REPORT FROM THE U.S.—As revenue management becomes increasingly complex, some practices revenue managers once considered profitable might actually prove more harmful than beneficial.
Dropping rates on a single channel, such as Expedia or Booking.com, in the middle of the night in the U.S. in an attempt to capture international demand is one of them, according to experts.
Lowering rates on one channel allows revenue managers to stay under the radar, as searches to regulate and maintain rate parity typically don’t occur until 7 a.m. or 8 a.m., said Jesse Ostrum, director of revenue management for Vantage Hospitality.
“Some people might be able to not get caught by their brand depending on how they update their rate,” said Marre Moores, corporate director of revenue management at Quorum Hotels & Resorts. Many hoteliers think, “If I update my rate on Expedia, I might be able to get around my brand shopping.”
The strategy was more common before most third-parties began updating rates and availability through a direct-connect function through the brands, but some revenue managers at independent hotels still do it, Moores said.
“We have seen this tactic used by some independent properties on our sites, though it's really dependent upon the individual hotel's specific demand needs and revenue management practices,” said Nick Graham, senior director of market management for Expedia.
Quorum’s philosophy, Moores said, is not to jeopardize the relationship the company has with its brands by taking part in questionable revenue management strategies.
But more importantly—and regardless of brand affiliation—she said the strategy of dropping rates on a single channel in the middle of the night is simply not effective.
“You’re saying you’re willing to take a less valuable price on Expedia … It doesn’t make sense,” Vantage’s Ostrum said. “To me, that says you don’t have faith in the quality of your property and the only way it can be sold is at a lower price.”
At that point, hoteliers are training consumers to look for the lowest price at certain times of the day. For that reason, the practice of lowering rates in the middle of the night on high-traffic online travel agencies does not work for Vantage.
“I’d rather feel comfortable knowing people are coming to our properties because (of their quality),” Ostrum said.
Luring demand from regions such as Europe and the Middle East is a driving force behind the practice, which calls into question the age-old debate of price elasticity—that is, whether decreasing prices increases demand.
Late-night rate manipulation might at first appear lucrative, especially considering Expedia’s exposure to more than 50 million customers in almost 70 countries around the globe.
“Industry experts have forecasted that international travelers will soon become U.S. hotel’s primary source of incremental demand. Given this, many hotels are now focused on experimenting with different strategies for targeting that very valuable audience of potential guests,” Expedia’s Graham said.
There are benefits to lowering rates at night when European and Middle Eastern customers are prone to be online, Graham said.
“Data shows that international travelers typically book further in advance and stay longer than their domestic counterparts. This gives hotels the opportunity to build a base of business well in advance and can also translate into a higher average booking value.”
Key international markets such as Miami and New York have been more successful when utilizing this particular strategy than those hotels located in rural or domestic-heavy travel markets, Graham said, citing Expedia data.
Implementing this strategy enables hoteliers to gain share of international markets without discounting for the domestic market, which can trigger a pricing response from domestic competitors, he said.