There’s been a tremendous amount of misreporting. Orbitz is not charging users of Apple computers more money for the same hotel than they charge PC users. Their data tells them that Mac users tend to stay in more expensive properties, so when choosing which hotels to highlight they recommend more expensive properties.
In other words, they’re trying their best to guess at what their customers will most want.
Now, Orbitz receives an average of 20% – 30% commissions on the hotel nights that it sells. The more expensive the room, the more money they make, but that is not the motivation here.
If Orbitz sells a room they earn a commission, if they do not sell a room, they earn no commission. Travel websites make money by coming up with what their customers want, otherwise those customers move on to the next website.
Travel is one of the most competitive industries there is. Prices are totally transparent. You can check a hotel price on its own website, or on another online travel site. It’s very difficult to squeeze more money out of a customer for the same product that your competitors are selling as well. Or else you will very quickly lose business.
Opaque travel is a different story. When you don’t know the price and can’t really comparison shop easily, it’s possible to charge some customers more than others for the same thing. Hotwire was known for charging Internet Explorer users more than Firefox users. Presumably they thought that people using the Firefox web browser were savvier, so they could charge Internet Explorer users $2 – $5 more for the same thing. (See here and here for more discussion of Hotwire’s differential pricing based on web browser.)
Sometimes you can fool elite frequent flyers who have been trained to look in only one place to buy tickets into paying more for their airfare.
But for hotels with published prices, more or less the same everywhere you look? Kayak and other aggregators show travel options and take you to the least expensive site. Some aggregators will also give you the option to search several online travel sites at once in addition to searching on their own aggregation sites. Low price wins.
A customer can open two browser windows and search for the same trip simultaneously. A price-conscious consumer won’t be ‘fooled’ by being presenting with more expensive hotel rooms.
And Orbitz even gives the user total control over how rooms are listed, they ‘default’ to offering “Best Values” which is surely a subjective term but are the hotels they ‘recommend.’ One way they could show hotels is based on their own margin, maybe a $100 hotel room that pays them a 30% commission. Another is to guess at what room you will actually want, showing you a $120 room that pays only a 20% commission. In this example Orbitz would make more money selling the cheaper room if they knew you were going to buy a room from them no matter what. But they don’t. They only make money when they satisfy you. So they have to figure out what you’re most likely to buy, to improve their conversion of searches to bookings. Orbitz succeeds when it satisfies what its customers are looking for.
Travel agents used to book even the simplest airline trip, but most of that business has migrated online. There’s no more money to be made in simple domestic coach bookings, it’s become a volume business, and consumers lost the hand holding that came from the individual attention of a travel agent.
In some ways we’re coming full circle. The online travel agencies are competing for business by becoming more personalized, Hipmunk offers nice tools to allow people to figure out what flights they want, to sift through the huge amount of choice, one of their metrics is ‘pain’ which they think their customers are trying to avoid. Here, Orbitz is trying to figure out how to serve the agent function and guide customers towards what’s most likely to appeal to them.
Ultimately choice of computer may or may not prove a good guide Surely there are frugal mac owners (even if they’re buying a more expensive computer), as well as PC owners looking for a more luxurious experience. For now they’re working with mass demographic data.
I imagine that agencies will eventually do a better job of mining their own customer data and personalizing further. Perhaps you go to Tucson every week and when you do you rent a car. If they notice you’re going to Tucson but have no rental car, they can remind you. At some point one could even imagine that they know your preferences well enough that they just go ahead and make the booking for you and text you when you land (at least this works until all rental cars go prepaid, but for now just go with it).
Personalization is good for the consumer. It brings back what was lost in the transition away from brick and mortar travel agencies for all but the most specialized, high end travel. And it’s been done in a leveraged, low-cost, technology-focused way.
For now, Orbitz probably has it wrong in terms of what their customers will want. But they probably have it less wrong than they did before, and they’ll have it less wrong still 6, 12, and 18 months from now.
The value-add — not so much to me, or even most readers of this blog, but to the hundreds of millions of travelers not reading this site — is in guiding people through the travel process so that they get what they’re after. And Orbitz tailoring the order of their search results based on computer (while still giving customers total control to re-order those results) is doing precisely that.
You’re missing a few known points that somewhat make the post irrelevant, or at the very best, blog/bar fodder.
Add on Office and other “needed” Windows software, and a PC is just as expensive for arguably less build quality. But let’s not make this a Mac vs PC thing which it can easily devolve into.
Let’s be real about it. Macintosh owners make more money, as NPD has shown back in 2009. See here: http://mashable.com/2009/10/05/mac-ownership-study/
Therefore, Orbitz will rank properties based on the demographic.
@purplnurpl – I think you entirely miss the point, this is not about whether Macs or PCs are more expensive but that Orbitz believes Mac users spend more on hotels and so they highlight the more expensive hotels for Mac owners that they believe those customers want.
@Gary – Agreed, this is not about whether Macs or PCs are more expensive. It’s about the basic market research that shows Mac owners make more money. They’re simply acting on that, which they and many others should have done years ago.
A well placed and accurate post. Not that you needed me to tell you that.
A reasonably well thought out post, except that, of course, the ability to sell a higher priced room rather than a lower priced one likely does figure into the determination to prioritize more expensive options.
