Price Comparison Engines
Consumers are becoming more and more internet savvy. For example, the internet revolution has also revolutionised the way people book their holidays. It is no longer necessary to go to the local travel agent and trawl through reams of holiday brochures. Now you can do the entire process from the comfort of your computer desk and save money.
One of the latest consumer buzzes on the internet is price comparison engines, also known as price consolidators. These sites do not directly sell products. What they do is take details of your requirement and then search across a range of internet sites providing that service to find the best deals.
How does it Work?
The price comparison engines will target a specific product, let's say airline tickets for example. They accept details of the consumer's requirements, e.g. origin, destination, dates required, etc. They then search across a range of service providers, in this case airlines and travel agents and list the best deals available for the consumer's requirements.
They cannot just start comparing prices across the board. First, they need to make agreements with the service providers. They need access to their databases of services and prices and they need to agree a commission level for every sale they send to the service provider.
The more service providers the price comparison engine can persuade to join their system, the more deals they have to search and the more likely consumers will want to use their service.
What is the Benefit?
The benefit to the consumer is obvious. Instead of spending hours searching the internet for the best deal, they have a site that does all the work for them. A good price comparison engine will search dozens of sites in a minute and show details of the best deals found. The consumer saves time and money.
What is the benefit for the price comparison engine provider? Well that is simple. They receive a small commission for every sale they send to a service provider. They do not add an additional charge to the price the consumer pays. The commission comes out of the service provider's margin. The commission may be small but as these sites grow in popularity the number of sales they are sending service providers rapidly adds up. Consumer research has shown that people using price comparison engines are not only more internet savvy but are also at a stage in their purchasing process where they are more likely to buy.
What is the benefit for the service provider? Well if you are a competitive service provider, the benefit is obvious. The price comparison engine will highlight your service as one of the best deals and send lots of business your way.
What if you are not the most competitive service provider? Why would these companies be willing to work with price comparison engines and highlight the fact their service is more expensive? Well there is still no loss from working with the price comparison engines. Most companies have some deals that are better than their competitors where the price comparison engine will show them in a good light. Even for the deals where their service is shown to be expensive, the simple fact is people using the price comparison engine would not have bought their service anyway, so there is no loss.
Are They All Good?
Over the last few years, lots of price comparison engines have sprung up. At first glance, this would appear to be a good thing for the consumer. Of course, it is only good for the consumer if the price comparison engine is finding the best deals.
This depends on two things. Firstly, has the price comparison engine made agreements with the best service providers?
Secondly, are they efficient and honest in actually showing the best deals? The problem here is that the price comparison engine has an incentive to push the deals that pay the highest commission. Therefore, some of them will show sponsored results or have preferred suppliers they put at the top of the list. The consumer needs to ensure the results are listed by price.
Let's look at some examples in our field of expertise - travel.
There are hundreds of websites selling hotel rooms. These sites are not the direct service provider, which is of course the hotel. The sites make deals with the hotels to sell their rooms and take a commission for every sale.
You might therefore think that the last thing the consumer needs is another layer of service provider to do price comparisons and take more commission. The hotel needs to make a profit, the website that sells the room takes a commission and then the price comparison engine takes a commission.
The thing is hotels want to ensure they have good occupancy rates and to do this, they give the websites selling rooms highly discounted rates. That is why it is cheaper to book rooms over the internet and it is even cheaper if you can find a good price comparison engine to do the searching.
There is one truly outstanding operator in the hotel price comparison field and that is Hotels Combined. This Australian based site compares prices across more than 30 sites, lists them by price with no bias to any site, and covers an astonishing 600,000 hotels worldwide.
The price they charge for this service is invisible to the consumer. Their average commission is a mere 60 cents (US) per booking. That is per booking, not per night. You can see that they will need to send a lot of bookings before they start making worthwhile money but the benefit for the consumer is such that they will send a lot of bookings.
As with most internet trends, the United States tends to be at the forefront and it is US citizens who currently have the best options with price comparison engines. The clear leader in travel insurance price comparisons is SquareMouth. The only problem is they only have a search engine for US residents and another for UK residents. We expect that in the coming year or two, good price comparison engines will start emerging for the other major western countries.
This is a strange one. There are many price comparison engines that will search for cheap flights. The problem is they are all searching the major booking agencies and these companies do not have the cheapest tickets. The cheapest tickets go to agencies that are generally too small to invest in the sort of computer technology that would allow them to hook up with a price comparison engine.
However, there is one price comparison engine that stands head and shoulders above the others - Skyscanner will search over 1,000 airlines looking for the best deals available.
We hope you find our overview of price comparison engines useful. If you use these services sensibly, you can make significant savings on your next holiday.