Case Study 8. Revenue Management and OTAs (Online Travel Agencies) (relates to Lesson 7) "Well, what's your reaction to Lorenzo's proposal?" asked Damario, the revenue manager at the Barcena Resort. Damario was addressing the members of the resort's Strategic Pricing and Revenue Management Advisory Committee. The committee had just finished hearing a detailed proposal from Lorenzo Monteagudo, the senior sales vice president for BidCarib. com, and a fairly new company that was operating an opaque web site specializing in Caribbean vacations. "Our target market is South Americans," Lorenzo had explained. "Our web site is written in Spanish and Portuguese. We can provide guests when your North American customers are staying home." "Well, I like it," said Mark Chaplin, the hotel's Controller. "Lorenzo said we didn't have to provide a fixed inventory allocation in advance, or fixed rates. We can turn the service on and off like a light switch. And they don't charge a commission. It seems like a no brainer to me. The rooms they would sell for us would go empty without them. I say we use them on any day we know we will not sell out." "I agree," said Pam, the property's DOSM. "The fact that they will only pay a net rate that is 50 percent of our rack rate is a concern, but I do like the fact that they are shielding our hotel's name from view until after the sale is made. I think it could help us generate incremental sales without tarnishing our image or affecting the higher rates we advertise on other IDS sites. That way we can discount without letting our regular customers know we are doing it." "I'm not so sure. I was concerned about what he said regarding the customers we would attract," said Adrian, the resort's rooms manager. "I wrote it down in my notes during his presentation. Near the beginning of it, Lorenzo said, "We can help you attract guests that are not brand loyal and choose their resort based on price. Then when you get them here, you can Wow them with service and make them guests for life." "That makes sense to me," said Mark, "What's the problem?" "Well," replied Adrian, "I'm wondering why we would think those types of guests would become any more loyal to us in the future than they have to anyone else. Honestly, they just sound cheap to me. I'd rather see us offer significant discounts or rewards to our guests who are already loyal." "I think you are missing the point," said Mark. "These would be incremental sales. Sites like Lorenzo's can help us sell rooms at a big discount without anyone knowing we are discounting." "Not exactly," quickly added Amanda, the front office manager. "Guests may not know about the existence of extra low rates when they buy, but they sure do talk to each other about the rates they paid after they get here. I'm wondering what we will instruct our desk staff to say if a couple approaches them to complain that they found out they are paying twice the rate of the couple they met at dinner last night. For the exact same room type and the exact same dates?" "Well, they bought from different sites," said Amanda. "We'll just explain that we sell our rooms for different prices based on how guests buy them." "That's my whole concern," said Adrian. "How do we maintain that our pricing is fair, and customer-centric, if we are differentiating price based on how guests buy instead of what they buy?"

For Your Consideration

1. what is the main issue and what are the recommendations to solve this issue?

2. Mark's position appears to be that any room sale that can be made if the room would otherwise go vacant is a good sale. Do you agree? Explain your answer.

3. Pam's position appears to be that the use of opaque web sites allows significant discounting without harming the resort's image. Do you agree? Explain your answer.

4. Adrian's concern relates to the hotel's ability to convert low-priced buyers to higher-priced buyers in the future. Amanda's concern relates to the impact on other guests of room sales made through BidCarib.com. Do you believe their concerns are valid? Explain your answers.