This website requires JavaScript.
Analysis

Ctrip’s Gameplan to Overcome its Crisis

Jun 1, 2018 by A. Alfaro
Ctrip’s Gameplan to Overcome its Crisis

In an open letter to shareholders, Liang Jianzheng, the founder of Ctrip, and CEO, Sun Jie, advocated adopting a customer-centric approach. In the last financial report, Liang Jianzhang described Ctrip's value system as: "we cannot sacrifice our values for the sake of profit".

When big companies talk a lot about values, it is usually because some crisis has taken place and Ctrip is no exception. Although Ctrip is regarded as the best online travel agency and offers some of the best services, it has suffered a setback over the last few months that has caused complaints from thousands of customers. 2017 was particularly difficult for Ctrip. The popular actress, Han Xue, posted on her Weibo account, a complaint about Ctrip’s hidden charges. Thousands of people forwarded her post, exposing the scandal. Ctrip was fined USD 43,000 for their unsavoury behavior. In November 2017, a child abuse case at a kindergarten linked to Ctrip sparked outrage in China. These, and other cases have severely damaged Ctrip’s reputation.

During the last three years, Ctrip has become the largest online travel agency in China. But this rapid growth has come at a price; and the various scandals have damaged its credibility. According to the financial report of the first quarter in 2018, Ctrip’s gross income grew by 11%. But if we check the income from ticket sales, it fell by 1% from the previous quarter. This income had already fallen by 15% in the third quarter of 2017. As one of its largest sources of income, Ctrip should worry about these numbers. That is probably why Ctrip resorted to the “hidden charges” strategy in the first place, which later backfired. After the scandal, Ctrip changed its strategy. Now, when making a booking, users are shown a 5 second ad.

In 2016, Qunar, then Ctrip’s competitor, was blocked by many different airlines. Gradually, airlines have changed their sales channels and adopted a policy in which the middlemen get almost no commission. The profit margin for agencies like Ctrip has shrunk considerably. The old business model is no longer valid. Airlines try to promote their own sales channels, such as their official websites. Ctrip now has to find new income sources without compromising the user’s experience.

Last month, the journalist, Wang Zhian, complained on his Weibo account about the hygiene of the hotel room he had booked via Ctrip. Again, the post went viral, with many customers questioning Ctrip’s hotel rating system. Many accused the company of forcing an unrealistic ranking of hotels without considering the quality of their service. Ctrip ranks hotels using three criteria: the hotel’s stars, user reviews and Ctrip’s own gold/silver/bronze rating system. According to Wu Hai, CEO of Orange Hotels and former employee at Ctrip, “Ctrip sends people to check and rate the facilities of each hotel, but the actual service is more difficult to evaluate, that is why user reviews are so important”.

If a hotel wants to appear on top of Ctrip’s search page, it can sign a co-operation agreement with Ctrip after paying a substantial fee, thus becoming a “gold” or “silver” hotel in Ctrip’s rating system. Ctrip’s search results page is one of the most decisive factors for a hotel’s success or failure. According to experts consulted by the portal, Shenwang, “those hotels that are on the top five positions get most of the bookings. Those that are between the first and the third page, can consider themselves lucky if they get a few dozen bookings per month. After the fifth page, getting a booking is like winning the lottery”. Ctrip is well aware of this situation and makes a lot of money thanks to it. This is why, money is a more decisive factor than quality when it ranks hotels.

But many good hotels do not feel the pressure to spend money and become one of Ctrip’s gold or silver hotels. Hotels with poor service are often the ones that need to compensate and get preferential positioning on Ctrip. Many hotels face this dilemma: invest in Ctrip positioning or invest in their own service? Although Ctrip’s financial performance has been very good in the last few years, the constant user complaints are a threat.

Before Ctrip released its last financial report, Meituan Group announced that its travel agency had surpassed Ctrip in bookings for the first time. Meituan had 57 million hotel nights booked in the first quarter of 2018. Meituan’s popularity in third and fourth tier cities and among young users are some of the factors for its success. The rapid rise of Meituan is also a direct threat to Ctrip.

According to people familiar with the industry, since Ctrip acquired its former rival, Qunar, it has amassed much power. Hotels can only adopt a passive role in negotiations. Ctrip is one of the decisive factors when they set their prices and many people within the industry feel that they are all somehow working for Ctrip, which is causing resentment. This is the reason why many hotels have welcomed the arrival of new players, such as, Feizhu and Meituan. After acquiring Qunar, Ctrip is trying to turn it into a profitable company, but it is not easy since Meituan threatens Qunar’s control over hotels in third and fourth tier cities.

In order to confront any future crisis, Ctrip has strengthened its public relations department, hoping to nip problems in the bud before they go viral. Ctrip has also established new “honesty groups”, that will evaluate hotels, restaurants and other services from a neutral point of view. The company is also looking to expanding in new business areas. It has established creative teams to explore new fields. In this spirit, Ctrip has launched its own Uber-like service that will provide rides to and from major transportation hubs. But according to the last financial report, these new projects will need some time to grow.

Ctrip is also looking abroad for expansion. After acquiring Skyscanner for USD 1.7 billion, the company wants to expand further. Three years ago, Liang Jianzheng said that Ctrip would eventually become the largest Chinese Internet company, surpassing JD or Taobao. But Ctrip still has a long way to go before achieving that goal.

A. Alfaro

A. Alfaro is a Beijing-based freelance reporter. He focuses on China's politics, culture and society. He can be reached at varofaro@gmail.com. 

Follow A. Alfaro