A markup is an amount added to the cost price of a product or service. It’s typically expressed as the percentage of the cost. In retail, the markup is the difference between wholesale and retail prices.
In the travel industry, a markup is the amount that an OTA adds to the net rate it gets from suppliers (hotels, airlines, tour operators, etc.) to form the final or sell rate. This approach is called a net contracted or merchant model (as opposed to a commission contracted or agency model). Some of the factors that influence the size of an OTA’s markup are
- product type,
- booking channel,
- location (in the case of hotels),
- customer type, etc.
The merchant model allows resellers to keep control of their pricing strategies, i.e., add flexible markups, offer discounts, introduce new payment methods, and run loyalty programs at their discretion, independently from suppliers.