The 'fence effect', a benefit?

By: Glenn Withiam*

Many hotels allow online travel agents (OTAs) to sell a few rooms for each date. Such agents include Travelocity.com, Hotels.com, and Expedia.com. The frequent reason for this type of transaction is that hotel managers believe they will not sell such rooms through their own channels.  Actually, when those rooms do sell, the net rates for the hotel are usually lower than for other set rates (but above zero, which would be the value of an empty room).

Selling a room that would otherwise be empty is a clear benefit of online travel agents, but a new study from the Cornell Center for Hotel Research has presented figures on another apparent benefit known as the "billboard effect." The study by Chris K. Anderson, an assistant professor in Cornell's School of Hotel Management, tested the "fence effect" at four hotels in the JHM Hotels hotel chain. Three of the hotels are represented by chains and the fourth of them is an independent property.

Anderson agreed with JHM and Expedia to manipulate the way these four hotels were listed on the Expedia page. Over a period of three months, the hotels were listed on Expedia's homepage or removed entirely from the site. Even if a traveler specifically searched for these hotels, he could not find them during the time they were intentionally suppressed.  The "up and running" option for each hotel lasted between seven and eleven days and the "out of operation" option lasted a similar amount of time.  In all of them, each hotel was "in operation" for forty days and "out of operation" for another forty days.

Needless to say. When the hotels were on Expedia they sold rooms through that site. But the question was whether being listed on Expedia meant the hotel also sold more rooms through other channels and, if so, how many. The way to test this was to tabulate each hotel's total daily bookings during the trial period and then subtract any bookings made through Expedia. Reservations were counted for each future day and not just those made for a guest stay during the study.

When looking only at bookings made through their own channels, the chain's three properties saw an increase in daily bookings between 7.5 and 14.1%, depending on the hotel. That's the difference between bookings made during the "up and running" phase and those made during the "down" phase, again, removing Expedia's bookings from the calculation.

These three branded properties are represented by well-known chains, meaning that even if they were suppressed by Expedia, travelers could easily find them when searching for "brand name" hotels in the market in question (or even searching for hotels with related brand flags). This means that the proof of the famous "fence effect" for online travel agents is tarnished in some way, since the three hotels in question are never really absent from the public eye.  In effect, the chain family benefits from the "fence effect."

Anderson concludes that hotels do benefit from the "fence effect" in the form of extra room sales, as claimed by online travel agents, and also benefit from direct room sales to such websites. However, the effect varies considerably from hotel to hotel. You can read this study at no cost at the Center for Hotel Research: "The Fence Effect: Impact of the Online Travel Agent on the Volume of Non-OTA (Online Travel Agents) Bookings." To do so, enter the following link: (www.hotelschool.cornell.edu/research/chr/pubs/reports/abstract-15139.html).

*Glenn Withiam is director of publications at the Cornell Center for Hotel Research.