The main objective of my recent trip to China was to learn about the Chinese lodging industry first hand. I decided to do this now and not later for two reasons: a) Once LetMeGo.com goes live, I will have little time to travel, and b) if you could graph in a chart the different e-commerce business practices from around the world, China and the US would be extreme opposites. We want to make the Merrcury Engine (the software behind LetMeGo) flexible enough to work in both the US and Chinese market. If we achieve this, it will probably work everywhere else in the world with little or no tweaking. This article will focus on my findings and opinions about the lodging market in China and its online presence. I will write about the size of the Chinese lodging market, Chinese hotel ratings, independent hotels, getting the best price when booking a hotel, Ctrip’s leadership, and LetMeGo’s potential in China.
Size of the Chinese Lodging Market
Huge… and getting bigger. The lodging market in China is big, and it is growing very quickly. Most of the demand is internal: Chinese traveling to other destinations within China. Online bookings are also growing very quickly both because of the growth of the Chinese economy and because of the Internet connectivity growth in China. Prices per night tend to be lower than in the US. I stayed in five different hotels in my trip. I paid around 30 to 50% less than what I would have paid, if I were traveling in the US.
Okay, the numbers I gave you are not very specific, so here are some actual, realistic values that offer a more specific perspective: Expedia.com (EXPE) is the largest travel portal in the United States. Ctrip.com (CTRP) is the largest in China. Expedia’s market cap (value) is USD 2.47 billion, while Ctrip’s is 1.89 billion. In other words: The Chinese travel industry is not as large as the US, but it is getting closer.
Hotel Ratings
This is not a big deal, but it is something to keep in mind. Hotels in China of similar characteristics to hotels in the US usually have one additional start in their rating. For example: a three-star hotel in the US would be listed as a four-star hotel in China. This, of course, can be very confusing for international travelers that are used to a different standard. Fortunately for LetMeGo, we will have this problem covered.
On a side note, I couldn’t resist taking this picture when I saw this sign inside the Forbidden City in Beijing:
I actually came across one rated bathroom in China, but I am still trying to figure out the usefulness of having a rating system for public bathrooms that do not charge a fee. By the way, this bathroom didn’t smell very good. I don’t want to imagine how of a one-star bathroom would smell!
Independent Hotels Rule
In the US most hotels belong to large chains or franchises. In China, around 80% of the hotels are independent. Most travel portals in the United States and GDS networks have been designed, primarily, by and for large hotels chains. This is one of the reasons that it has been difficult for them to get into the Chinese market.
Face to Face, Last-Minute Negotiation, Gets You the Best Price
This is a little counter-intuitive for most Americans, but based on my experience and readings, it seems to be true. In the US, the best prices for booking a hotel are usually obtained when you book online and well ahead of time. This is not the case in China, at least for now. In China, the best prices are usually achieved if you go to the front desk right when you want to check-in and negotiate the price with the hotel representative.
There could be several reasons for this. One reason is likely to be the bargaining culture in China. Whether it is for a product or service, when you ask for a price in China, chances are that you will first get a price that is higher than the actual price that the seller is willing to sell for it. After several cycles of bargaining, you may get a good deal and both you and the seller are happy. Unfortunately, bargaining the price is not an option when booking online. Publishing low prices online may not be in the best interest of hotels as it would limit their negotiation power with buyers that go through the regular bargaining process.
Ctrip.com Is the [Offline] Leader
Ctrip.com is the leading travel portal in China with more than 50% of online bookings. Most of Ctrip’s bookings, however, are made offline via their call center. It seems that most Chinese buyers still like the idea of talking to a person over the phone instead of booking a hotel or flight online.
Ctrip’s leadership surely comes from understanding the Chinese market better than anyone else:
- Their system is friendly with independent hotels.
- They know how to market to the Chinese consumer: There were representatives and pushy promoters of Ctrip in every single airport terminal that I passed by while in China.
- They seem to know very well how to get their commissions paid. Not getting paid seems to be a common issue in China.
- Forget about credit cards. Welcome to the era of cash-on-delivery: You order your plane ticket on Ctrip.com, a delivery person then goes to your place, gives you a physical ticket, and you give him/her the cash. Crazy? Well, less than 2% of Chinese own a pin-free (credit or debit) card.
Another big player in China is Elong.net. They are Expedia’s investment in China. Elong.net has less than 10% of the Chinese market, though. Although I did not know the reasons at first, I didn’t have to wonder for too long: I sent them around five different email messages (to different people) trying to set up a business development meeting. None of them were answered. I wouldn’t want to do business with a company that doesn’t answer emails!
What about LetMeGo China?
First of all, it won’t be called LetMeGo.cn – Maybe it will contain numbers. Chinese love web addresses with numbers, as it is easier for them to remember a number than to remember a word composed by Latin characters.
Secondly, and more important, it seems that the Merrcury Engine of LetMeGo will need little tweaking in order to work in China. As a matter of fact, given the state-of-the-art technology in China, it may be easier for LetMeGo to become a leader in China than in the United States. The business model for LetMeGo (which is still a secret that we haven’t published) is likely to work pretty well in China as long as we can find a good, local partner, to manage it.
Our main focus continues to be our US release. Nevertheless, the lessons learned on this trip are leading me to believe that the release of LetMeGo China will follow the US release very closely. Whether we partner with Ctrip or go head-to-head against them is something that only time will tell. We’ll see…
Alexander Torrenegra
P.S. If you want to learn more about the [huge] Internet market in China, I strong
ly recommend you to see the presentation “Google in China” by Kai-Fu Lee (in English). You can download it for free from iTunes at http://deimos3.apple.com/WebObjects/Core.woa/Browse/cmu.edu.1493991494?i=1587417220
P.S.S. Yes, it is true! Toilets in China flush the other way around. Well, at least some of them 
Alexander is LetMeGo's co-founder and jefe. Here is his LetMeGo 
