TravelSpice's clever business model explained-Hotel Booking through bidding!

Have you heard of Travelspice.com? If not, very good. You're not missing anything. But if you've heard of them and contemplating using their services, this post might help you take right decisions.

This cleverly designed TravelSpice ad has been regular on my FB timeline for a few years now. Designed to look like a genuine status update, the ad projects Oyo rooms as an expensive option and claims that via TravelSpice one can get hotel rooms for super cheap prices.

After ignoring the ad for years, finally decided to check out this company- to find out what exactly they are offering, how they work and how good/bad it is for traveling public looking for a hotel room. This post is a summary of my findings. I have not yet booked a room at TravelSpice and can’t really comment on how successful/flop the model is. But prima-facie it is a cleverly designed model that tricks customers into paying regular hotel fares while giving an impression/hope that they are saving something big.

Travel Spice works on a concept of bidding- customers bid a certain amount for a hotel room, which is expected to be cheaper than standard room rates (but it isn’t, details in subsequent para) and then Travel Spice works with several hotels in the area to check who is willing to offer a room to its guest at the bid price. Hotels with lots of empty rooms will be happy to grab whatever they can get and probably won’t mind giving out a room at low price to the bidder. If multiple hotels bid, Travelspice assigns best of the hotel (hopefully this is the approach, not hotel which gives maximum commission) will be assigned to the customer.

TravelSpice advertises its services as if customers can bid for any price and get to secure hotel rooms at dirt cheap ratds. But the reality is different.

Trick 1: TravelSpice maintains a floor price for each room category (1 star to 5 star) so that customers won’t bid extreme low rates. Customers can only bid above this floor price. I found that floor price already equals or greater than the cost of cheapest hotel in the area, so there’s no way you can bid anything super cheap. Floor price increases dynamically if you exclude cheapest hotels.

I did a quick check on travelspice online for various 5 star hotels in Chennai. I selected Guindy area and TravelSpice has following 4 hotels listed in the area - Le meridien, Hilton, Westin and ITC Grand Chola. Though they are all same category, Grand Chola is most expensive, Westin is the cheapest.
I visited each hotel’s website and also checked on 3rd party like Booking.com/Trivago to select lowest possible rate for a night (I selected April 20-21 2018). Wherever the cheapest rate didn’t include breakfast, I’ve included cost of breakfast.
#
5 Star hotel in Chennai
Price/night on hotel website, for a night (1 month from now, April 20th)
Lowest price shown by Trivago
TravelSpice bid amount
1
Le Royal Meridian
7200 (prepaid rate with breakfast, with cancellation penalty)
7700 (Flexible fare)
7200 (booking.com)- free cancellation
5794 (lowest)
9986 (default)
Tax not included
2
Hilton Chennai
7056 + tax
10k Approx
7200 + 28% tax + 1000 Rs breakfast
10k approx
5794 (lowest)
9986 (default)
Tax not included
3
Westin Velachery
5400 + tax
4860+28% tax
=7200 approx
5794 (lowest)
9986 (default)
Tax not included
4
ITC Grand Chola
9990+ 28% luxury tax = 13000 approx
9990+ 28% luxury tax = 13000 approx
5794 (lowest)
9986 (default)
Tax not included
As you see even within 5 star category, there’re hotels with prices ranging from 4860 to 9990 in 5 star category. The lowest bid price of 5794 is already higher than the cheapest hotel (that costs only 4860). Where exactly is my savings? In all probability, those who bid at Rs 5794 will be assigned Westin Velachery that costs only 4860 on booking.com for a genius customer. Also note that default bid amount is set at Rs 9986, almost twice the lowest amount (and seem to match rate of most expensive hotel room among the selection). If someone doesn’t pay attention and bid at 9986, I am not sure if they will be assigned ITC Grand Chola or they might get assigned a 7000 rupees Hilton with TravelSpice pocketing the difference 3000. May be psychology drives customers to believe that they will get the most expensive option (Grand Chola) and gives them an illusion that 5000 is cheap. But once they're assigned 4800 Westin, it is too late!

Now in this scenario I stand to save 40% if say ITC Grand Chola accepts my bid and Travel Spice assigns me a room at ITC Grand Chola instead of Westin. But I don’t know the probability of this happening. Unless ITC Grand Chola is all empty and they’re desperate for some cash, I don’t think they will agree to sell their rooms for half the price. If you strongly believe you are lucky one or wish to gamble and take your chances, do go ahead. I won’t say “Never book through TravelSpice” But be emotionally ready for worst case scenario of getting a room assigned of value less than what you paid.

