That’s where the success story of OTAs like
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Agency Model VS Merchant Model
While most OTAs follow merchant model of business, it is agency model that has gotten the global success. Before going any further, let’s break the concepts for you. In Merchant model, the contract is between the hotel and OTA, where the latter sells rooms at a lower price than standard. The aim is to get bulk bookings and there is no standardization of guest profiles. This gives the OTAs a large room for profit of almost 20-30%. The agency model, on the other hand is far different. Here, the bookings are made on per room basis. The hotel owner gets to decide the final price and shares the commission with OTA only after the guests have checked out. While there isn’t much bargaining involved or the offers cannot be punched with others, this model is transparent. At a price sensitive market like India, discounts do work. But when there is value added, it makes a huge difference.
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Why hotels prefer agency model?
The agency model of Booking.com is one of the cost-effective ways for hotel and accommodation partners to grow their business and their brand globally. The accommodation partners only pay commission to Booking.com once the guests have stayed, paid and checked out of the hotel. They pay once Booking.com has generated actual business for them. In addition, the agency model enables accommodations to maintain complete control over their businesses as there is no cost to list the properties. The properties have the freedom to decide their own rates and decide the type of rooms that can be made available to customers.
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When the option of agency model wasn’t there, hotels were bound to go for the merchant model to sell more rooms. But once they got the taste of Booking.com’s agency model, hotels now know how to sell rooms without a major chunk of commission.
How Booking has an edge over Merchant-model enabled OTAs?
Booking.com’s biggest challenger Expedia has acquired Italy-based Venere, which uses an agency model. Even if that doesn’t hint to Expedia’s preference for agency model, it seriously poses a question on if that’s the future. But one definitely can’t stop asking, how one makes profit with paltry 12-15% of commission from hotels!
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According to Vikas Bhola, Regional Manager of Indian subcontinent for Booking.com, focusing on standalone hotels, Booking.com has the best-in-class availability of hotels, that too in the tertiary global market. The breadth of supply of the OTA, powered by ample money poured into Search Engine Marketing has helped Booking.com convert more customers on its landing page. And believe it or not, Booking.com is believed to be one of Google’s largest advertisers.
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Level playing of technology along with understanding the area-wise travelers have helped Booking.com scale up its empire even with low commissions.
(The writer was at Amsterdam on invitation of Booking.com)