Today, hotel pricing is far from transparent. Whether a guest books online, with an agent, or over the phone with a hotel representative, it’s common for them to be surprised by hidden taxes, resort fees, amenity fees or destination fees that weren’t reflected in the originally stated price. It’s frustrated guests for years and now the government is looking into the practice.
The case against resort fees
In 2016, the attorneys general from all 50 states launched a national investigation into the fees that Marriott, in particular, charges guests. Earlier this month, a lawsuit was filed under D.C.’s Consumer Protection Procedures Act, which prohibits unfair and deceptive trade practices. Marriott was charged with “drip pricing,” or charging consumers hidden fees when making hotel reservations.
According to D.C. Attorney General, Karl Racine, “Marriott reaped hundreds of millions of dollars in profit by deceiving consumers about the true price of its hotel rooms…Companies have a responsibility to disclose to consumers up-front exactly how much they are paying and what they are paying for, so that consumers can make informed purchasing decisions. With this lawsuit, we hope to change the way Marriott does its business. We also are raising awareness in the hotel industry at-large that these deceptive practices are illegal, and that companies will be held accountable if they mislead D.C. consumers.”
In response to the government’s lawsuit, Marriott C.E.O, Arne Sorensen argues that the resort fees are well-disclosed and the company isn’t trying to deceive consumers. He states that the resort fees are the hotel industry equivalent of baggage fees in the airline industry.
Why hotels charge resort fees
Resort fees, which have existed for at least a decade, allow hotels to advertise an attention-grabbing base price and charge another. This practice of charging resort fees became commonplace as OTAs became important drivers of hotel business and began taking big commissions for the booking. It’s important to note that when the hotel collects the resort fee at check-in, separately from the rate purchased online, the hotel collects 100% of that charge. With already slim profit margins coupled with big OTA commissions and low consumer appetite to pay additional money for things like WiFi, gym access and newspapers, hotels needed to find a way to make up the difference.
Adding some complexity to the story, according to a May 2019 Skift article, “Booking.com views some hotels’ penchant for charging resort fees as a way to game the system, and therefore cheat the online travel agency out of the compensation it believes it deserves for driving business to the properties.” As a result, the OTA began notifying hotels that it will begin charging them commissions on resort fees. Hotels would not only pay Booking.com a commission for the referral but a commission on the resort fee. However, the company has since delayed the new commission and its fate seems up in the air given the government’s involvement and some pushback from brands in Las Vegas. Regardless of the direction that Booking.com goes, one thing is very clear: Hotels are scrambling to find revenue opportunities in a very competitive market.
One rate to rule them all?
But all of this raises the question: why not just charge a higher rate? Will hotels suffer if they advertise the “real” rate online? You might say ‘yes’, since price pressure is so great in this industry that hotels that share the final price won’t win bookings, but research by Chris Anderson at Cornell University shows that guests are willing to pay more for hotels with better reviews. So, one could argue, hotels that focus on price transparency, creating a great guest experience and delivering moments of delight for guests will win in the end.
And, of course, if you can create a relationship with your guests throughout the guest journey, you can drive them to book with you directly, without having them price shop the rate and get tricked into booking somewhere else. The hotels that use Revinate Marketing are finding that marketing directly to guests via email gives them the freedom to get creative with offers, packages and upsells, eliminating the need to sell solely based on price. When you have created a relationship with your guests and know their preferences, it’s much easier to entice them to book directly with targeted communications.