you get good deals online for some products for various reasons, but there are some products where logically it is not possible to get a better deal online except the website of the vendor itself.
Let’s have a close look at the hotel industry. Most hotels use hundreds of websites to sale their inventory including their own website. These third party websites (Also known as Online Travel Agents or OTAs) are aggregator of hotels and give prospective customers a good user interface to compare the quality, price, reviews of previous guests and easy platform to purchase the one they want. These sales for the hoteliers come at a very high cost as most OTAs charge a huge commission of 15-30%. But at the end of the day it is the end customer, you, who pay for this huge commission of OTAs. The hoteliers can reduce the price for end customers if they don’t have to pay hefty commission. These OTAs have millions of dollars for marketing budget and they give best price ‘guarantee’ to the customer by promising that if they find a better price elsewhere, they will refund the difference. Ultimately, the onus is on the hotelier to maintain price parity between all these OTAs, otherwise there is a threat of compromising with sort ranking on the OTA. We also have meta search engines like Tripadvisor , Google hotels, Trivago etc, which gives you price comparison for a hotel across various websites. OTAs keep a close eye on these Meta search engines as well and the moment there is price disparity, the ranking algorithm picks it up and punish the hotel by putting it last in the sort ranking. Although, the hotel ranked last may be the best deal for the customer.
Unfortunately, most customers do not scroll more than 2-3 pages of search results on these OTAs. They don’t even use the filters like sort on price/reviews etc. Ultimately they pay the ‘price’. Many hotels get a boost in the ranking of OTAs by paying higher commission on increased price or by creating a perceived promotion (Increasing price and then running discount on increased price).
So, how can you find the best deal for your next trip? Fortunately, it is not that complicated. Remember any middleman you are bringing in the equation you are paying the price for the middleman. No one (Not even groupon) can offer you a better price than the hotel itself. Here is a 3 step easy process to find best deal anywhere in the world.
1. Search any global/local OTA (e.g. Booking.com, Expedia, Agoda etc.) to compare the hotels but do not rely on the default sort ranking provided by the OTA. Compare the available hotels using the sort on price and review score.
2. Now, select 2-3 hotels that fits your requirement. Once you have short listed 2-3 suitable hotels, find the hotel website by google search. Most hotels would have websites these days and they allow to book online. Sometimes it’s possible that the price on hotel website is same or even higher than OTA because of contract of the hotel with OTA to provide the best rate on OTA.
3. Now, call the hotel and quote the price on OTA and most hotels would be more than happy to give you 5-15% discount on the price advertised on OTA. Even if you are a VIP member /Genius customer of the OTA or you are using a mass sales website like Groupon. This is because the hotelier will pay a 15-30% commission on the total price to OTA if you book through OTA.