The “buy now, pay later” ethos reigned supreme in the ’90s and early 2000s. With ever-increasing credit card use and a more saturated market than ever, people were empowered to make purchases with the confidence that they could find the money later. We all know the end of this story—ballooning credit card debt was a major factor in rising bankruptcy rates through the ’80s and ’90s, reaching an all-time high in 2005. “Buy now, pay later” didn’t work.
Younger generations, who came of age during a recession, are mostly able to see through the “buy now, pay later” mindset. In fact, only 33% of millennials said they had a credit card in Bankrate’s 2016 survey. We’re not falling for buy now, pay later—which is great. But, we are falling for something that is potentially just as harmful for the industry and our consumption attitudes: “buy now, change your mind later.”
How “Buy Now, Change Your Mind Later” Affects Consumerism
The rise of online shopping brought with it an atmosphere of ultimate convenience for customers. Free shipping and free returns have made shopping consequence-free. E-commerce return rates are higher than ever, reaching as high as 40% for certain products. But this is all costly. Shipping costs, the cost of packaging, and sometimes the cost of the items themselves—as return items are frequently unable to be resold—are eaten by the companies. To cover these costs, prices are driven higher. Worse, we waste energy and materials all because we want to be able to change our minds. Because we prize convenience.
We use this example because the waste of online shopping is easy to understand and quantify. You can see Amazon boxes piling up and you can visualize the labor in the warehouses. You can add up the returned items that are headed for a landfill and imagine how the work that goes into shipping and returning products could have been used for innovation, customer service, or something else that would directly benefit the customer.
The hotel industry is hard to visualize in the same way, but the costs and consequences are the same. The rise of “buy now, change your mind later” has harmed the hotel industry, and it’ll only get worse.
Hotel Cancellation Rates Are on the Rise
Hotels have always had liberal cancellation policies, especially compared to air travel. Hotel cancellation policies are a protection for travelers in case the worst happens. Perhaps incumbent weather, delayed flights, or sickness prevents travelers from taking a trip as planned. The policies themselves have not changed, with most hotels offering the same cancellation policies they always have, but the cancellation rates have changed dramatically. In an article for Triptease, Rob Funnell lays out the changing cancellation rate:
“A recent study by D-EDGE into reservation revenue has shown that the overall cancellation rate across all channels has risen by 6% over the past four years, reaching a peak of almost 40% in 2018. That may sound like a death knell for predictable occupancy–and indeed it may be, for hotels who generate a large majority of their bookings through OTAs. The 40% average is heavily skewed by the high cancellation rates on reservations from Booking.com and other OTAs. In comparison, the study found that only 18.2% of direct bookings were cancelled in advance.”Source: https://triptease.com/blog/the-real-cost-of-free-cancellations/
This correlation between booking through OTAs and canceling isn’t an accident; in fact, it’s intentional. It’s the result of a market strategy that prioritizes short-term customer convenience. OTAs are competing for your business, and they’ll do whatever it takes to make the sale—whatever it takes to capitalize on our “buy now, change your mind later” attitudes.
It’s important that customers understand the cost of this. There’s undeniable convenience in securing a flexible reservation, which is why cancellation rates are increasing every year, but this convenience prioritizes short-term convenience over long-term stability.
The Emergence of Booking.com’s Risk-Free Reservations
This widespread cancellation rate is a trend across OTAs, but it’s especially true with a new policy Booking.com has introduced called Risk-Free Reservations. Booking.com positions the program to benefit customers and hotels alike. Here’s how it works:
- Non-refundable hotel rooms become refundable when booked through Booking.com using this policy.
- If a customer were to cancel their Risk-Free Reservation, Booking.com will find another customer to fill the hotel room if the original customer cancels.
- If they can’t find another customer, Booking.com will still pay for the reservation.
At face value, this does sound mutually beneficial. It appears to give customers flexibility without compromising hotel profits. However, the program is actually detrimental to hotels and customers in the long-term.
We’ve talked before about how hotels take a hit when you book through an OTA instead of directly with the hotel. There are customer benefits to booking directly with the hotel, like better customer service and communication with your hotel. Hotels benefit too—they have a direct line to their customer, which allows them to control the experience. They can build brand loyalty, and they don’t have to give a hefty share of the booking to a third party.
Why Policies like Risk-Free Reservations Are so Harmful
Programs like Risk-Free Reservations further erode hotels’ direct line to their customer. The ultimate goal of those programs is for customers to be brand-loyal to OTAs, not to the hotels. This is harmful to the hotel industry because it further increases OTAs’ market share, allowing them to call the shots in their relationship with hotels.
Policies like these have led to decreased profits for hotels. This is harmful to you as a customer who only stands to benefit from a well-staffed, thriving hotel. When hotels have to cut corners because they’re giving a large percentage of their profits to OTAs, the customer will be impacted. For more information about this particular program and its impact on the industry, you can read this article from Mirai, a hotel distribution resource.
Booking.com touts risk-free cancellation, but that is far from reality. The risk may not be immediate for the customer, and the program might make it easier to click “purchase” in this moment, but the risk is this: It’ll change the landscape of the hotel industry because travel bookers are unable to make up their minds.
Booking directly with hotels gives you control over your reservation while ensuring hotel-quality customer service. When you book through Roomkey.com, you can also compare loyalty-member pricing, which you can’t see on any third-party booking site. Book a room with a flexible cancellation policy, and you won’t have to go through a third party to communicate with your hotel. At Roomkey, we value transparency in travel and aim to bring you hotel search that delivers on just that: No tricks. Just travel.
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