With the abundance of options, varying prices, and the uncertainty about making the right choice, booking travel is typically a stressful experience for consumers. This is particularly true when evaluating high-demand hotels and busy dates, when the pressure to secure a booking intensifies. Travelers often worry about whether they have selected the best hotel, if the price they see is fair, or if rates will fluctuate before their stay. All of this typically leads to high website abandonment rates at the booking stage or cancellations prior to check-in.
Thus, consumers increasingly demand flexibility when planning and booking travel. In fact, a 2023 report by Skift indicates that flexibility in booking is a top priority for travelers post-pandemic, with many willing to pay a premium for refundable options. Similarly, a survey by the Global Business Travel Association (GBTA) found that 68% of travelers consider flexible cancellation policies a critical factor in their booking decisions.
To give consumers more peace of mind in their planning and booking process, hotels and OTAs offer refundable rates. However, given last-minute booking cancellations and a softening demand environment, refundable rates can pose significant challenges for hotels, including but not limited to unoccupied rooms and lost revenue during peak demand periods.
So, how can hotels address consumers’ hesitancy to book without compromising their revenue? We will get to that in a moment, but first, it’s important for hotels to understand how OTAs are monetizing consumer anxiety. Once armed with this knowledge, hoteliers can make the necessary adjustments to their revenue management practices in a way that will both elevate the guest experience but also increase direct revenue and overall profitability.
How OTAs are Monetizing Consumer Anxiety
To mitigate their concerns and hesitancy to book, many guests turn to Booking.com for its free cancellation policies, allowing them to book a rate and cancel easily if their plans change. While this strategy may ease the traveler’s anxiety, it creates several significant issues for hotels.
First, there is a high likelihood that these reservations will be canceled. According to an analysis of Guestcentric’s hotel portfolio, 30 to 50% of all Booking.com reservations are canceled prior to check-in, translating to a 50 to 60% cancellation rate for tentative bookings. Hotels also face an 18 to 30% net income difference due to commissions, overrides, and costs associated with programs like Booking.com’s Genius. Crucially, hotels miss out on direct access to customer data for upselling and enhancing the guest experience.
The problem of cancellations is compounded for hotels because canceled reservations typically are replaced by lower ADR reservations. A GuestCentric study on demand for June 2024 shows an ADR gap of up to 14% between confirmed and canceled reservations. In a 75-room boutique hotel with high occupancy and an ADR of €225 this effect can easily represent a loss of up to €500,000 to the bottom line.
Therefore, an alternative strategy is needed for hotels to both enhance the guest experience without compromising their revenue.
A ‘Direct First’ Revenue Management Solution for Hotels
Hotels looking to optimize their revenue management strategy should encourage guests to book direct. One effective strategy is to gradually make all rates on OTAs non-refundable, starting with peak periods. Given that non-refundable rates are typically lower, hotels can still maximize visibility generated on these channels by showcasing less costly rates, whilst simultaneously ensuring these platforms no longer serve as a quick solution for anxious travelers seeking lower, yet refundable rates.
By following this strategy, hotels can provide three options. First, consumers can choose to either book a non-refundable rate either through Booking.com or directly with the hotel. However, this choice often comes with a sense of unease about potential changes in plans. The second approach means hotels can give guests the option to book a refundable rate directly, which offers full peace of mind but at a significantly higher cost—about 30% more than the non-refundable rate, in line with revenue management best practices.
Finally, similar to airlines that offer lower rates well in advance and then increase substantially closer to flight dates, hotels can give guests the option to lock a lower rate in advance while buying themselves some decision-making time for a nominal fee.
Enter RezLock – The Key for Hotels to Give Guests Flexibility and Increase Direct Revenue
To recap, guests continue to face a number of challenges including but not limited to, rising hotel prices, uncertainty, and last minute travel changes. This leads to hotels facing website abandonment at the booking stage, and cancellations which prove costly to the bottom line. What solution can address these issues effectively for guests and hotels?
As one of the latest enhancements to Guestcentric’s HyperCommerce platform, RezLock allows guests to lock in their preferred room rates well in advance for a nominal fee, giving guests more flexibility in their booking decisions whilst providing an extra source of ancillary revenue for the hotel. In cases where the booking does not materialize, the hotel retains the fee for the locked rate.
This approach complements a direct-first revenue management strategy by giving guests more flexibility when booking direct. Meanwhile, hotels benefit from an easy-to-use and fully customizable solution that gives them complete control over the set up and publication of lock-in fees and durations. Not to mention, the hotel will also have more opportunities to continue strengthening the direct relationship with the guests, even if they choose not to follow through with a locked-in rate.
Below are some more ways that RezLock benefits hotels in their direct business growth strategy:
- Source of Ancillary Revenue: Guests pay a nominal fee to lock in their rate. If they ultimately decide not to book, the hotel retains this fee, along with any non-refundable portion of the reservation. This creates an additional revenue stream for the hotel.
- Enhanced Revenue Management: By encouraging early rate locking, RezLock helps hotels manage their inventory more effectively and forecast revenue with greater accuracy. This optimization can lead to better occupancy rates and reduced last-minute vacancies.
- Improved Cash Flow: Securing bookings in advance improves a hotel’s cash flow and aids in financial planning. The early revenue can be reinvested into operations or enhancing guest experiences, further benefiting the hotel’s bottom line.
- Increased Guest Satisfaction: Rate locking provides guests with peace of mind, knowing that their rate is secured regardless of market fluctuations. This reliability builds trust and can lead to higher guest loyalty and repeat business.
- Competitive Advantage: Implementing RezLock can set a hotel apart in a competitive market. Travelers who prioritize financial predictability and careful planning are more likely to choose a hotel that offers such an innovative rate-locking feature.
Conclusion
In summary, RezLock helps hotels address and mitigate consumer hesitancy to book by offering peace of mind and financial predictability to consumers. By following the approach highlighted above, hotels can significantly reduce their reliance on OTAs, minimizing the costly impact of their last-minute discounts and high cancellation rates. Additionally, by implementing a direct-first revenue management strategy with flexible options like RezLock, hotels can increase their direct bookings, generating higher profit margins compared to those made through OTAs.
As a result, the impact of RezLock boosts profitability for hotels by enhancing revenue predictability, reducing cancellations, and optimizing the booking process to capture more direct reservations, ultimately leading to a more stable and profitable business model.
Get in touch with our team to learn more about how RezLock can help your hotel.
Melissa Rodrigues
Content Manager
+35 196 157 3854
GuestCentric Systems
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