The TravelSpice intro statement "Book 3/4/5 star hotel rooms at your price" is not valid, because my bid price would be 50% of the cheapest hotel room among the available ones in the category- but that is not possible as TravelSpice's lowest bid price is already more expensive than cheapest hotel room among the listed hotels in the category.

Their own adversiment of Prateek Tandon booking a Coorg 5 star resort worth 10000 for 3500 rupees, is again very unlikely because minimum bid price in Coorg for 5 star hotels is about 10000 rupees. Only way that is possible is one bids for 3 star and TravelSpice assigns 5 star- this is very remote possibility and not a guaranteed/common scenario. May be TravelSpice does it once in a bluemoon for marketing purposes or if all 3 star hotels are sold out and 5 star property is all empty and they willingly accept someone willing to pay Rs 3500- you decide how likely it is.

Trick 2: TravelSpice offers a provision where you can exclude some hotels you don't like (Max 3, feature is available only when lots of choice is available, not when only 4 hotels are available for the selected category). I removed some of the cheapest hotels in the category and minimum bid price promptly went up by a thousand rupees, to ensure that min bid price is always more expensive than cheapest of the hotels that match the selection.

Do we call this a scam? I don't know. Don't have enough data points to arrive at such a conclusion. Only if customers who booked through Travel Spice come out and share their experience (how many times they got luxury hotels for real low price vs how many times they got a room of value lesser than or similar to bid price) we can arrive at some conclusion. Alternatively TravelSpice can reveal this data (like 10% of our customers who bid for 3 star got 5 star, 60% bidders got lowest priced hotel, 30% got hotels whose normal price was bit higher than bid price etc), but I doubt they will.

I would have appreciated this concept if at least one of the below is true- Minimum bid price should start at 50% the price of cheapest hotel room (Around 2500 INR in above case) and/or there should be a process that customer gets to see allocated hotel and accept/reject it before paying. What is the point in bidding more than regular price, paying in advance blindly and hope for a miracle which will never happen?

Trick 3: Travelspice cleverly collects money in advance before assigning the hotel, so that customers can’t complain once they realize what has happened.  There’re few reviews out there on official website and facebook page which say someone got 5 star hotel for the price of 3 star, or got rooms worth 5000 for 1000 and so on. I don’t think it will happen on regular basis to every customer, as such deals are simply not economically viable for hotels and as well as for Travelspice. These are could be once in a bluemoon exception scenarios, or possibly offered by TravelSpice for select few to get some marketing leverage. If you get such deals you’re lucky, but don’t bank on it.

Of course above rate is one illustration. The numbers may vary for the city, hotel star and dates of your choice. But the fact that minimum bid price will be more expensive than cheapest hotel in the selected locality and category, the probability of savings are too low.

Hotel booking is no longer a simple process as it was. Typically you pay on per day basis, expect a set of standard facilities like breakfast, clean room, toiletries, wifi etc. But due to intense competition, same hotel sells same room in a dozen different way- there’s a cheap, no refund rate, there’s a rate without breakfast, some hotels sell room rate cheap but charge extra for internet, toiletries and stuff like that. Some hotels have a night only rate (like 8PM to 8AM) or day only rate and so on. Booking something without knowing full list of what is included and what is not could result in you spending a lot extra than what you thought you will be paying. (For example, you might have assumed breakfast is included- but many hotels now sell room without breakfast and expect as much as INR 1000 extra for breakfast)

