Almost all hotels use it, have at least one online entry or are even dependent on it. We are talking about Online Travel Agencies, the ever-growing distribution channel in the hotel industry. In this article we explain what is behind the Booking.com terms Sponsored Discount or Early Payment Benefit, Price Quality Score and the virtual credit card.
In mid-August 2020, the highest court in Germany, the Federal Supreme Court of Justice in Karlsruhe, provisionally revoked the legal validity of the higher regional court ruling on the admissibility of the "narrow" best price clauses. The case is being reopened, but the final decision has not yet been clarified. In contrast, the best price clause has already been banned in Austria, France, Italy and Belgium. The online travel agent Booking.com is now looking for other ways in terms of rate parity and will continue to give the customer the best offer on the market. In this way, trust and customer loyalty are to be generated, which in the long term will lead to a higher market share and even more power and authority of the platform.
To avoid rate parity, the hotel booking portal now uses more creative methods such as Booking.basic or the Sponsored Discount (also called Early Payment Benefit). The aim is to minimise direct hotel bookings and direct sales to the booking platform. Here you can find out more about Booking.basic and rate parity.
Sponsored Discount or Early Payment Benefit
Unlike the Booking.basic model, where the booking is handled by a third-party provider, the Sponsored Discount model uses Booking.com for the entire process. With the help of a price checker, the hotel booking portal constantly searches the currently published prices on the market - the aim being to always offer the customer the lowest price on booking.com and thus generate more bookings. If, however, the price is lower with a third-party provider or on the hotel website than on Booking.com, this influences the hotel's so-called Price Quality Scores. With a value of 70 out of 100 points of this score, the online travel agent passes on the found, "better" price or an even better offer to the final customer and renounces, so to speak, a part of his commission.
The Hotel Schöne Aussicht (fictitious name) sells a double room on booking.com for € 90.00 per night. When booking directly on their own website, the customer receives a lower price and thus pays only € 80.00 per night.
Since booking.com often finds a cheaper price outside the hotel booking platform, the hotel's price quality score is below 70.
Now booking.com intervenes and offers to the guest the room likewise to the most favourable price at the market - by the offer Sponsored Discount and/or Early Payment Benefit .
The guest gets a "discount" of € 5,00 on booking.com and finally also pays € 80,00 for the double room. However, this offer can only be used by direct payment on booking.com and is declared as non-refundable rate. Booking.com processes the booking using a virtual credit card, retains the commission directly and pays the hotelier the € 90.00 minus the commission.
We assume the hotel schöne Aussicht has agreed a commission of 12% with booking.com. Calculated on the above example, the commission for a night in a double room is € 10,80.
This sum will be used by booking.com to cover the difference of the Sponsored Discount and thus waives a part of its commission.
In this case booking.com must pay € 10.00 more to the hotelier than the revenue generated for the platform. This leaves € 0.80 of the commission.
This does not disturb the OTA giant however under any circumstances, since the sum of the reservations and the generated commission compensate the additional expenditures. On the other hand, booking.com receives more satisfied customers, creates trust and puts the hotelier in a bad light.
One of our customers from Germany reports:
"Booking offers us an early payment benefit. Therefore, we have at present on booking again and again more favorable prices than on our own Website. When I called booking.com to find out why, I discovered that the benefit is only activated if the price performance calculated by booking is lower than 70. In order for the price performance to be "so bad", it is not only enough to be cheaper on the website than on booking, but also on other channels. In our case, however, booking finds alleged price differences that are often not bookable on closer inspection."
Price Quality Score
The decisive factor for the activation of the sponsored discount of a hotel is the so-called Price Quality Score. If this value falls below 70 out of 100 points, the "preferred partnership" is deactivated and the additional Booking.com models, such as Booking.basic and the so-called Sponsored Discount, are activated. How exactly the Price Quality Score is calculated is not completely transparent, but it is known that the published price plays an essential role on other sales channels and also on one's own website. The more often booking.com recognizes that the hotel offers a lower price on other channels, the lower the hotel's Price Quality Score will be. If the score falls below the critical value of 70 points, Booking.com acts and intervenes with the measures mentioned.
Virtual credit card
The traditional procedure for booking via booking.com was as follows: the customer books a room via the hotel booking platform. The hotel in turn receives the customer's data after booking and can deduct a deposit directly from the customer's credit card, depending on the hotel's guidelines. When the guest checks in or out at the hotel, the outstanding amount of the guest is paid directly at the hotel.
This procedure is still possible today. In addition, booking.com now also offers its customers the possibility to pay directly via Paypal, credit card or direct bank transfer. If the customer pays directly when making the booking, the booking platform generates a virtual credit card with the exact amount, which is transmitted to the hotelier together with the booking data. The virtual credit card can now be charged by the hotelier as usual from the time of the non-free cancellation or at the latest on the day of arrival of the guest.
What can the hotel do?
Determine your own Price Quality Score on the Booking.com Extranet. If this value is below 70, check where Booking.com thinks it has found cheaper offers and follow this up. Also call your account manager at the hotel booking portal to find out the reason for the low score.
The fastest and easiest way to prevent the Sponsored Discount or Early Payment Benefit is not to accept direct payments on booking.com anymore. Only if you pay directly to Booking.com with a virtual credit card, the Sponsored Discount or Early Payment Benefit can be booked.
Please note, however, that deactivating the direct payment affects your ranking at Booking.com. You may now only appear on page four or five of the displayed accommodations. If most of your bookings are processed via payment options such as Paypal or direct bank transfer, deactivating the direct payment can have a negative effect on your performance.
In principle, this applies when dealing with OTAs:
Try to strengthen your direct bookings to avoid being dependent on hotel booking portals. Sounds easy, doesn't it? For example, you could offer the guest a special, non-monetary "candy" when booking directly, which cannot be passed on like this by Booking.com or other OTAs. The direct booker does not receive a lower price, but nevertheless the best offer. With this example and a few other simple measures, you can already start now on the right path to more direct bookings.
Make sure that the prices on all external distribution channels such as Booking.com, Expedia, HRS or others are the same and that no special discounts or promotions are stored anywhere. Control price parity in your Channel Manager.
Plan your pricing strategy at an early stage and define restrictions in your OTAs, such as minimum stays, for periods with high booking volumes. Or block special periods for a certain period completely on your used hotel booking portals.
This is the opinion of our Revenue Manager Benjamin Reinecke:
"OTA's should always be provided with a surcharge. However, it should be noted that each OTA is priced at the same rate in order to prevent the various negative measures taken by the OTAs. The surcharge is not intended to compensate the commission, but to ensure that the customer can always book the best price directly. The commission of the booking portals is justified to a certain extent, since it generates a greatly increased reach and can participate in their marketing activities."
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