Distribution
Merchant model
A distribution framework where an online travel agency buys hotel rooms at a discounted wholesale rate and resells them directly to consumers at a markup. The guest pays the agency upon booking, and the agency acts as the merchant of record.
Formula
Net Rate = Sell Rate × (1 - Wholesale Margin Percentage)
How it is used
Revenue managers use the merchant model on platforms like Expedia to capture volume from bookers who prefer paying upfront. While it yields lower net rates than direct bookings or agency models due to wholesale margins—typically 15% to 25%—it guarantees cash flow at booking and allows OTAs to package rooms with flights. Managers must audit margins regularly and enforce rate parity to prevent third parties from undercutting the hotel’s direct public rates.
Worked example
A hotel agrees to a 20% wholesale margin with an OTA using the merchant model. If the retail sell rate on the OTA is $200 per night, the guest pays $200 directly to the OTA at booking. The OTA retains $40 ($200 × 0.20) and remits the remaining $160 net rate to the hotel via a virtual credit card.
Common mistake
Failing to account for gross-versus-net accounting can distort RevPAR calculations and lead to overpayment of channel commissions.