REPORT FROM THE U.S.—With the growing number of hotel bookings coming via the mobile device, hoteliers are evolving their strategy to distribute and price inventory on mobile channels correctly.
Until recently, mobile channels had been pinned as last-minute discount channels where travelers could find deals on hotel rooms. Hoteliers bought into that notion and were giving inventory to distributors at deep discounts.
“The temptation to (discount the mobile channel) is clearly there,” said John Hach, senior VP of global product management at TravelClick. “At a high level, people are looking at mobile as an emerging channel and determining best practices. There’s a temptation to look at emerging channels and use them as a way to sell distressed inventory.
“However, I would caution against that practice.”
A poster child for the last-minute strategy is HotelTonight, which markets “last-minute hotel deals” throughout its app. “Hotels give us last-minute deals on their unsold rooms, with discounts up to 70%,” the company boasts on its website.
And there are many others; Travelocity most recently introduced Lastminute.com, a booking app that promises “instant access to 3-5 star hotels with discounts up to 55%.”
But hoteliers are figuring out that, as more people spend time surfing on tablets and smartphones, they’ll pay the same rate for a hotel room through those devices as they will through a desktop site or over the phone. Therefore, revenue managers more often are being advised to keep the mobile channel in parity with other distribution channels.
HotelTonight executives said the app’s association with discounting is a misnomer, promising the company “is truly on the hoteliers’ side.”
“Nothing frustrates me more than this notion that, because this is a mobile device, hotels should discount on it,” HotelTonight's COO and Co-founder Jared Simon said. “We’ve never believed that. This is sort of a bastardization of our model by big (online travel agencies) who have forced hotels to discount through their mobile app.
“I would love to shout from the rooftop that it would be a silly strategy (to discount the mobile channel),” Simon continued. “We would never endorse that.”
Simon said HotelTonight is designed to reach many audiences, including those looking for a last-minute deal and those looking for a last-minute room and are indifferent to the specific brand of hotel for which they are looking.
“We believe you should discount or not … depending on the customer’s position,” he said.
For the hoteliers, Simon said HotelTonight can be a channel to fill last-minute cancellations at a discounted rate or a channel to fill the last few rooms in the hotel at parity.
“Potentially discounting is a great option, but that has nothing to do with whether it’s a mobile channel or not,” he said. “Our view is that you can use mobile to capture this guest if you can induce them to book and you’re not cannibalizing your other channels. Otherwise, it doesn’t make sense to discount.”
He said even at the last second there are reasons a hotel might put out a full-fare rate.
Robert McDowell, senior VP of global distribution and loyalty at Choice Hotels International, remains a bit skeptical. He said HotelTonight is claiming to franchisees that the app can drive last-minute incremental demand, which franchisees have gravitated toward. However, a lot of the business is not incremental demand—it is just demand that has shifted from another platform, McDowell said.
“Business shifting from the desktop area to the tablet or mobile device is not incremental demand,” he said. “If you just discount it, you’re training consumers to wait until the last minute to book, which flies in the face of any revenue management strategy.”
Evolution of mobile pricing
Stephen Field, president of Synergy Hospitality, a Philadelphia-based management company, said he has never thought of having a mobile strategy as a last-minute discounting opportunity.
“We don’t really have a discount mentality,” he said. “We’re sort of waiting to see where things go with this.”
Choice’s McDowell likens the emergence of the mobile channel to the emergence of OTAs in the early 2000s. Early on, he said, hotels were giving inventory to OTAs at deep discounts as a way to increase demand. Over time, he said, hoteliers became smarter with their pricing strategies.
“Hoteliers need to recognize and have a better understanding of their guests,” he said. “The folks who are setting the pricing and setting the channel mix need to understand that mobile is no different than the desktop and they might not have to discount the channel.”
TravelClick’s Hach pointed to delayed flights as an example of same-day booking opportunity. If a traveler is stuck in a layover city and searches for a hotel room on his or her mobile device, he or she won’t necessarily be looking for a discount, Hach said.
He pointed to LaQuinta’s launch of “Instant Hold” as an example of a hotel brand looking to capitalize on same-day bookings without undercutting rate.
While Choice has earmarked a significant amount of capital to capture demand through its own mobile channels, McDowell said he continues to try to educate franchisees that it’s just a shift in demand, not “something they have to chase down by discounting.”
“Understand the mix and manage that appropriately,” he said. “It’s ultimately the revenue manager who has to have a real good understanding of where the demand is coming from and price appropriately by channel and device.”
On HotelTonight, users will see three hotel options in the market for which they are searching. The hotels are rotated every day to ensure users can’t predict which hotels will be offered. Simon said this is done intentionally “to protect hotels from people just waiting until the same day and hope your hotel is going to appear.”
“That’s very different than how other OTAs do it,” he said.
Simon said the “impulse rates” those last-minute bookers see are special promotional prices that should be used “only when you absolutely need to move rooms at the last second.”