Following are my concerns:
Why can’t I select from the bidders?
At present, customer can only select an area in the city and star level of the hotel. He/she has no say in selecting the specific hotel. This poses following concerns
  • Not knowing exact location can take my local commute expense for a toss. If I know exact hotel, I can check if it is within walking distance from a metro station or if it is close enough to my place of work or where I want to go etc. Not knowing exact location means I might get a hotel assigned in other end of the locality, forcing me to spend a few hundred rupees each time on taxi to wherever I had intended to go. If travelspice can show 3-4 shortlisted hotels and let me select one of them before payment, I would love to use travel spice more.
  • Not knowing cancellation policy- Plans change- sometimes I will have to cancel my bookings- it is not clear how it works in Travelspice in case of cancellations. Their term says no refund possible. So why risk 100% when there's no substantial savings?
  • Why pay first and then ask for refund. Why can’t I pay once hotel is shown to me and I confirm? Having to pay first without knowing which hotel I will get, then having to follow up for refund if no hotels are available or having to fight if I don’t like the hotel/room assigned (say when normal rate of the hotel is less than the bid amount)- all these are unnecessary headache for me. I will probably book on Booking.com with free cancellation and pay at property option, even if it is a few hundred rupees expensive- more peace of mind that way.
  • High floor price for 1 star hotels: For 1 star hotels- which are essentially lodges and other basic hotels, floor price starts at 847 rupees- which feels too high for me. I can get budget hostels, hotels starting at around 500 rupees INR
  • There’re many secondary factors that influence my hotel selection decision- does the hotel have 24 check-in/check-out format or fixed time like 12 noon to 12 noon?, Can they offer early check in or late check out? Additional facilities like pool, gym etc
  • Tax will be added extra on top of bid price during payment. so keep that in mind.
  • Things get even worse for budget hotels- lots of hotels will be poorly maintained and unhygenic- booking them without knowing their quality and without checking the reviews/feedback from other users will be a big risk.
Following improvements will make travelspice more customer friendly
Let customers select from the hotels who have responded to the bid and pay after selecting the hotel. Benefits of this change are as below
  1. This will take away the gamble element and will give more confidence to customers.
  2. Why do I need to pay upfront, then wait for assignment of hotel or wait for refund? Paying after selecting the hotel is more simplified and convenient process.
  3. If customers themselves select the final hotel, they will have less reason to complain that assigned hotel was not good enough.
  4. Hotels can also be allowed give a counter offer and customers can check the price against other portals to ensure they are really getting it for cheapest price. (for me saving is not to be calculated against the list price (which is usually higher), but against the lowest price available in other hotel booking websites)
  5. A hotel is probably 100 rupees more expensive, but if it is closer to airport or closer to my area of work/visit, I might save more on taxi, so I might sometimes prefer a slightly expensive hotel due to convenience. Travel Spice not giving this option and assigning a random hotel could make things lot more inconvenient for me.
I have nothing against TravelSpice. They are a Bengaluru based company experimenting with a different kind of idea and product to sell hotel rooms. Had it not been for their persistent facebook ads I wouldn’t have noticed them. Because I found some anomaly in what they claim and what exactly happens on the platform, I was forced to write this post, so that customers get a clear idea of what is happening as they try to book and save. A business should be one in ethical way with clear disclosures and a honest approach, not by tricking unsuspecting customers. If Travelspice has an explanation or response, I am happy to update this post.

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6 comments:

  1. Very interesting and in-depth review.. Just by not quoting the applicable Taxes for the hotel, the Travel spice folks are not giving the true picture... Add to that floor prices and other things and I wonder what is happening .....and I doubt now if anybody will save any money ...

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    Replies
    1. Agree. Lots of gimmicks and not being transparent ensures no repeat customers

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  2. Good post Srinidhi. I liked the depth of research that very clearly plays the persona of a traveller looking for a deal. Opaque pricing is introduced as a blind date concept. I remmeber being a product manager on such a concept 6 years back for Zuji. Com in SE Asia. It bombed badly. Customers wanted no nonsense with hotel bookings. Our audience was primarily business travellers or middle aged group family travel. Our Europe businesses had 60% room night sales from the same concept. My assumption is Asia is slightly averse to this concept though our pricing ha real discount.

    Also here in travel spice, as you say it seems a gimmick that is too good to believe. They too must publish that only 10% of the time are such deals discovered else people would turn away. It's not too different from a low cost airline promising low starting fares 2 months in advance. I hope they take your constructive criticism seriously.

    ReplyDelete
    Replies
    1. Thanks Kartik for sharing your experience. India is mass market- you can always find someone to fool or trick and make some money. Not everyone has time and skill to see beyond what's advertised hence they fall for tricky schemes and clever marketing campaigns.

      Note that 10% is not a verified stat- just stated for example

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  3. Once again a very in-depth review.

    Nice concept but not being transparent or not quoting the correct amount is a big glitch in any business. It won't work in long run. You gave a very nice analogy about hotels accepting the reduced rates.

    I also didn't know they assign us the hotel. I thought if I'm paying for the room, I should be able to decide where I want to stay.

    ReplyDelete
    Replies
    1. Thanks. They can make it work in the long run if they can allow customers to bid a value lower than that of cheapest hotel in the category, so that everytime savings is guaranteed. But in its current form looks like a lot of eye wash and behind the scene tricks to get bookings from unsuspecting customers who are counting on getting a more luxurious stay and don't suspect being tricked

      Delete

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