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Orbitz isn’t figuring that they’ll LOSE sales if they show the cheaper rooms first but rather that they’re more likely to make a more profitable sale to a Mac user if they make it easier to book a more expensive room.
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Because they show all the results and provide the ability to sort and filter seven ways to Sunday, a user determined to find a particular product is able to do so. But why point out the cheaper options when Mac users are likely to be less price sensitive?
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Also, I agree that this is a ridiculously blunt instrument to use in determining price sensitivity.
So if I book using a cheap old Acer computer what does Orbitz recommend – a cheap hostel or a campsite out with the gypsies?
BULL. Orbitz DOES charge more for Mac users than PC users; I proved it to our Staff by showing just what that website does on BOTH platforms!! I’m a IT Professional, and in a meeting, put a Macbook and a PC laptop together, and went to Orbitz’ site…..in showing the SAME information, it was more expensive on the Mac than on the PC…..I recommended that we NOT use Orbitz for our Travel needs—the Professors need to know that they AREN’T getting ripped off—and compared what Orbitz is doing to a Minority getting charged more BECAUSE of them being a Minority over a Anglo person!!! Your blog is replete with Bullshit that is the hallmark of Greed, plain and simple!!
This from the guy who uses a Blackberry.
I think Orbitz is merely trying to optimize income here. They don’t think they will lose that many customers by showing some of the more expensive items first, or at least not enough to offset the increased income by showing Mac users the higher priced options. They’ve likely run tests, and determined that this increases income overall. It makes sense to me: most mac users are willing to pay up for increased quality, they value simplicity, etc. They are not the types to open up multiple browsers to simultaneously search other sites for the best price. I think the vast majority might not even click the Sort button to show the lowest prices first instead of the default view. I am now I am generalizing but on average it is true.
Orbitz is carrying a large amount of debt relative to cash flow. I would not be surprised if someone there decided to take an approach that would increase near-term profitability, at the expense of losing some customers here or there over the long haul
I fairly certain my salary exceeds many apple product owners, and I use PC and Android devices. Conclusion? The study posted above, in the end, really has no factual basis. Those who are wealthy (not rich) do not spend money on more expensive items, simply because they can. That is something the rich do.
Gary, great post. It was very well thought out and provided an even better analysis than the original WSJ article.
LarryInNYC writes “this is a ridiculously blunt instrument to use in determining price sensitivity.”
What is Orbitz supposed to do? Ask you to fill out a survey first? No, they look at what data they can in a millisecond and make recommendations based on that. Almost every successful company has multiple price points for the same product. And here it is not even that bad. It is like a coke machine offering you a 20oz coke in a bottle before it offers you a 12 oz. in a can. It is just product placement, like candy bars at the supermarket checkout knowing that bored kids will be standing there.
Wow.. an “IT professional” who has a typo in his last name.
knowing a little about this situation, what Orbitz keeps failing to effectively communicate is that this is a customer service initiative based on statistical data and nothing more. They basically looked at historical data and said, “wow people who book from a Mac will book a nicer room in the same situation than people using a PC a statistically significant amount of the time.” This has nothing to do with the fact that Macs are more expensive or nicer or that people using a PC WON’T book a nicer room. You could do the same thing looking at people booking on the weekend vs. weekday or any other unique identifier. If there is statistical significance, than you can act accordingly.
In an industry where sort is SOOOOO important and what you show in the first 10-20 lines can make or break the sale, its vitally important to make sure those 10-20 hotels are the ones they think the consumer will want and any information that will help them serve the right hotel is invaluable.
Gary hit it right on the head. This has nothing to do with forcing people to buy more expensive things or pricing things differently based on the consumer, it has 100% to do with trying to show the customer what the customer is looking for. This is actually PRO customer, not ANTI customer.
For example, there are more than 500 hotels in Chicago. Hypothetically, for a consultant who is looking for a 4 star hotel, do you want your first page of hotels to be Marriotts/SPGs/nice independent hotel… or a bunch of touristy 2-3 star hotels that joe family would be looking for their weekend trip? Personally, it makes my life easier if they are able to show me what I want and not make me dig for it. This is really all they are trying to do. They just need to do a MUCH better job communicating it.
Owning a Macbook Pro, Macbook Air, iPad, and a iPhone 32GB 4S. I think Orbitz nailed this one down…not saying I’m swimming in money but I suppose if I own these products, I care for quality and upkeep of properties just like I do in my electronic devices. I can’t fault them for recommended nicer hotels, as I hate staying in dumps!
Great blog post! This is a classic product segmentation and a practice that usually creates a win-win situation for the customer and the company. In this case, most MAC users will see their type of hotels that mirrors their preferences in the first 10 or so hotel listing thus creating for a more seamless hotel search process for them. At the same time, Orbitz will get a little more commission and repeat business from customers who appreciates this kind of marketing approach.
@Stan Johnso, before you throw in the towel with Orbtiz, after you see the search results, did you select sort by “Price low to high”? I guarantee you that PC and MAC users will see the exact same thing if both users sort the search results by price.
Also- @Stan Johnso, I would be willing to bet Orbitz couldn’t even charge a different price based on computer type if they tried.
Your headline commits the very misreporting that you decry in the first paragraph. Why should we read further?
“Why Orbitz charges Mac users more for hotels”
“Orbitz is not charging users of Apple computers more money for the same hotel than they charge PC users. “