Most hoteliers agree that discounting is necessary during difficult economic times. It is also necessary during peaking times. Discounting is typically done to achieve additional revenues by enticing guests into booking hotel rooms by lowering rates in order to increase occupancy in the short-term.  

It is a well-known fact amongst senior revenue management experts, that decreasing room rates does not bring higher room revenues. In fact , decreasing room rates dilutes RevPAR. Instead, hoteliers need to focus on the bigger picture — overall strategy and value. There have been numerous arguments and studies surrounding whether discounting is beneficial or harmful to hotels. Research has shown that hotels with an ADR significantly lower than that of their competitive set have an inferior RevPAR performance relative to their competitors.  

According to research conducted overall, for hotels that held their price below that of their competitive set, average percentage differences in occupancy was higher, but average percentage differences in RevPAR were lower as compared to the competition. For hotels that held their price high relative to their competitive set, on the other hand, average percentage differences in occupancy were smaller, but average percentage differences in RevPAR were greater.  

According to the research, hotels with ADRs 12% to 15% lower than those of their competitive set had 10.38% higher occupancies but recorded a 4.44% lower RevPAR. However, hotels that priced 6% to 8% above their competitive set obtained a lower occupancy by 1.84% but a higher RevPAR by 5.02%.  

The research also included information about the different hotel market levels. The results show that the relationship holds true across all different hotel levels, from luxury to limited service.  

Over the years my own experience supported with research it is obvious that discounting is not the best course of action just because a hotel needs to achieve their budget or to generally increase revenues. My experience in multiple markets has shown:  

• Hotels still haven’t learned that dropping rates will not recover enough revenues to cover the discounting. These just cause price wars in the long run.  
• Discounting can cause Price Wars!! How low does one go? It can also cause “rates versus perceived services” issues. If one sells too low this may cause damage to a brand’s perceived image.  

• Discounting is not a demand generator unless the discounting is tied with a strong marketing plan. Discounting as it is practiced by most hotels allows for customers to buy up but does not necessarily drive demand. Instead discounting has a cascading effect that will impact the overall competitive landscape.  

Why Do Hotels Discount?  

The basic principle and foundation of discounting is to try to fill rooms that would otherwise remain empty.  

Discounting is an attempt to increase occupancy. This is achieved by potentially stealing market share from the competitive set by enticing leisure customers or price- sensitive customers who may respond to the perception of a better value.  

Additionally, by increasing occupancy it provides the hotels with opportunities to generate revenues throughout the other revenue generating departments at the hotel. It also provides the hotel with more cash flow during difficult economic times.  

While there are some potential benefits to discounting it is of the utmost importance that hoteliers understand the complexity and dangers that discounting may potentially bring.  

The following charts illustrate the complexities of discounting and how important it is to understand the impact discounting has on a hotel.  

 They illustrate the occupancy needed in order to make up for the discounts that are applied to the rates.  

Using this example, if a hotel running a 60% occupancy drops its rate by 10% it will now have to obtain a 66.7% occupancy in order to reach the same overall forecasted revenue. This increase in occupancy is necessary just to break even. In order to increase revenue, the hotel would have to achieve an occupancy greater than 66.7%.  

A hotel that drops its rates by 20% and previously ran a 60% occupancy would need to obtain a 75% occupancy to make up for the lost revenue.  

Rate parity is now very much on travel industry’s lips. The buzz around this controversial and complicated topic, follows recent agreements between the competition authorities in France, Italy and Sweden and Booking.com.

Antitrust legislators throughout the EU are pushing major online travel agencies to amend their rate parity agreements to allow for more competition among suppliers and distributors. The aim is to create an environment that supports increased transparency and competition among OTAs which would ultimately benefit consumers. Rate parity remains a double-edged sword though.

Regulators throughout the European Union are pushing major OTAs to amend their rate parity clauses, under which hoteliers must chart the same rate on their websites as on third-party distributors. France, Italy and Sweden took the first step, opening a fantastic opportunity for hotels to conduct a more flexible and theoretically fully independent pricing policy. These changes remove the bond to comply with parity price in relation to all dealers, both online booking platforms and traditional sales channels. Following pressure on Booking.com, the provision in their agreements that a hotel could not provide another OTA with a lower rate, disappears.

While rate parity agreements might be coming to a head in Europe, in the US, the practice of price parity is considered legitimate competition. Last year, a court in Dallas stated that setting equal prices among different OTAs represents a “rational business interest”, and it is not against the consumers nor breaches competition law.

I am a hotelier, how does these changes impact my business?

If you are a big hotel chain you most probably favour or at least accept price parity agreements as you wish to maintain control over pricing and brand equity. However, if you manage an independent hotel, a B&B, hostel or apartment, you most probably run into rate parity as a consequence of dealing with the big OTAs. You would rather prefer to sell a room at a lower price on your own website than through an online agency which charges you a 15-20 percent commission. In order words, you could undercut prices given to OTA to reflect commissions paid, and try to attract guests to your hotel website for a better deal.

The rate parity debate, it seems, continues. What happens next is still uncertain and only time will show if the rate parity „crisis” will turn into an opportunity to create a new business model in which the hotels and OTAs will work in the same direction.

With YieldPlanet’s Booking Engine you can add an indefinite number images of rooms and other services and amenities

YieldPlanet understands how important photography is for selling rooms. That is why we have developed a booking engine, which allows you to add an indefinite number images of rooms and other services and amenities. When clicking a showcased image, the same will be enlarged and the user will able to navigate through the available images in the slideshow. Make sure to add photos from different angles and to group them in a logical manner.

Remember, inspiring photos increase the likelihood of converting a looker into a booker.

Hoteliers are now able to make use of our new StopSell parameter. The fearture applies closure to all freesale inventory.

StopSell means applying closure to all freesale inventory, thus making not only sales but also auto-replenish of rooms impossible.

Please proceed to the Prices, Allotment and Restrictions section in our Channel Manager to check it out.

Those OTAs which are coded for receiving StopSell will be sent appropriate separate parameters soon; those without StopSell capabilities will simply receive ‘0 rooms’ availability.

LOGIN TO CHANNEL MANAGER

If you have any questions about StopSell feature, please, contact our support team at [email protected]

If you want to start with YieldPlanet’s Channel Manager, please, contact our sales team at [email protected]

Join the seminar

Come and meet us in Ukraine! Our representatives – Ruslan Aleksyeyenko and Tomasz Romaniuk – will show how to get prepared for upcoming holiday season, strategic rates planning and how to automate hoteliers work with YieldPlanet’s tools. The seminar takes place in the Business Hotel Continental **** in Odessa, Ukraine, on March 22nd, 2016 at 3:20PM (local time). Email us at [email protected] and join now!