In bed with discounts

“One three-room service apartment in Coimbatore made six bookings for the same check-in dates. Another small lodge, which hardly used to sell rooms made bookings worth Rs 4 lakh. When we checked, all those bookings were made from the same IP addresses.”

If you aren’t familiar, this is called round-tripping, or bogus bookings, wherein suppliers themselves buy rooms from OTAs (online travel aggregators) at discounted prices, resell them offline and make profits. “When you give a discount, you set up wrong incentives for the properties,” adds Vasupal. “Because nothing would stop them from buying those rooms themselves.” This isn’t talked about much but according to industry estimates, when an OTA offers a 25% discount on an average on a room night, 15-20% of the bookings end up being done by the hotels themselves. When the discounts go up to 35-40%, the round-tripping transactions go up more, to about 40-50%.

The second time, Stayzilla ran a referral programme for five days in November 2015. A person could refer Stayzilla to another person, and if the latter made a booking, both would get cashbacks. “The referral programme picked up so fast, that the velocity became the problem,” says Vasupal. “Of our annual marketing budget of about Rs 1 crore, we spent 20% just in those five days.”

“Discount-based growth is like fire, you need to be extremely cautious while playing with it. You never know what the long-term impact of such tactics is going to be. We (referring to Stayzilla going out of business) could be seen as the casualty [in a market] where growth is led by discounts. It leads to a hostile environment, where more than an idea, one needs capital.”

Now, take a step back. And think through this. Think about the last three years. Everything that’s happened in the online hotel aggregation business, has happened on the back of discounts. Discounts fuelled by online players desperate to show numbers and hotels with empty rooms to fill, minimum guarantees to hotels fuelled by new entrants with access to investor money; doused in kerosene and a matchbox that came along with the term sheet. Three years of crazy. Crash and burn. Consolidation. At the end of all of this, in 2017, the online travel industry is looking for answers. What now?

More of the same

“There are various ways in which the OTAs invest to grow their market shares. Whether it is through discounts, wallets, cashback, partnerships with banks or marketing spends to open up the market or the range of properties—all of these work towards expanding the market,” says Mohit Gupta, chief operating officer – online at MakeMyTrip. “But discounting is not the only way [to gain loyal customers].” In the last few months, MakeMyTrip has been constantly enhancing its website and mobile app with additional features. In March, it launched MMT Assured Hotels, a feature, which promises customers a great stay in select hotels.

Meanwhile, Goibibo also launched a bunch of add-on features on its website and app. These include slot booking (a user can book rooms for three, six or nine hours in select hotels), early morning check-ins and in-stay reviews (reviewing a hotel while you are staying in it). There are also secret deals (wherein if a hotel knows there are customers close by, it can broadcast attractive deals). “Lot of these little innovations, we are pushing out every quarter,” says Ashish Kashyap, founder of Goibibo.

“We are also working with hotels to maximise their profitability. The smaller hotels do not have any price intelligence systems and that’s what we want to give them,” he says. “So we believe if we help hotels increase their profitability, they’d give us the best pricing and best customer experience.”

Other OTAs such as Yatra and Cleartrip are also focusing on retaining their existing customer base. “Our loyalty programme like eCash has been able to drive stickiness. For instance, 74% of the transactions are from repeat users,” says Sharat Dhall, president of Yatra. For the company, one of the main focus areas is retargeting users.

The Target

“For example, if a user came to Yatra, but did not book anything, we’d target her through relevant advertisements on whatever she was searching for,” explains Dhall. “We would place relevant and personalised offers for her on social media and through ad networks (an ad network has a certain number of websites under it wherein it places advertisements).”

Except Dhall agrees that the discounts are here to stay. “Discounting won’t stop because we are in a growing market. We need to incentivise users in areas like hotels, buses and international flights, where penetration is still low. The question is how deep the discounts are going to be,” he adds.

It will be fair to say that discounts are deeply entrenched in this business. “In the beginning, we had to do discounting from our side. And as we entered new regions, we had to go by the same playbook again. But it was not because of discounting that we became number 1 in hotels and number 2 overall,” says Kashyap. “The supplier ecosystem and platform we created, [as well as] the unique and creative marketing promotions like GoContact (the referral scheme) and GoCash (e-cash and e-wallet) had a viral effect.”

“Discounting is not the right strategy. From an optics point of view, it looks, ‘Oh my God [so much discounting], but a lot of effort has gone into market orchestration,” he adds.

 

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