Secret hotels is an innovative approach to booking hotel rooms that has become increasingly influential in recent years, offering benefits to both hotels and consumers. The strategy, also known as the opaque channel, offers savings to customers who are willing to entertain a measure of anonymity in the booking process – not knowing the name of the hotel they will stay in until the booking is complete. In return they receive discounts that are unavailable elsewhere. Certainly unusual as a sales strategy, secret hotels has begun to find favour among both hoteliers and guests.

1. By SecretHotels.eu

2. Secret Hotels – Win Win for Hotels and Travellers?
Introduction
Secret hotels is an innovative approach to booking hotel rooms that has become
increasingly influential in recent years, offering benefits to both hotels and
consumers. The strategy, also known as the opaque channel, offers savings to
customers who are willing to entertain a measure of anonymity in the booking
process – not knowing the name of the hotel they will stay in until the booking is
complete. In return they receive discounts that are unavailable elsewhere. Certainly
unusual as a sales strategy, secret hotels has begun to find favour among both
hoteliers and guests.
According to TravelClick the opaque channel accounted for 6 percent of hotel
reservations for major hotel brands in 2012. This has grown from around 2 percent
in 2010. One of the leading secret hotel operators, Hotwire, reported earlier in 2013
that hotel room bookings have doubled in the last year and they have added 5,000
hotels to its secret offering. In times of austerity when fighting for a share of a
market valued at £52bn in the UK alone by Visit Britain, the potential for bargains is
likely to accelerate this trend.
Concept
In basic terms secret hotels offer customers discounted room rates in return for not
knowing the identity of the hotel. While the price, star rating, location and amenities
are generally accessible, customers only find out the name of the hotel once the
booking process is complete.
The biggest draw in booking through a secret hotels website is to secure savings on
rooms. These can be considerable with rooms from well-known hotels available at
discounts of up to 45-50 percent.
At first glance, the concept appers to have a large degree of uncertainty built in. In
reality however, many of the unknown elements are removed because the secret
hotel websites usually provide details from the outset of the general location as well
as quality indicators, such as the hotel’s star rating and TripAdvisor ratings.
A key feature of Secret hotels is that once a booking is confirmed it is considered
final and it is not possible to cancel afterwards. Therefore travellers should be happy
to commit to the process from the outset. In many cases the secret hotel websites
have a price match guarantee, which means they will refund the difference of any
cheaper offer that a customer might find for the same hotel. Generally this must be
done within 24 or 48 hours of booking the secret hotel.

3. Financial factors
Both hotels and consumers can benefit from selling via the opaque channel. It allows
hotels to clear unsold rooms, thereby generating revenue that would have gone
elsewhere. In researching the field, K. Jenrath, S. Netessine and S.K.
Veeraraghavanfound found that opaque selling increases profits for hotels without
disrupting sales through their regular channels, by attracting customers they
otherwise would not have found.
Hotels that use the opaque channel usually set a certain number of rooms aside for
sale via this method. The number will be determined by factors such as whether the
hotel attracts a business or tourist client base. The former tend to be quiet at
weekends and so would offer more rooms for this period. Conversely, tourist
oriented establishments will be eager to fill rooms that are empty mid-week.
In addition, it can often be in a hotel’s interest to offer discounted rates. This is
because the vast majority of their costs are incurred before a guest has stepped foot
inside the building. Hotels have to pay upfront for rates, commercial mortgages,
refurbishment, staffing etc., regardless of whether occupancy is at 50 or 100
percent. Extra guests do not significantly increase costs, whereas every room that is
left unfilled represents a lost revenue opportunity. Therefore, from the hotel’s
perspective they are not losing money by offering discounts on empty rooms, they
are gaining revenue from selling rooms that would otherwise have gone unused.
While hotels sometimes sell discounted rooms through their own or travel agent
sites and specify the name of the hotel, this can work to their disadvantage. In a
research paper on the opaque distribution channels, Chen, Gal-Or and Roma have
pointed out that this approach may exert downward pressure on prices as leisure
travellers wait until the last moment before booking. By selling rooms through the
opaque channel hotels can avoid selling too many rooms at these discounted prices.
Furthermore, the research indicates that where opaque selling is utilised by hotels,
that more leisure guests book rooms earlier, which means that overall revenue
increases. As a result selling through the opaque channel can be more profitable for
hotels as opposed to offering discounted sales through other channels.
Chen et al also found that when the hotel room has a relatively high value it is more
advantageous for a hotel to sell through the opaque channel. This was particularly
true in cases where there is a high degree of brand loyalty, such as for boutique or
prestigious hotels. Research by Fay referred to by Ogonowska has also supported
these findings.
Secret hotels can also be beneficial from a consumer’s perspective, due to the
potential savings of up to 50 percent on room rates. The greatest savings tend to be
achieved for last minute bookings. At that point hotels are highly motivated to
secure 100 percent occupancy and considerable savings are possible. In a test search
for a hotel room in New York giving just a few days notice I was able to find savings

