What is the meaning / definition of OTA Agency Model in the hospitality industry?
In hotel revenue management when talking about an Agency Model, we are referring to the commercial model of an OTA (online travel agency). The main characteristic of the Agency Model OTA is that the guest pays the Hotel directly when the stay occurs and the hotel pays the OTA commission after the stay has taken place.
In this case a hotel provides the OTA a final sell rate, over which a commission is paid to the OTA by the hotel after the booking at the hotel has been consumed. The commission level has been agreed upon prior in the distribution partnership agreement between the hotel and OTA.
A key advantage of the Agency or Commission OTA Model is that the hotel sets the final sell rate directly. It will allow hotels to create a transparent price positioning to consumers, taking rate parity as a strategy into consideration.
Another benefit of the Agency Model is that it is favourable towards the cash flow of the hotel. It receives payment directly from the end consumer and does not have to await payment from a third party distributor.
The customer perceives a low barrier of risk when booking as he/she does not have to pay directly. The consumer is basically putting the room on hold and has a window in which he/she can cancel the reservation without any charges. This generally results in a higher conversion level than with other OTA models.
- Merchant Model