Tuesday, October 21, 2008

Behind Priceline

After having received quite a bit of positive feedback on “The Best Hotel Deals...” which was posted on September 15th, 2008, I decided to elaborate a bit further on Priceline and the “opaque” booking process. In preparation for this blog posting, I spoke with Revenue Managers at multiple brand-name hotels that participate in the opaque (blind) booking process and did some further research into the method.

First of all, many revenue management departments consider participation in such programs to be taboo, since they don’t want to associate their products with such low prices. It is for that reason that you see very few five-star properties participating with the program; to them, devaluing their name isn’t worth the additional revenue. On the contrary, some Starwood hotels like to offer a lot of Priceline rooms because when their hotels show occupancy, the individual hotel gets a bonus from Starwood, regardless of the room rate. This poses a dilemma to revenue managers who care significantly about brand integrity. Of course, Starwood doesn’t approve of mass allocation of rooms to Priceline either.

How It Works:

The revenue manager begins by analyzing a series of dates in the computer (PMS or Property Management System). When he/she sees dates that he/she believes will have empty rooms, he/she will allocate a specific quantity of rooms to “opaque inventory.” Those rooms are tagged with a particular price by the revenue manager that the general public will never see.

For Example:

Hotel A has 200 rooms which have a lowest available rate of $225. For December 12th, it is predicted that at least 50 rooms will be empty. The Revenue Manager may drop 20 rooms into the “opaque” booking inventory and tag them with a price of $50. Priceline can then buy those rooms for $50/night -- nothing more, and nothing less.

When you log onto Priceline and place your bid, priceline IS NOT haggling with the hotel as it says it is. Priceline instantly knows what it has to pay for the given hotel room. As long as your bid offers Priceline a decent mark-up, it will be accepted. Priceline keeps everything above the set price by the hotel. Say your bid was $75. Priceline will keep $25; it’s that simple.

When speaking with a Revenue Manager in a large sized (600-1,000 room) Manhattan 4-Star hotel (name to be kept anonymous), I learned that on the emptiest of weekend nights, when Priceline bookings are at their highest, you nearly never see more than 15 Priceline bookings.

Another notable fact is that Priceline will ONLY sell the room of the lowest bidding hotel in a category. For example, if Hotel A offered $50 for the opaque rooms, but Hotel B offered $55, then Hotel B won’t sell even a single room. I was told that the burden of having to make sure you aren’t undercut rules out some hotels from participating in the Priceline system.

One hotel Revenue Manager I spoke with explained to me that they would soon likely pull out of opaque booking because the new management thinks the low rates devalue the brand too much.

There is one notion that every Revenue Manager I spoke with agreed upon, and that is that Priceline is the single smartest way to buy a hotel room if good value is your goal. You are essentially getting rates that some hotels feel are a slap in the face!

Written By:

Alex Early
Founder & President
The Early Air Way, LLC

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