4. of 40 percent. Pushing the dates back three months in the future brought the savings
down to around 20 percent of the regular room rate. Of course the latter still
represents a significant discount.
Pros and cons
Clearly the biggest draw of secret hotel websites is the potential savings to be
achieved. These vary from site to site but are generally listed at up to 40 – 50
percent. Of course, this is up to so achieving these kinds of savings is at the upper
level. I conducted a search for a four star hotel in London in the City of London /
Tower Bridge area for six weeks into the future and used three secret hotel websites.
The search delivered rates of £190 - £228, which was equivalent to discounts of 17 –
24 percent on the regular rate. While not at the upper limit the savings were quite
attractive.
According to hotel industry website Core Focus Hospitality, typically secret hotel
guests are driven principally by rate, rather than by amenities, features, or even in
many cases, location.
The research by Chen et al mentioned earlier found that the opaque channel is more
profitable for hotels where rooms are high value. This in turn benefits the consumer
who may obtain a higher value room via the secret hotel website than might
otherwise have been available.
Research in the UK by Mintel, the market research firm, has found that around 14
percent of British holidaymakers would purchase a holiday from an Internet
company that they had never heard of if it was cheaper, suggesting that Britons are
willing to accept a degree of uncertainty in the booking process.
There should be few surprises in terms of the quality of the hotels, as the venue’s
star rating is listed. Additionally, some secret hotel website also include TripAdvisor
ratings. In some cases these are aggregated from the reviews of well over a
thousand travellers, ensuring a large degree of surety.
To date, opaque booking has been particularly successful for last minute
reservations. According to one leading provider of secret hotels, Lastminute.com, its
Top Secret Hotels service receives 50 percent of sales from customers booking the
day before they need them.
However, as the key feature of secret hotels requires an element of chance taking it
will not suit every traveller. One of the standard concerns relates to location and
whether a person will be located far from where they wish to spend time at a
destination. In general the secret hotel websites narrow down the location within
manageable areas and this can help to eliminate much of the uncertainty. For
example, when searching for hotels in New York it is possible to specify Time Square,
Midtown Central, Midtown East etc.

5. In addition, secret hotel offers are usually for room only and so travellers will need
to factor in extra expenses, such as buying breakfast or using any hotel facilities. For
cities like New York and Paris it is usually possible to eat reasonably cheaply. London
can be more expensive but there are still affordable options. Guides such as Time
Out can offer insider tips.
Wider industry
There were one billion tourists in the world in 2012 according to the UN’s World
Tourism Organization (UNWTO). This monumental number was responsible for 9
percent of world GDP and one out of every eleven jobs. The industry is certainly
growing in importance, including in the UK. In recent years the travel industry has
outperformed many other sectors of the economy, growing 12.6 percent between
2007 and 2011, compared to a GDP rise of 8 percent. The travel industry is now
worth more than £40bn per annum to the UK.
One of the key drivers in the growth of the tourism industry has been the integration
of the Internet into so many facets of our lives. We can now cheaply and easily
discover details that inform our holiday decisions, from the facilities that are
available at individual hotels, to nearby attractions at our destinations, and even
which of our friends have visited an area and what they thought of it. For UK users
the Internet is particularly important when it comes to holidays. Britons are one of
the biggest users worldwide of the web for holiday research and transactions.
Research into the opaque channel is relatively limited but in the U.S. it accounted for
approximately 6 percent of hotel reservations for major hotel brands in 2012. In
2011 the figure was 2 percent of all hotel sales (based on around 25,000 hotels),
according to figures from STR Global, a leading hotel data consultancy. If the trend
continues the channel is likely to become increasingly significant for both hotels and
consumers.
It is likely that if customers continue to have positive experiences with the opaque
channel their confidence will grow and there will be a greater willingness to turn to
it, attracted by the savings on offer. Equally, the uncertainty inherent in the process
will lead them to increased loyalty to a small number of trusted providers that can
offer access to high value hotels at discounted prices.

6. Sources & Accreditations
This document was prepared on behalf of Secret Hotels Europe – original document
here: http://www.secrethotels.eu/secret-hotels-win-win-for-hotels-and-travellers/
Chen, Rachel R.; Gal-Or, Esther; and Roma, Paolo, “Opaque Distribution Channels
for Competing Service Providers: Posted Price vs. Name-Your-Own-Price
Mechanisms”, University of California at Davis (2010).
Jerath, Kinshuk; Netessine, Serguei; and Veeraraghavan, Senthil K., "Selling to
Strategic Customers: Opaque Selling Strategies" (2009). Tepper School of Business.
Liu, Wenyu; “Opaque Selling in the Hospitality Industry: Hotwire’s Hot Rates”,
University of Victoria (2012).
Ogonowska, Malgorzata; “Selling Tourism Products through the Opaque
Channels”, Université de Nice-Sophia Antipolis, (2012).