A new travel startup is developing a means to book hotels for frequent travelers and those responsible for booking larger groups. The service, called HotelUpgrade, lives on a mobile app and allows travelers to search and book specific hotel stays based on additional perks being offered by the hotels.

The bookings are driven direct, allowing hotels to siphon out any OTA commissions and therefore offer the additional perks to the traveler. Travelers are also encouraged to batch bookings – or book more travel all at once – to gain better and more extensive upgrades. This means that hotels can incentivize larger average bookings, and to create a larger overall benefit for all parties.

Here’s the startup’s homepage pitch:

HotelUpgrade value propisition

The six person team, which has bootstrapped up to this point, is headed up by Pranav Patel (co-founder and CEO), Andrew Bate (co-founder) and Lindsay Burch-Poss (VP of Global Sales).

Read on for startup’s Vine and the full travel startup Q&A.

Tell us how you founded the company, why and what made you decide to jump in and create the business.

HotelUpgrade was founded when Andrew Bate – a road warrior and former management consultant – teamed up with Pranav Patel – a hotel operator – to help hotels identify and attract their best guests, and ensure those guests have a superior hotel experience.

Pranav lamented the difficulty in rewarding a guest’s true loyalty to his hotel – those who significantly impact meaningful operating metrics such as ADR in order to improve RevPar and true profitability. Traditional loyalty programs reward a decision, or reservation, and often discount a guest’s true value to the specific hotel. Guests with frequent short stays benefit, but frequent guests at a few hotels are under-rewarded.

Andrew was one of those under-rewarded Starwood Platinum guests. He was sure his favourite hotels would prefer he stayed all week, but there was no mechanism in place for them to attract and reward him based on the nights he was willing to confirm. Instead, he would switch hotels nightly to try and maximize the points and perks being offered through the SPG loyalty program, which seldom improved his overall guest experience.

What is your estimation of market size?

GBTA estimates the corporate business travel market at approximately $288 billion domestically and $1.2 trillion globally.

Please describe your competition.

We have no direct competitors, but we consider any managed travel solution where individuals do not have the flexibility to book on their own, indirect competition.

What is your revenue model and strategy for profitability?

Our hotel partners pay us a small commission for every reservation we pass through our app.

What problem does the business solve?

HotelUpgrade solves two problems:

–> For the hotel:

We help individual hotels acquire their most valuable guest, a business travel with multiple night reservations, and drive traffic to their most preferred booking channel – brand.com.

While guests with a single night reservation booking on the brand.com site are valuable to a hotel, revenue managers have no discrete way of attracting multiple night reservations.

Our upgrades are setup to encourage the user to confirm as many nights as possible, including future stays and for colleagues and friends, in order to maximize the points and perks they will receive. Since hotel revenue managers favour the multiple night reservation, they are willing to give upgrades valued at upwards of $30 per day.

–> For the frequent traveller:

Frequent travellers have never had a guaranteed way to optimize their stays and receive extra bonus points and perks beyond what they earn and receive as a loyalty program member of their preferred hotel chain.

Business travellers who typically travel on some sort of a flexible corporate per diem are not interested in deep discounts that most hotel sales managers are preconditioned to offer, but rather prefer an improved experience.

How did the initial idea evolve and were there changes/any pivots along the way in the early stages?

As a part of HotelUpgrade’s user acceptance testing, we started off by taking upgrade requests on our website, where a user could tell us where they were going, their preferred hotel brands and what upgrades they would like. We built out our supplier network this way, however the 48-hour response time resulted in poor conversions. The most important thing we learned was that whenever we received an upgrade request from a guest, the rate they were willing to pay was typically at or higher than the market’s average Best Available Rate (BAR).

Since our primary goal was to drive valuable traffic to hotels and provide a superior experience for the guest through exclusive upgrades, we decided we could do this by directing the user to the hotel’s direct brand.com site to make the reservation and confirm the upgrade by capturing the confirmation number.

This meant hotels could dynamically price and guests can take advantage of exclusive upgrades instantly.

