Last week I wrote about Why Hoteliers Still Considering the Discount Strategies? The conclusion was:-

  • Discounts are all around us, and as consumers (either individuals, tour operator / travel agent, corporate and groups) , all of them have started to be conditioned to not purchase unless they're getting a great discount.
  • Discounting in a demand decline depressed environment does not deliver the desired results.
  • Long term discounts like 25%-30 or even 50% discounts for 2-3 months leads to a loss of revenue, drop in RevPAR, change in perception of property and the clientele it gets.
  • We can't ignore the room fixed and variable cost.
  • We should be attacking the reason for the volume drop with sales and marketing strategies, not applying a medicine that actually misses the crucial point in the first place.

Discounting rates, even as a stop-gap measure against demand loss in any recessionary environment regardless the reason, can yield negative effects for hotels and the overall market. Nobody wins in the aftermath of a price war. Discounting rates in order to increase occupancy will induce higher costs on a per-room basis and decrease profit margins. Perhaps the most deleterious effects lie in the long term, and these effects may not warrant consideration as hoteliers struggle with the immediate challenges of their day-to-day operations.

A better solution to discounting is to offer additional value to the customer without sacrificing rates. Such value additions include Internet service , breakfast or all-day coffee service, or a complimentary spa treatment during a weekend stay. The take-away message is that rate integrity is essential to the profitability of a hotel operation in the short and long term, and it may not be too late for hoteliers to stop the rate hemorrhaging and put their properties in a stronger position to capitalize on a recessionary recovery.

Start your contingency plan

The natural variation in supply and demand that occurs as part of the everyday functioning of a practice often creates problems that contingency plans can address. For most hoteliers, the term "contingency planning" conjures images of natural disasters such as hurricanes, tornadoes, earthquakes, or floods and man-made crises like riots, fires, or terrorism. The concept of contingency planning is rarely tied in with routine business performance management. That's because many hoteliers fail to recognize how important it is to describe in advance, in detail, the steps the organization will take in the event that it fails to meet—or, conversely, in the event that it exceeds—its budget and performance plans.

The issue here is, the contingency planning moved and linked to any recessionary occasions i.e. demand decline, low occupancy for long period, no business …….etc. from the normal concept as mentioned above to link with saving cost with several steps in order save some operation expenses.

Are you ready for the Worst, and Best, scenarios

The best practice is to start contingency planning at the time of the annual budgeting process. The budget establishes a baseline for expected performance, which means it also sets parameters for both subpar and superior performance. Moreover, in creating the budget, management must think through the hotel's key assumptions about important markets and the competitive landscape. The annual budgeting process provides a structure for identifying, quantifying, and prioritizing risks and opportunities; for setting productivity goals; and for allocating resources.

Good-quality contingency plans identify various possible scenarios, through which they define specific actions the hotel will take under certain conditions. The types of actions required, and the degree to which the hotel engages in those actions, vary depending on the size and complexity of the problem (or unexpected upside).

One thing to keep in mind when defining a hotel's reactions to specific scenarios is that adjusting fixed costs tends to have a bigger long-term impact than does changing variable costs. Savings on the purchase of materials produces immediate results, which may lull hotels into thinking that costs are declining. In reality, however, declining materials costs will necessarily coincide with declining sales. Reducing variable costs does not boost the bottom line over time. Good contingency plans focus on changes in fixed costs. If downside contingencies drive cuts in fixed costs, the hotel will see significant upside benefits once volumes recover.

Revenue Management Contingency Plan

When people talk about revenue management, they typically talk about good economic times in which demand exceeds supply? Where we explore previously hotel owners and hotel operators disagreed on how best to manage rates during that recession of demand as owners tried to maintain sufficient cash flow to cover their costs while operators attempted to maintain service levels and long-term brand equity.

When hoteliers start developing a response to a demand decline, they should assess three factors: (1) current and potential guests, (2) hotel competitors, and (3) distribution channels.

When you develop your plan, focus on the long-term and consider the impact that your plan will have on customer satisfaction, employee satisfaction, and the long-term image of your hotel or chain. If you lose sight of the long-term, you may end up compromising customer and employee satisfaction and hurting long-term profitability and viability, hence maintain the brand image be insistent on the pricing strategy. Focus on your long-term goal and be patient.

A few consideration when you have a sudden demand decline followed by massive cancellation ( Egypt Oct. 2015 after the Russian flight crash – Paris Nov. 2015 after the theater bomb ………etc)

1- Don't panic! Stay calm and look for solutions, do not compare downturn periods with previous good periods. Think more in terms of long-term decisions."

2- Don't start broad-scale discounting strategy. 

Don't start with wildly discounting strategy; it is not the cure for immediate recovery of demand doesn't drop your public/retail rate. Use the retail rate as the benchmark for discount rate programs and fence these discounts appropriately.

3- Don't cut your marketing budget : Keep current guests and develop packages and promotions that attracted both current and potential guests. If you cut your marketing budget, this won't be possible. As when the bad times hit again, save the marketing dollars on new focus the spending on the existing customer base."
4- Don't fire your Revenue team : Keep the revenue team includes the revenue manager and sales , revenue team will be able to explore more about actions , tactics and strategy to keep the hotel running and develop individualized strategies, and implement actions to drive top line revenues. Integrating e-commerce and market knowledge.

