REPORT FROM THE U.S.—Amid the larger discussion of whether rate-parity agreements are beneficial for hotel room suppliers, many revenue managers are using creative, out-of-box thinking to offer discounted promotions to segmented groups of travelers.
One strategy is using “fences,” also known as closed user groups, to segment a hotel’s customer base and offer promotions to specific groups of people within that fence.
Online travel agencies have long used the tactic successfully, targeting a consumer group and giving those travelers access to an offer that non-affiliated general consumers wouldn’t receive.
Now suppliers are toying with the strategy.
“The idea makes perfect sense,” said Michael Hraba, project manager and communications for Waterford Hotels & Inns. “You could even fence for location, like a deal for anyone at the nearby airport. That's a fantastic idea.”
Some popular examples of fenced promotions include offering discounts or value adds for last-minute customers or loyalty members. This is how hotels can give HotelTonight, for example, deeply discounted room inventory.
“The argument has been (HotelTonight) is fenced because it’s application-based; someone has to go to the iTunes store and download the app, and that makes them different,” said Calvin Anderson, corporate director of revenue strategy for Alliance Hospitality.
However, there are wide-ranging debates over what is considered a legitimate fence and therefore complies with rate-parity provisions and whether a mobile channel in itself is a “hard” or “soft” fence.
Most mobile discounts have two fences, said Patrick Bosworth, CEO and co-founder at Duetto Research. One is that they’re limited to a specific channel—mobile—and the second is usually a timeframe. With HotelTonight, for example, users don’t get access to discounted rates until midway though day of arrival.
“The best fences are things that segment customers, such as offers that require you to book at least 90 days in advance,” he said. “A lot of travelers will say that’s not worth it to them because they don’t want to get locked in that far in advance. Those are fences that are very strong.”
Suppliers are beginning to understand the mobile opportunities and enact their own strategies through their proprietary mobile apps. As more channels begin offering similar discounts, however, sources suggest parity issues could arise again.
Anderson said the mobile channel in itself is not a fence because in some countries across the world Internet on a mobile device is more accessible than Internet on a desktop.
Driving direct demand
One strategy experts debated is creating a fenced user group by asking travelers to sign in to a supplier site and then offering them a discounted rate. For example, Hilton Worldwide could require HHonors members to sign in to their brands’ websites and then serve up rooms at lower rates than they provide to any other third party.
“A shift I think that needs to happen next is getting the customer to know they will always get that deal—a good deal—when they come to the supplier site,” Bosworth said.
In the Hilton example, a supplier could definitively offer travelers the true best available rate and hypothetically drive additional direct bookings as a result.
Bosworth said the concept is similar to creating an email promotion to a fenced group, which is not considered in violation of parity agreements. However, he said, stimulating demand through email campaigns is costly because it requires working with a marketing team and the creation of collateral.
“If hotels create logins on their booking engines, users can log in to check things like points,” Bosworth said. “The next step is to offer discounted pricing based on the profitability of guests.
“These discounts can be standardized, and they can be small,” he continued. “If you know this is a customer that comes back frequently and they know that no matter what day they’re booking the rate to an unknown customer would always be higher, the customer will recognize that value very quickly.”
Anderson said suppliers are enacting similar strategies—they’re offering a discount on a suite upgrade or involving reward points somehow—but the industry is “really far behind” on fenced deals in general.
“When I’ve seen experiments with this, you can sometimes shift share to your channel by 10% to 20% over a short period of time,” Bosworth said. “It doesn’t take a major price move.”
Some hoteliers have opposed the strategy, suggesting there isn’t good reason to offer discounted inventory to travelers who were willing to pay full price.
But Anderson said suppliers offering rates out of parity is the way of the future and brands are “going to have to start breaking parity or find a way to market themselves better than OTAs.”
“Hotels don’t like the idea of discounting,” he said. “But when you compare the margins of the third parties, it makes sense to use discounts to drive demand direct.”
And Bosworth said that as suppliers shift share to their own channels, they can slightly raise their “unknown” price.
“The effect on (average daily rate) isn’t strong,” he said.
Another detractor to customer segmentation is the fragmented nature of many hotel operations.
“This goes back to the age-old world of customer segmentation and mucking about in this between time of technology catching up with interpreting the data that has recently been unlocked,” Waterford’s Hraba said. “(Hoteliers) are so busy in operations, they don't have the tech savvy to track, unlock and segment the endless data we have access to. If someone could start organizing a hotel's data into meaningful segmentation, they would be sought after relentlessly.”
Bosworth said that as the hotel industry begins to institute a less vertical landscape, where teams within brands and properties are more cross functional, new insights like fenced deals will become available. And subsequent changes in technology will support those strategies, he added.