Brendan Miller (firstname.lastname@example.org)
1/5/2013 2:19:00 AM
A few items to consider:
1) HotelTonight's sales are mainly driven by 2-4-star properties where DORMs will not see a tremendous backlash or tarnish their perceived value by changing their rates (ie $250/night discounted to $190/night); whereas, 5-star properties (who may be charging $1000+/night) will really only be perceived as giving a true "discount" if they dropped the "$1000 rate" by a few hundred dollars..maybe into the $700 range and below.
2) Hoteliers have the advantage of real-time inventory management via HotelTonight: if a DORM has 3 rooms on HotelTonight, but a walk-in arrives willing to pay Rack Rate for one of the three unsold rooms on the HotelTonight App, the DORM has the power to take the room off the app to sell it at a higher price to the walk-in.
3) Once the large operators get a hold of mobile development, HotelTonight may have to depend almost solely on independent properties. However, this is not a bad scenario for the independent hotelier and HotelTonight. The hotelier may not want to/have the capability to produce a viable mobile channel for quite some time. Furthermore, the independent hoteliers will not have the brand recognition that other properties have. A branded hotel will, in the near future, get access to the operators distribution channels much like marketing, reservation systems, etc. in the management/franchise agreements of today. So, a branded DISTRIBUTION channel like HotelTonight is a great option for properties that have no brand affiliation but will get the opportunity to expose their property on a through a branded DISTRIBUTION channel. Who knows, maybe the one night that a guests books via HotelTonight will parlay into a loyal guest willing to pay BAR.
In my opinion, the notion of discounting is completely based off of the historical BAR rates that the property shows: this again, would most likely be tied to the star rating of the property.
While 5-star properties may not see the value in the enormous difference in rates they would seemingly have to provide to be perceived as a true discount in the eyes of their consumer, the average guest (2-4-star property guest) who may pay, at most, $300/night would be attracted to a $50 "discount" via a 3rd party channel.
The true answer to this dilemma is "IT DEPENDS". The theory/bad practice/smart strategy/whatever you want to call it is completely relative to the distribution strategy that the properties put forth to sell rooms.
10/27/2012 1:57:00 AM
Yes, Discounting is not a solution. Follow a proper Revenue Management Concept will give you a result.
10/18/2012 5:58:00 AM
This goes hand in hand with Revenue Management. If you are doing Revenue Management well, then you should not feel the temptation to discount last minute.
We went down the last minute discount road before and the results on the industry were horrendous. Teaching your guests to wait until the last minute will destroy the hard work the industry has done.
10/17/2012 11:16:00 AM
Jason, very timely article, indeed. All travel suppliers – hotels, airlines, car rental companies, cruise lines, etc. – manage perishable inventory, so theoretically you would expect that these suppliers would be launching last-minute promotions to unload at least part of their unsold inventory. Wrong! In the case of the airlines, the closer to the date of departure, the higher the airfare – not the other way around.
The most common mistake by hoteliers we are witnessing today is the urge to discount in the mobile channel. My advice is not to discount in the mobile channel!
The mobile channel is a last-minute distribution channel by default. In this hyper-connected social and mobile world, the booking window has shrunk tremendously over the past few years and travel consumers have embraced the mobile Web as a legitimate booking channel:
• Typically, mobile bookings are for the next 48 hours [Google].
• As already mentioned, many major hotel brands report that 65%-80% or more of their mobile bookings are for the same or the following day.
In other words, the mobile channel is a last-minute distribution channel by default. If hoteliers implement the mobile marketing 101s, these bookings would happen anyway without discounts. Hoteliers need to maintain rate parity at all times.
Since people are booking closer and closer to the day of their arrival, it is easier for them to wait and see what the last-minute rates are on the hotel’s mobile site, on an OTA site or on a last-minute discount site such as HotelTonight.com, as opposed to booking in advance via the hotel desktop or mobile sites.
In the age of social and mobile word of mouth, it will not take long for all regular and frequent guests at your hotel to hear about the lower last-minute rates offered via an OTA or a service like HotelTonight.com. What will be the result? The hotel will soon see that:
• Booked guests are canceling existing reservations made via the hotel website, phone, GDS, and OTAs, and re-booking via HotelTonight.com using the lower rates.
• Potential guests are waiting until the last minute to see what the last-minute rates are for the property and other hotels in the city/location they are traveling to and booking at the last minute.
• OTAs are after the hotel for these last-minute deviations from contracted rate parity clauses.
If hoteliers have a mobile website, optimized for mobile SEO and even elementary mobile marketing in place, these bookings would happen anyway without discounting.
• Avoid the temptation to discount! Don’t discount via mobile discounters, OTAs and Flash Sales Sites.
• Invest in your mobile website and mobile marketing to boost last-minute reservations.
• Market your true best available rates last-minute.
• Maintain rate parity and brand integrity at all times.
In the case of group cancelations or occupancy needs, launch a special promotion on the hotel website, send out an email spotlight promotion to the opt-in list, launch a paid search campaign on Google and Yahoo/Bing, as well as desktop and mobile banner campaigns via the Google Display Network, or do a SMT text marketing push promotion. If this is not sufficient, for additional same-day bookings and last-minute sales, use opaque sites such as Priceline and HotWire, which are preferable to flash sale sites as they maintain brand integrity until the booking is completed.
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