The chances are that, at some point, you have had to lower your prices for specific dates to meet your occupancy target—or because your forecast was too ambitious.
It is not an ideal situation, but let’s be honest: sometimes it happens.
A few days ago, a debate on LinkedIn raised the following question:
The example may be a little extreme, but it illustrates situations that customers, travel agencies and wholesalers or tour operators can face.
These situations are more common in the airline industry. People who paid a higher price in advance tend to be more accepting when prices fall later (and, in any case, they have little choice but to put up with it).
You could say that airlines take the definition of revenue management to its ultimate expression:
Developing strategies to sell the right product to the right customer, at the right time and at the right price.
I personally like the definition Jaime López-Chicheri gives in his article “What is revenue management / yield management?”. He mentions the “right channel” and, above all, the final point in his article:
…develop a clear picture of the company’s rate structure, adapting it to the needs of as many customers as possible without confusing them.
This is where ethics and the idea that “anything goes” does not apply to revenue management come in—and I agree. Ideally, you should never need to lower prices under any circumstances. The best safeguard is to build your commercial strategy around revenue management principles when negotiating release periods, allotments and other terms.
What can lead to a significant price reduction?
- A group cancellation: To minimise risk, review your deposit policies and, above all, do not enter a group in the PMS until it has made its first payment. Even then, a group may cancel, sometimes forfeiting part of its deposit.
- Tour operator guarantees: Even when partly paid, guarantees may not be fully honoured. This can happen when a tour operator changes its destination-promotion policy or demand falls because of extraordinary events in the country of origin (remember the Eyjafjallajökull volcano?), strikes, and so on. To limit the impact, negotiate a good release period that lets you free rooms as early as possible. Build a strong relationship with the tour operator so you can negotiate the movement of allotments between dates during the season.
- Competitors: You may have done your homework, but your competitors may not have. This can happen across a destination on key dates such as long weekends or the start of high season. Some hotels eagerly wait for these dates and set very high prices, pushing demand towards cheaper destinations and forcing them to cut prices at the last minute. To avoid this, use historical data and do not let a few competitor prices dictate your decisions.
What risks come with lowering prices?
It depends on how steep the reduction is. Most likely, some of the affected agents will notice and ask you to match the new rate, bringing down your average room rate. You will not only sell new bookings at a lower price; some existing bookings may also be repriced.
How can we minimise the impact?
Here comes the useful part 😄.
In my view, if the discount is small, a general and public price reduction should not have a major impact. Above all, match the price for the small percentage of people who call you and explain, without going into too much detail, why the price has changed.
What if the price reduction is substantial?
In that case, discretion is your best option. Try not to display the reduction publicly and use the tools available to sell without drawing attention to it. Here are a few options:
- Promo codes by email: Send discounts to customers who are likely to book those dates and do not already have a reservation. With a good CRM and a little patience, you can segment the mailing list.
- Time-based discounts: Many booking engines and some OTAs can schedule discounts for specific hours. This is not completely discreet, but it shortens the time the discount is publicly visible.
- Device-specific discounts (mobile or desktop): Like the previous option, this is not fully discreet, but it reduces exposure.
- Promo codes or discounts for employee groups: Platforms such as ColectivosVip and InspiringBenefits offer benefits to employees at certain companies and may help you reach your goal. If you contract directly with these groups, you can send the discount to them yourself.
- Offers for members of your own website and selected OTAs: This is not ideal, but imagine you are doing everything you can to get through a difficult situation at your hotel. Some platforms, such as Booking.com, offer this option. It is not completely discreet, but it does create a degree of filtering.
- Secret hotel deals: Some OTAs and wholesalers offer this option: the hotel is sold as a “4-star hotel in Madrid”, for example, without publicly revealing its name.
- Private sales clubs: These clubs often charge a very high commission on each sale, but they may be another option.
The fact that all these options exist does not mean you should use them all at once. Be aware that some may position your hotel in a segment where you do not want it to compete.
I hope this helps when you are under pressure—but do not overuse these tactics! 😜