How do travel apps that claim they can book, for example, a hotel for cheaper than the original price, do it? Is it legit?
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Oooh! I work in the travel industry. I even worked for a hotel booking app for a while and did sales operations so I can answer this:
1) Contracting
If an agency sells a ton of Hotel XYZ, they will ask for special rates that they can lock in for a long period of time. Some have structured overrides. “If App ABC sells 10,000 rooms with Hotel XYZ, they get a 5% discount. If you sell 20,000 rooms, they get a 7% discount, etc”
Sometimes these may have a limit to the number of rooms so that hotels can control their margins. “Resort XYZ is doing a grand opening and we want to make a splash. I’ll give app XZY an extra 15% discount, but only for their first 100 bookings for a maximum of 1,000 room-nights.”
Hotel XYZ may also structure seasonal rates or black-out discounts for certain times – like Christmas / thanksgiving week, or ski season in Colorado.
2) Last minute deals
Hotels are eager to get their rooms filled, so they can offer huge discounts to websites that specialize in last minute deals.
3) Commissions
If Hotel XYZ pays Agency ABC a 10% commission for any bookings, that is 10% margin that Hotel ABC can play with. What if you take 5% of your margins and offer and additional 5% discount to your travelers? You make 5% less than your 10% commission, but more than 0% if they don’t book through you.
4) Dynamic Pricing
This is where things get weird. These apps have incredibly complex pricing algorithms that factor in a ton of stuff. Sure, seasonality and booking window (how many days you book before you travel) are all considered. But that is child’s play.
Some apps can even profile what kind of user you are by your user patterns within the app. One time I personally did a pricing project for a hotel app to profile users by price-sensitivity.
Do you have a high search-to-book ratio, sort your results by price and we know that you also have an account with a competitor’s app? You can be profiled as a “price sensitive” shopper and they may increase your discount by 2-3%.
A corporate user may only have an account with our app because we have billing process set up with their corporate office, and they have a lower search-to-book ratio and don’t filter by price. They are more concerned to filter by hotel location and properties that have space to park a trailer for a traveling work crew. We may decrease that user’s discount by 2-3% because we know they are less willing shop around.
That is just one example. There are dozens of other ways that we profiled customers based on app user patterns and booking patterns. 1-3% doesn’t sound like a lot, but whenever you multiply that by hundreds of thousands of transactions they really fine-tune these pricing levers to generate big money.
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