In hotel revenue management when talking about a Merchant Model, we are referring to the commercial model of an OTA (online travel agency). The main characteristic of a Merchant Model OTA is that the guest pays the OTA at the time of booking a room, and the OTA afterwards pays the hotel when the actual stay occurs.
In this case hotels give the OTA a net rate, to which a mark-up is applied to determine the sell rate to the end consumers. Generally the mark-up or margin for the OTA is determined in the distribution partnership agreement between the hotel and the OTA.
Third party websites that use the OTA Merchant Model, or merchant rate program, include Expedia, Priceline, Agoda and Getaroom.com. On these websites the hotels obtain a so-called preferred (direct) listing, and the hotel property is placed above product sources from other providers.
Beside the BAR (best available rate) Merchant Model OTA also offer additional promotional rate levels, for hotels to attract more demand. Examples are discounts for dynamic packages, allowing the OTA to bundle the hotel room together with a flight or car rental, creating competitive offers.
Another pricing option are Opaque rates which are a type of undisclosed rates where the end consumer can see the offer, with the hotel star rating and approximate location, but not the hotel name. This option gives the hotel the ability to target a segment at a lower price without jeopardizing the standard pricing structure, and unload distressed inventory.
Advantage of the merchant model for hotels, is that cancellation ratios tend to be lower than with other OTA models. This is because some travelers prefer to pay for their travel at time of booking so they can plan / budget more effectively. At the same time they may feel their booking is more secure when they pay in advance, and are less inclined to cancel