Opaque products, a niche on the rise in the travel industry

20 juil. 2010 | Written by Julia

At the age of rich media, web 2.0 and (price) transparency, a business model again the grain is extending in the travel industry: the sale of opaque products.

This model consists in offering products (flight, hotel, rentals…) without disclosing the identity of the supplier. It will be revealed only after making a nonrefundable commitment to buy. This model is totally consistent with the behavior of price-sensitive customer. These customers are very numerous on the web (3/4 of the Internet users according to Gregg Brockway from Hotwire.com), they are brand switcher and they are above all looking for good prices.

In the travel industry, this model has been supported by Hotwire and Priceline since 2000. Initially it was perceived as an unconventional model, but we notice that since last year this kind of offers is multiplying, especially in hotels businesses.

Main travel industry players positioned in opaque products sale

Hotwire and Priceline are the leaders in this segment in the United-States. Hotwire is an online travel agency, which works with fixed price and doesn’t show hotels’ names. Priceline is also an online travel agency, but it differs with its “Name Your Own Price” (NYOP) tool.  This is a reverse auction system to buy hotel without knowing the supplier’s name or to buy flight without knowing the schedule.

In early 2010, two main players of the travel industry joined this segment: Travelocity/Lastimute with Top Secret Hotels and Expedia (through Hotwire) by displaying unpublished rate into its hotels search results.

Although we don’t speak a lot about them, they are also a multitude of lesser-known players on opaque products sales like Getaroom.com (Unpublished Rates), LateRooms.com (Secret Rooms) Wotif.com (Wot Hotel ?), HotelDirect.co.uk (Hidden Gem’ Hotels), Quickbook.com (Secret Sale), Booklt.com (Mystery Hotel )…

Advantages for hoteliers

The main benefit for hoteliers is inventory clearance. Indeed, opaque selling are an excellent alternative to promotions for these reasons:

*Maintain the coherency of the pricing strategy (rate integrity)

*Limit the negative impact on hotel brand

*Raise RevPar (revenue per available room)

*Attract a new segment of customers who will initially weren’t interested in the product (induce less cannibalization than a promotion regarding to the loyal customers)

*Introduce our product to client that maybe would never have stayed in your hotel (this can also generate a web 2.0 positive impact with reviews or word of mouth)

Moreover, working with opaque intermediaries also confers a better view of market demand to the hoteliers. Indeed,  Priceline give statistics on all bids made on the establishment (so it allows to know how high is the demand and what customers want/were willing to pay). Concerning Hotwire, they give statistics on how many time the hotel has been viewed.

Advantages for online travel agencies exploiting this business model

The reason that this model is currently very popular and experimented by more and more travel agencies is differentiation (unique tool, different offer…) and loyalty-building.

Actually, non-brand loyal consumers who are adepts to opaque shopping are in fact really loyal to the mechanism of selling opaque products. According to Chris K. Anderson studies : « Opaque site users are hardcore loyal to that mechanism ».

Advantage for travelers

Finally, for travelers, the benefit comes from the price attractivity. In fact, they have to find a balance between incertitude about the product and best price.

However, this incertitude should be nuanced because we can find a lot of tips and debates about the way to buy these products (especially hotels) in TripAdvisor’s forums, or in specialized websites like biddingfortravel.yuku.com ou betterbidding.com.

Even through this model is booming in the North American market, it extensions to Europe is only in its early days and the right formula has not yet been found: Priceline made a U-turn in the UK market and Expedia is only testing unpublished rates in the US market. Thus, currently, there is only Lastminute.com /Travelocity and LateRooms.com positioned on the opaque selling in Europe (and their strategies seem to target mainly the UK market).

Watch this space!

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