This also allowed us to focus on the upgrade experience rather than having to manage the booking, which reduced our projected customer support overhead tremendously.

Why should people or companies use the business?

Frequent travellers will receive complimentary points and perks for reservations confirmed through the HotelUpgrade app. Upgrades are dependent on the total number of nights booked, and the more nights they can confirm, the better the upgrades!

Hotels want to partner with us because we send their most valuable guests – business travellers with multiple night reservations – to their most preferred booking channel – brand.com.

What is the strategy for raising awareness and the customer/user acquisition (apart from PR)?

In terms of traditional marketing, our early adopters will be the frequent traveller segment who spends a disproportionate amount of time trying to optimize each reservation by visiting popular frequent traveller sites (i.e. Flyertalk and Milepoint) and various travel blogs. This gives us a targeted audience to work with and allows us to invest our marketing dollars in sponsoring events filled with potential users and building out relationships with the right websites.

If we were to give you access to our marketing plan, you’d see a large focus of ours lies in our guest experience plan, which I’m sure the press will be talking about in the months to come.

Where do you see the company in three years time and what specific challenges do you anticipate having to overcome?

HotelUpgrade will synonymously be known as an upgrade experience engine, and perhaps even exploring new travel verticals.

Hotels are naturally conditioned to give discounts, as opposed to value adds and therefore, it will take some time to continue to educate our supply partners on our value proposition. Also, we want to maintain a level of exclusivity around upgrades and ensure they don’t become entirely ubiquitous.

What is wrong with the travel, tourism and hospitality industry that it requires a startup like yours to help it out?

Hotel sales teams and managers have been conditioned to lead with deep discounts rather than truly understanding each customer segment and creating the right offer. OTAs have created an environment where revenue managers will do everything in their power to shift share to their direct brand.com website, and HotelUpgrade is here to help!

Also, guest services agents aren’t empowered to create a truly memorable experience for each guest and therefore have no way of delivering the right upgrades. We have all read about how to cleverly request upgrades at arrival, however when the guest doesn’t receive them it becomes an infinitely poor experience for the duration of the stay. Since most hotels are willing to offer nominal upgrades to improved guest experience, having the right mechanism in place solves this problem.

What other technology company (in or outside of travel) would you consider yourselves most closely aligned to in terms of culture and style… and why?

HotelTonight. They were the first to market in same day mobile bookings, and we are redefining the way hotels attract their most valuable guests and improve guest experience through mobile.

Which company would be the best fit to buy your startup, and why?

Nor1, as they are the leader in upgrades and RevPar driving solutions for hotels. Our service would complete the spectrum of upgrade solutions for them.

Describe your startup in three words.

VIP Hotel Upgrades.

Tnooz view:

While the model is not new – boutique OTAs such as Mr and Mrs Smith have been offering additional perks for booking via the platform for years – the idea of bringing direct bookings to hotels is a clever spin. Of course, HotelUpgrade is basically shifting commissions from the larger players to a commission model of its own. The commission is likely lower, and as the app structurally encourages larger bookings, the overall value to the hoteliers could be higher.

For travelers, there is definitely a very real advantage to booking through this platform. This will most definitely be a strong pull away from third-party OTAs, and push them to complete direct bookings. Even so, these aren’t true direct bookings, as HotelUpgrade is a commissioned middle entity. So hotels may be more reluctant to offer up incentives that are larger or more attractive than those already offered on an individual hotelbrand.com website.

If there is an “upgrade arms race,” insofar as member hotels increasing incentives to complete true direct bookings, then this will only be a good thing for travelers. Hotels will also benefit if these travelers book more travel more regularly, and as the travelers still are able to benefit from the hotel’s loyalty program, there becomes a dual-incentive to book everything through the platform.

The hurdle here is that this is simply replacing one intermediary for another – the commission for HotelUpgrade will thus have to be smaller overall to appeal to hotels. Thus, in order to boost revenues, the startup will need to truly see those increased average booking values.

Original author: Nick Vivion