Five alternatives to discounting hotel prices

July 16, 2009 |

Should revenue managers in the travel industry reduce prices to stimulate demand? What are the alternatives? And what damage could be done? Here are some basic thoughts on smart discounting.

The issue of whether or not to discount is becoming increasingly contentious as companies struggle to compete in an ever more strained market.

Should revenue managers in the travel industry reduce prices to stimulate demand? What are the alternatives? And what damage could be done? EyeforTravel research has shown that this is a crucial issue facing revenue managers today.

The 2001-2002 price cuts did long-term and short-term damage to the hospitality industry. Hotels lowered rates to stimulate demand and increase occupancy, but this was quickly copied by the competition, rendering it ineffective. Even now, it’s still the norm for Hawaiian hotels to give the 3rd night free.

In any economic downturn, revenue managers need to react quickly and adjust their strategies to reflect current conditions. And the decisions your revenue management department make now, will affect your profitability for years to come. Simply culling prices will have a negative effect on profitability and will delay your ability to benefit when things do pick up, plus it could do irreparable damage to your brand. So what are the alternatives to discounting?

What are the alternatives for revenue managers who don’t want to simply reduce their prices?

1. Focus on Generating Ancillary Revenue: Increasingly, airlines are unbundling their core product and focusing on growing ancillary revenues. United Airlines alone expects to make $1.2 billion this year through fees and charges, which will certainly go some way in boosting their bottom line.

2. Consider Using Opaque Channels: These channels become even more relevant in a downturn, especially to the business traveler. They offer a way to get rid of distressed inventory without having to discount. Plus, you can sell inventory whilst maintaining rate integrity.

3. Be Smarter at Discounting: More than ever before revenue managers need to work closely with marketing to create innovative and profitable promotions and discounts. How do different customers view different types of discounting? And how can you create a perceived discount by including an extra amount ‘free’?

4. Take a Closer Look at Customer Segments: If you segment your customers by price sensitivity, you can then gauge the likely effect discounting will have on their current and future purchases. Despite the economy, there are still customers out there who do not expect a discount, so work out ways to appeal to this high-value segment.

5. Find New Ways to Add Value: Rather than slashing prices, offer value-added components to your customer. Your customers will feel they are getting more value for their money and you also differentiate your product. This requires creativity and focus for both revenue managers and the marketing team, as they work together to create packages and promotions.