Why jumping on the discounting treadmill won’t get your hotel bookings in shape

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By Clare Riley, Content and Editorial Manager, SiteMinder

There are more than 1.2 million articles to search through on Google dedicated to helping consumers find ‘cheap hotels’.

Discount websites such as Groupon churn out bargains on a daily basis – and with more than 900 million deals sold to date, it’s clear that consumers are hungry for a discount.

Today’s travellers visit an average of 38 websites before they make their decision to book, and 37% say they abandon the booking process because they believe a cheaper offer exists elsewhere.

Shopping around has become second nature to consumers empowered by the choice available to them across the web. And as a hotelier, it can be tempting to slash room rates in order to fill empty beds in your hotel – but it’s a dangerous game.

Research from Hotwire.com found that 81% of hoteliers surveyed had increased the amount of heavy discounting during the global financial crisis, and 75% said they believe it was having a negative effect on their brand, making their hotels appear “always on sale”.

A new report published by Skift and SiteMinder says independent hoteliers can avoid devaluing their brand caused by cutting prices in an attempt to compete.

Hotel industry experts within the report say the real challenge for independent hoteliers lies within the competition presented by larger, chain hotels that possess bigger budgets, and increased resources.

Sara Honahan, revenue manager at CLC World Resorts and Hotels, which operates two independent properties in Florida, says deep discounting can negatively impact profitable revenue making it difficult for the independent hotelier to recover: “I wouldn’t even imagine how a small indie, in say, Arkansas, can compete except for pricing. And then, you really do displace your revenue by placing low rates to attract that customer.”

Skift and SiteMinder suggest properties taking a discount-first approach in order to reach and attract guests will struggle to balance revenue with the cost of acquiring that guest.

So what should independent hoteliers do if always trying to be the cheapest option is not a sustainable tactic?

Fig Cakar, managing director for the Americas at SiteMinder, says independent hoteliers should be looking to widen the net by reaching and attracting potential guests from all over the world, using technology such as a channel manager, to maximise ‘The Billboard Effect’.

“I think channel management has become an increasingly viable solution. You can drive the channels from which you want to increase volume. You control promotional offers, focus on partnerships with key and regional OTAs…and really help drive incremental bookings, even in markets that are not the property’s traditional base.”

Ctrip in China, Ostrovok in Russia, and Despegar in Brazil are prime examples of the non-traditional channels within emerging economies, which can help boost ‘The Billboard Effect’, as pointed out by Cakar in the report.

A 2009 study by Cornell University found a direct correlation between a hotel’s presence online and the impact that can have on both direct and indirect bookings. The research concluded that visibility via online travel agents (OTAs), and being found in the search results of these websites, could result in a potential 15% uplift in reservations, giving hoteliers a feasible alternative to heavy discounting.

The report from SiteMinder and Skift doesn’t advise hoteliers against creating special offers altogether – instead, it suggests combining ‘The Billboard Effect’ with effective revenue management, that varies room rates in real time.

By using technology, such as a channel manager, hoteliers can better assess the variations in their booking patterns, and manage their rates and availability accordingly, in a controlled and strategic manner.

Hard discounting is rarely a workable tactic for a hotel looking to sell more rooms. Being smarter with technology and subtly changing rates according to demand will serve your property much more effectively.

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