OTA Pricing Tactics Show Value of Traditional Travel Agencies

Consumers who expect to grab the best travel deals by shopping online may be deterred by the latest news about the pricing practices of some OTAs. That’s information that travel agents can use to their advantage.

In a highly publicized study, computer scientists at Boston’s Northeastern University found that several major online travel sellers used customer data and web analytics to personalize prices, with the result that some consumers were quoted higher prices than others for the same product.

In some cases prices were altered by hundreds of dollars.

More prevalent in travel
The study, which analyzed both travel and non-travel websites, found that such price discrimination, while not widespread, was more prevalent on travel websites than on other e-commerce sites.

Travel sites, including Expedia and Hotels.com, also were more likely to engage in “price steering,” in which the order of search results were tailored so that some customers would see the more expensive options first.

Researchers conducted searches on 16 e-commerce sites, including those of six travel sellers––Cheaptickets, Expedia, Hotels.com, Orbitz, Priceline, and Travelocity––as well as non-travel sites like Home Depot and Macy’s. Travel searches focused only on hotels and car rentals.

Raises concerns
Factoring in individuals’ browsing and purchasing history and the type of device they’re using to determine pricing to tailor search results is neither illegal or nefarious.

It’s also hardly new for retailers to price products differently for different customer segments.

In a traditional sales environment retailers might, for example, offer discounts to veterans or to senior citizens or give greater visibility to higher-priced products by positioning sale racks at the back of stores.

The difference is that in traditional retailing “people can see what’s going on,” said study co-author Christo Wilson, assistant professor of computer and information science at Northeastern University.

In the online environment, however, there’s a lack of transparency about price discrimination and price steering. Wilson finds that troubling.

Pricing inconsistencies
In travel, consumers are accustomed to some inconsistency in price––especially in airfares and hotel room rates–– even if they don’t grasp the yield management mechanisms behind the rate differences.

“There’s so much yield management. You’re paying based on very abstract things that consumers don’t understand,” said Richard Vanderlubbe, president of tripcentral.ca, a large retail travel agency headquartered in Hamilton, Ontario.

But airline and hotel yield management is tied to supplier inventory. That’s different from using information about individual customers gleaned online to charge some people higher prices or steer them to higher-priced products.

“People get kind of freaked out about price discrimination, because it’s got that terrible word,” Vanderlubbe said.

It could backfire
Vanderlubbe, whose company encompasses both a robust online presence and brick and mortar agencies, said pricing discrimination and price steering by online travel sellers could backfire.

For one thing, pricing inconsistencies drive consumers to “search maniacally” online, Vanderlubbe said. They perpetuate “an incredible focus on price” and cause shoppers to become “even more distrustful of pricing,” he added.

Even loyal travel agency clients who trust their advisors to provide better value will check prices online. “Agents say, ‘My clients don’t go online,’ but they do. They shop like mad,” Vanderlubbe said.

Exaggerated importance
Rick Garlick, global travel and hospitality practice lead for the market research firm J.D. Power, said the importance of the study’s findings––which have been reported in the Washington Post and the Wall St. Journal––have been exaggerated.

“The question is how much variability in pricing there actually is,” Garlick said. He noted that OTAs and hotels increasingly strive for rate integrity in an effort to minimize disparities in price.

The more relevant issues for travel agents are consumers’ growing savvy at accessing online information to find the best fit for them, coupled with marketers’ growing ability to harness volumes of data and powerful algorithms to match customers to the right offer, he said.

“Where travel agents have had an advantage is that personalized service they give to their customers,” Garlick said. “You and your spouse come in and talk about the kind of vacation you want to take and they come up with informed recommendations.

“So what agents do is what technology does using powerful mathematical algorithms. One could say: Man versus machine, which does a better job?

Garlick said people like to think that human intuition and relationships top mathematical algorithms used to track individuals’ buying patterns.

“The one lesson, I would say, is it really does behoove you to spend as much time getting to know your customer as possible,” Garlick added.

Seizing the moment
Meanwhile at least one travel agency has jumped on the OTA pricing research, using the occasion to promote travel agents’ value and to decry OTAs’ use of consumer data to their own advantage.

In a recent press release about the Northeastern University study, CookTravel.net president Blake Fleetwood, commented, “Today’s computers have raised the art of price discrimination to a level never before imagined.”

The release also quotes CookTravel.net agent Fabrizio Peralta on the man versus machine question: “Algorithms act on mathematical impulse, but live agents act on the individual needs of their clients––and the price doesn’t change, no matter who you are.”