The issue here is low room rates do not induce demand. Given a choice between two equal hotels, guests may opt for the one with a lower rate, but hoteliers will not succeed by this tactic in bringing guests to the market in the first place. Most hotel operators know that lowering rates will not bring demand to the market; however, they can help increase a hotel's market share. Despite this, hotel rates are extremely transparent, and competitors are quick to follow suit when one hotel drops its rate. The undercutting continues apace, and following the free fall, the market hasn't grown and rates are down by double-digit percentages. In the end, hotels that engage in rampant rate cutting suffer from even lower profit margins and returns.

What Works and What Doesn't

I believe by that time, we all agreed that discounting strategy is not our aim whenever there is a demand decline for a reason or another, let's start with the nonprice methods without discounting massively and suffering long-term damage.

1- Short Term Sale: 
Try an offer which has limited booking period, or limited time offers. Do a 48 Hour flash sale every few days. Monitor the result and the impact in your performance.

Check the booking window of your property and offer a deal outside the booking window. For example if your hotel has a 7 day booking window then you could offer a 7 day advance purchase offer i.e. book in advance of 7 days and get 30 % off , with some restriction like it is prepaid .

2- Use Creative Dynamic Packaging Approaches. 
Packaging options on the hotel website, distribution channels and channels such as TravelZoo , Expedia provide an opportunity to expose your hotel, generate incremental revenue and 'disguise' the rate within the package. Packaging on the hotel's web site is the cheapest and easiest way to generate incremental business but you have to drive your customers and potential customers to the site through effective SEO (Search Engine Optimization) and CRM initiatives.

3- Develop Additional Revenue Sources. 
Full-service hotels have a variety of facilities that can be used to generate much-needed revenue. While some of these facilities (most notably, food and beverage) have lower profit margins than rooms, they can still provide additional cash, which can help sustain your hotel during low-demand periods. Creative promotions and discounts may bring more local customers into your restaurants and recreation facilities.

Use different approaches to generate non-traditional revenue i.e. upsell program, late check out, early check in, extra luggage fees……etc

4- Apply Marketing-based Approaches. 
The Internet (OTA, CRM, SEO and SEM) gives you numerous approaches for creating demand through marketing. When consumers start researching travel possibilities on the Google, Yahoo!, or Bing search engines, you can be ready with a strategy of search engine optimization (SEO) and search engine marketing (SEM). These strategies involve ensuring that consumers find your Web page. Tools such as SEODigger.com can help with this. Make sure your site is linked to important local attractions and agencies. Ideally you want to capitalize on the free clicks from SEO, but SEM is more immediate and may help you drive volume for specific events and arrival dates.

You also need to be reaching out to consumers directly via e-mail. You can do this directly through internal customer relationship management (CRM) efforts. Many of the OTAs also have programs where your property can be featured in e-mail offers' they send out to targeted consumers.

5- Take Advantage of your loyalty Program. 

Declined demand and more room empty for sale can also provide your hotel with the capacity needed to reward your loyalty program members. You could, for instance, reduce the number of points needed to redeem a free night's stay for a limited time or make more desirable rewards available. Doing this has two benefits: (1) it brings people into the hotel that may spend money in other outlets, and (2) it keeps loyal guests connected with your hotel.

6- Distribution Channels

A- Evaluate Channel Distribution. When the revenue management strategy was first developed last fall, what were some of the distribution channels that were not included due to high commissions, relatively low production, etc? A high commission on some revenue may be better than no commission on unsold rooms. Were the Opaque channels abandoned as requiring too deep a discount? A discount on an opaque channel is not a lower rate structure but a way to expose inventory to markets that you may not have exposed the hotel to in the past. In both of these scenarios, you control the inventory.

B- Use Opaque Distribution Channels: Opaque distribution channels such as pricehne.com, hotwire.com, and topsecret hotels (known as Lastminute .com in Europe and Travelocity in North America) represent a way in which you can offer discounts while hiding the discount from the customer. They allow you to sell additional rooms while still protecting your rate and brand image.

C- Assess distribution Channels: Assess your hotel's distribution channels to determine which ones are most effective at delivering business. Part of that analysis involves whether the volume through that channel would increase if the commission or percentage paid was increased. Opaque channels and distribution channels that offer packages in which your rooms are bundled with other services such as airfare and rental car become even more attractive because they give you an opportunity to obscure your true rate.

D- Incentive Plans

Incentive on Small Meetings & Groups This is a tactic we can always use but it is dependent on seasonality and it can yield some great results based on how established your group market segment is.

The above actions are only few of many options available to you when you are thinking about doing a sale that last 2-3 months. If you do a long term discount keep in mind that becomes the price of your property and not a discount.
The conclusion out of this, is discount and slashing rates is not the ideal action what a hotel has a decline demand.

Ahmed Mahmoud
Revenue Your Hotel

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