There are several methods of payments to confirm hotel reservations. These are:
Pay at Hotel (without a credit card)
Pay at Hotel (with a credit card)
Partial upfront payment
100% upfront payment
So which of these options should a hotel use? These payment methods are a way for a hotel to drive more bookings by taking on the risk of cancellations & no-shows on low occupancy days, which eventually help to drive more conversions on the booking engine.
We have observed that ‘Pay at Hotel’ generates the most bookings, but it also results in the most no-shows. We believe the reason for this paradox can be compared to the cash on delivery (COD) option in the ecommerce industry globally.
Statistics reveal that COD is the most popular mode of payment for the majority of e-commerce orders (around 75%) in India, even today. This is because COD eliminates the risk of online fraud & loss of money, and provides the customer the benefit of physically examining the product before making a purchase.
Internationally, even Booking.com, the largest online travel agency (OTA), offers the ‘Pay at Hotel’ option with & without credit card to drive more conversions. With the ‘Pay at Hotel’ option guests can easily make a booking. However, if guests decide to not turn up, the hotel cannot hold them accountable — unless they have entered their credit card details & can be charged offline.
How can hotels beat this paradox?
Consider this scenario:
You are a resort and you run on a relatively lower occupancy on weekdays (say Tuesday & Wednesday), but full on the weekends.
If you do ‘Pay at Hotel’ on weekends and someone does not show up, you lose revenue because you could have sold the room to someone else.
However, If you provide ‘Pay at Hotel’ on Tuesdays & Wednesdays, and someone does not show up, you are not losing any revenue because a lot of rooms are anyways unsold. The best part is you are able to drive more bookings as, notwithstanding the higher cancellation rate, your materialized bookings have increased. This is how hotels can leverage the ‘Pay at Hotel’ option.
Simplotel’s Booking Engine analytics
We have observed the following data across all our customers:
|Payment Policy||Booking Probability||Risk of Cancellations & No Shows (%)|
|Pay at hotel with no credit card||High||~30|
|Pay at hotel with credit card||Medium||~20|
Simplotel Pro Tips
Simplotel’s Booking Engine gives you the below payment options and also the ability to change them based on day of week, occupancy and last minute bookings. We have found the below options to drive more conversions in descending order of importance:
Hotels can drive the highest conversions when they provide the option of ‘Pay Now, Pay at Hotel’. This option gives guests a choice. Few prefer to prepay either because it's international travel & they want to eliminate forex concerns or they are booking for someone else or they are directly paying through their bank account.
The next payment policy that drives the most bookings is ‘Pay at hotel without credit card’. Hotels can utilize this option when occupancy is running low.
The third best option to drive more conversions is ‘Pay at hotel with credit card’. In case of a no-show, hotels reduce their risk by collecting the amount offline.
The next option is to collect a partial amount directly or through a payment gateway. We advise hotels to collect a lesser amount, as it would drive conversions.
The payment policy that completely eliminates no-show risk but also reduces conversions is 100% upfront payment.