Opaque prices – can anyone see through them?

For many years, over many beers, we Skooshers tried to work out how to market opaque hotels. It’s quite a difficult thing to translate for the consumer. Now you don’t see it, now you do.

If you’re not familiar with the concept then it’s this: you can only see which hotel you’ve booked once you’ve paid for it. Outside of the lucky dip at the village fete I can’t think of any good examples of things that you pay for before you see them and which you can’t then return. It’s a concept peculiar to hotels. So, how did it happen?

Well, we must imagine a time back in 1998 when a lot of jovial men in smart black suits sat around the board-room table at their HotelCorp HQ in, say, Buckinghamshire. They’d just found out that there was this thing called the internet. None of these men knew much more about it other than that the consumer used something called a ‘mouse’ and they ‘surfed around’. There was a lot of jollity and the men concluded that the internet would never take off.

The same men met again in 2001. Flushed, this time. The internet was indeed still around and there was worse news. It seemed that the rooms that they’d given away to wholesalers at really low prices, designed for resale via ‘normal’ travel agents, were being sold openly and brazenly on this internet thing. Their distributors were selling huge numbers of HotelCorp’s rooms and making huge profits. The men felt that they’d been cheated and they were very angry. It wasn’t fair!

In 2002 they were back again and this time with a plan. They would sell rooms on their own website and they would cut off supply to wholesalers selling at a lower price than the hotel’s own site where they would guarantee customers the best price for their hotels. They coined a phrase for this kind of pricing system, ‘rate parity’. They were very happy with this phrase – everything was now even. And fair.

In 2003 the hoteliers realised that they’d boxed themselves in with this rate parity idea. They’d shunned and lost their wholesale distributors and they couldn’t sell enough rooms through their own website. What to do? They didn’t want to be openly undercut and lose traffic to their site but they needed to sell rooms faster. So the one man in a very white suit devised a very cunning plan. He proposed that they introduce another sales channel whereby the consumer couldn’t see which hotel they were booking and therefore couldn’t call the hotel and undercut their best price guarantee. Genius! And so ‘opaque’ pricing was born.

Enough with the fairy tales, we’re now suffering the reality.

Price competition isn’t so much a law of business as a bedrock. When you move the bedrock you get all sorts of unintended consequences. In Soviet Russia (sorry to keep using that as an example, Eugene, I’ll find another one in time) that meant queuing for 2 hours to buy a piece of hard cheese from a surly shop assistant. In the 2010 hotel industry it means ‘opaque’ pricing. Isn’t the name absurd enough?

There’s a strange twist to this story. So the hoteliers invented ‘opaque’ pricing to stop their distributors selling rooms at ridiculously low rates, and now the distributors are insisting on opaque pricing to do exactly that. They’ve built a whole industry on it. Hotwire is entirely premised on this basis. It gets worse. At the other end of the scale, other distributors are insisting on that other cunning idea – rate parity. So, at one end the distributors undercut the hotels with opaque pricing and, at the other, the distributors guarantee their customers they won’t find a better price, even directly from the hotel. Crazy, eh? The two things those men in suits came up with to capture their fair share of the internet business!

The story continues.

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One Response to “Opaque prices – can anyone see through them?”

  1. […] below the parity rate (also known as the Best Available Rate or B.A.R. rate), Hotwire with its ‘opaque’ proposition, sweeps up the bargain basement business. So, the consumer can either see the hotel […]

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