Best price guarantees are costing you money

We all know the ads on TV and online to book accommodation, “get a best price guarantee with [insert booking site here]” or “to really get the best price and compare all available accommodation rates from multiple websites visit [insert marketplace website here]”.

But do these websites really give the best price or are they costing you more money? If you guess that they really cost you money then you would be right and here I am going to tell you how.

Lets start off by looking at the costs to the accommodation providers:

  1. The booking website charges between 8% and 25% with an average rate of about 15%
  2. Merchant fees for credit card processing are between 2.5% and 3.5% depending on country, bank, type of merchant services, etc so we will look at an average of 3%
  3. Many accommodation providers give the booking website members a special discount that is between 5% and 20% with the normal discount being 10%

Now lets look at what the booking websites do to reduce the amount of money you pay:

  1. Contractually obligate the accommodation providers to provide them with the lowest price
  2. Charge excessive fees for relocation of guests when they overbook a property
  3. Not allow accommodation providers to manage the bookings directly

If you are thinking that none of these actions do anything to reduce the cost of your accommodation costs then you would be right. You have probably also noticed that not 1 of the cost saving actions is taken on by the booking site except for requiring the accommodation provider to provide a discount. Even the costs that the booking website themselves are responsible for don’t get covered by the booking website.

This leads us to a conclusion that the discounts are all coming from the accommodation provider.

Before we continue with the maths lets consider something, accommodation providers generally have an idea of the minimum amount they need and want to get after the direct cost of sale. Even though bookings websites have been around for quite some time and they are responsible for the vast majority of bookings for accommodation, the industry is still coming to terms with them and it has been noticed in the past couple of years that accommodation providers adjust rates regularly to allow for these ever-increasing costs.

An accommodation provider who sells a room at $149 per night traditionally would have expected around $135 per night after their direct sales expenses just a few years ago but now, the same provider is only receiving $110.56 after direct expenses, so what is the accommodation provider to do in order to make sure they can not only pay expenses, make a profit and also keep the property up to date? They need to make up for it by lifting their prices but, because the booking websites have a contract with the accommodation provider saying the booking website must have the best price or, the accommodation provider will need to pay their full costs plus refund the difference between what the guest paid and what the best rate actually is, all prices have to go up, the room that was previously $149 per night now needs to be around $179 per night for the accommodation provider to get the same revenue but wait, there is more, the accommodation provider needs to keep up with rising operational costs, these include:

  • rates of pay for staff
  • rates & taxes
  • utilities (e.g. electricity, cable/satellite TV, water, gas, telephone, internet, etc)
  • lease
  • cleaning products
  • guest supplies like tea, coffee, milk, etc

To cover the revenue the property needs, they now need to put in place their annual increase just to cover these normal cost increases so your $149 per night room now costs $189 per night. Oh and lets not forget about the booking websites loyalty programs, if the property participates in these programmes via the booking website that $189 per night room is now going to be more like $199 or more.

To counter act this problem many accommodation providers have other ways to reduce your cost of accommodation and these rates are only available directly with the accommodation provider. Tools they use to give you the best price when you go direct include:

  • Promotional codes via website
  • Phone and walk-in rates
  • Pre-paid, non-refundable, unchangeable dates, non-transferrable discount when booking direct
  • Minimum night stay discounts when booking direct
  • No housekeeping during the stay discount when booking direct
  • Special package deals when booking direct

Sure some of these offers are available via the booking websites but, based on what you have read so far, do you think that these are actually saving you money or do you think they are just a way to make a property look more attractive on the sites? If you think offers promoted via the booking sites are simply to make the property look more attractive than you would be right, when on a booking website these offers are generally what the property requires meaning the standard rates are even higher than they need to be.

Lets be straight here, it isn’t worth an accommodation provider offering a room that is listed with all booking websites for $189 per night at $145 per night right away, where they can probably afford to the discount, it lowers the perceived value of the property in the market place and because the majority of accommodation providers are working the same way, to keep their property value where it needs to be compared with other properties in the market they cannot lower the price as much as they would like, if they did it will eventually drive down the average rate of the room and not allow the owner/operator to maintain the same standards as they suddenly are down on the bookings websites that will make the property close to non-viable as a business.

When going direct to a property it is reasonable to expect your $189 per night room at $175 per night when you go direct but they are unlikely to go below $179 per night. By going direct you will actually get the best rate, you may also get additional discounts if you stay multiple nights and don’t use the housekeeping service during your stay, a reasonable discount would be $5 per night for no housekeeping and $5 per night for more than 3 nights accommodation. If you have a pre-paid rate then you may expect a 10% discount on your stay based on the original per night rate.

So now with all of these discounts lets see how much you may be able to save by going direct and taking advantage of a few discount offers,

  • Pre-paid with a 10% discount: $189 per night -$18.90 = $170.10 per night
  • No housekeeping: -$5 = $165.10 per night
  • Minimum 3 night stay: -5 per night = $160.10 per night

Now by the time marketing and merchant costs are taken into account the accommodation provider is getting the $150 or so per night that they need to keep the doors open and you get a room that could cost as high as $199 per night for $160.10 per night – that is a 20% discount.

Now in full disclosure, not all properties provide these direct discounts because they are scared or the owners don’t trust the staff to provide discounts but it is always worth asking, if a property says they cannot give a direct discount then move on to the next property.

The morale of the story here is simple, if you want to save money and have the ultimate flexibility in your accommodation choices then go direct to the properties and use the booking websites as a classifieds system.

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