Acquiring New Customers Through Selective and Scientific Rules-based Discounting

Discounting, when applied in a targeted and strategic manner, should positively impact occupancy and revenue.
 
There are several issues which one needs to consider before going for this tactic. 
 
“Discounting should be very selective, and set with a number of rules to capture different segments of customers.  A property which discounts its entire rate without any fences will just dilute its ADR,” says Kurien Jacob, SVP - revenue and distribution, Highgate Hotels.
 
Jacob, who is scheduled to speak at the forthcoming Travel Distribution Summit North America 2010, to be held in Chicago (13-14 October), spoke to EyeforTravel’s Ritesh Gupta about discounting, deep rate cuts, maintaining price integrity and other issues. Excerpts:
 
Do you believe that discounting attracts additional customers or it merely ensures that you capture another part of the total existing demand?
 
Kurien Jacob:
 
Discounting can attract additional customers in certain destination locations such as; New York City, Las Vegas, Hawaii, San Francisco, etc.  In non-destination markets, such as secondary or tertiary cities or smaller low-key resort locations, discounting will merely funnel existing demand at lower prices.
 
Across-the-board discounting and deep rate cuts may be appropriate for the very short term, but keeping rates artificially low for a protracted period of time simply robs ADR in the service of occupancy. How should one approach discounting?
 
Kurien Jacob:
 
Discounting should be very selective, and set with a number of rules to capture different segments of customers.  A property which discounts its entire rate without any fences will just dilute its ADR.
 
The best approach is to determine the core customer base of the hotel and study their patterns of; booking windows, length of stay, days of the week, country/city of origin and at the same time, identify potential customers who may travel to the hotel’s destination, but may not be part of the hotel’s customer base.  The hotel could then target this new potential customer base with discounted offers with specific rules that preserve the rates of its core customers. 
 
With this practice, hotels will be able to preserve regular customers at non-discounted rates and acquire new customers through selective and scientific rules-based discounting.  The overall result would be a much higher revenue penetration for the hotel in question.   
 
A section of the industry also admits even though maintaining price integrity should be a core objective of all hotels, but unfortunately, for most hotels, despite the best laid plans and forecasts, competitors’ pricing and the dynamic occupancy trends will force hotels at some level to start to compromise. Strict adherence to price integrity targets without adaptation to the realities on the ground at the property level would be a dangerous policy. How do you assess the situation?
 
Kurien Jacob:
 
In any market, it is important for hotels to study booking price trends and its relative pricing versus the competition; throughout the booking window.  If patterns emerge of competitors flagrantly violating price integrity at all times, it is important that the hotel in question does not follow suit.  Again, the hotel should understand segments of its demand which would not be affected by price discounting, whilst, assessing the segments that are price focused and tailoring aggressive discounting programmes that will force the competitors who are in constant violation to hurt even more to a point in which they may discount to a level where they won’t make money.  In such situations, most likely, the competitor property will end up being sold or closed, thereby allowing long term pricing of the hotel and other rational competitors to return to normalcy levels.
 
How do different customers view different types of discounting? And how can you create a perceived discount by including an extra amount ‘free’?
 
Kurien Jacob:
 
For business customers who are on an expense account; added value amenities such as free WiFi, parking, 2 for 1 drinks, etc may be perceived as great value and can be used instead of deep discounting of the rate.  For leisure customers, the rate alone may have to be discounted for them to believe that they’re getting a perceived value.  For leisure customers who book two months in advance from South America for a key US destination city-it is important to offer length of stay discounts along with free amenities such as free breakfast, as they would stay for a longer time.  For a driving destination where parking is not free, it may be important to attract nearby customers through offers that include complementary parking. 
 
How do you assess the use of opaque channels? Would it be right to say that these channels become even more relevant in a downturn, especially to the business traveler? Also, do they offer a way to get rid of distressed inventory without having to discount?
 
Kurien Jacob:
 
Opaque channels have to be used very carefully.  Many times hotels may participate and book rooms on these channels even in advance, without understanding transient demands that may pay regular rates.  This channel should be used only if the hotel needs to protect its overall retail rate to maintain brand image, prevent group room dilution or maintain corporate negotiated rate protection.  The hotel should assess the overall revenue,   by maintaining a high retail rate, whilst selling rooms through distressed rates through opaque channels versus discounting retail rates and NOT selling any rooms through opaque channels.  They should then choose the better of the two options based on revenue impact and brand image.
 
From a distribution perspective, with online channels more responsive to discounting, how do you think online channels impact ROI and CPA?
 
Kurien Jacob:
 
Online channels definitely promote hotels which offer the most value to their customers.  Online channels have built a following of users over the years and it is important to be prominently displayed on these channels, whether rates are discounted or not.  It is advisable to be selective when offering discounts for shorter periods of time, last minute sales, weekly, seasonal promotions, etc.  Hotels should avoid being on sale all the time.  Such tactics would ensure a higher ROI and a much lower CPA.  This is possible due to the billboard effect that online channels can give your hotel. 
 
How do you think online channels allow hotels to be more dynamic in fast-acting in their rate management strategies?
 
OTAs give hotels pricing flexibility to drive demand across various days of the week, seasons, advance booking, last minute booking, etc.  Many hotels just use OTAs as a source of last minute production. 
 
This is an incorrect strategy, and OTAs get blamed for the lowest rated customer segments and are always perceived as a discounting channel.  If hotels clearly understand their demand based on buying behavior, they can take a more scientific approach to discounting through all channels including OTAs.  Such an approach will ensure success for the hotel.  A more strategic approach to pricing in a dynamic environment of online channels, is a shot gun approach of treating OTAs as a discount channel that will yield for better results.    
 
Travel Distribution Summit North America 2010
 
Kurien Jacob, SVP Revenue and Distribution, Highgate Hotels, is scheduled to speak at the forthcoming Travel Distribution Summit North America 2010, to be held in Chicago (13-14 October). The two-day event will feature over 60 speakers, including the ones from Hilton, Wyndham, Travelport, Lufthansa, Expedia, Google and from many other such organisations of repute.
 
For more information, click here:
 
Or contact:
 
Marco Saio
Event Director
[email protected]
0044 (0) 207 375 7219
 
Or
 
Rosie Akenhead
Event Director
[email protected]
0044 (0) 207 375 7229