Search

×

The pitfalls of last-minute sales in hospitality

The pitfalls of last-minute sales in hospitality

Last-minute sales in travel are not a new phenomenon. There have been many attempts to find a way to dispose of these empty airline seats, idle rental cars and empty hotel rooms at any cost. Theoretically it makes economic sense: it is 4 p.m., I have 20 empty rooms, and if I sell them at 50% off rack, I will still be making some money from my otherwise perishable inventory, right? Wrong!

Last-minute sales at discounted rates are not sustainable in hospitality as this approach jeopardizes all other distribution channels (hotel mobile site, hotel traditional website, GDS, phone reservations and even OTA distribution). This is especially valid in today’s viral and mobile environment.

Airline industry case study 

You would assume that once the gate closes and empty airline seats become lost revenue opportunities, all airlines would be selling last-minute tickets at the airport. On the contrary! 

The closer to the time of your departure you get, the higher the airfare. Why? Because having last-minute discounted tickets at the airport would jeopardize the airlines’ other distribution channels. Hardly anybody would be purchasing tickets in advance.

What is the situation in hospitality?

Last-minute sales have been tried and have failed repeatedly in the hospitality industry. Remember LastMinuteTravel.com? Where is this site today? At the height of the dot-com bubble this site even had a splashy Super Bowl commercial.  

Currently Hotels.com has a last-minute hotel deals section. Our analysis shows that these last-minute deals are more of a marketing gimmick and, due to contracted rate parity provisions with the hotels, these “last-minute” rates are no different from the “regular” hotel rates you can find on the main section of the site, on any other OTA or on the hotel’s own website.

Priceline recently announced Last-Minute Hotel Deals as part of a broader last-minute travel section on the site. Consumers can now book hotel rooms until 11 p.m. the same day they travel and still save up to 40% over other online sites when they use the “Name Your Own Price” model, which is Priceline’s traditional program. 

There is a new kid on the block, a mobile-only last-minute discount OTA called HotelTonight.com, which allows hotels to upload room allotment and rates for the same day via an extranet, and average discounts range from 30% to 35%.

For these last-minute discount sites to exist, there must be a market equilibrium (price-quantity) between the demand side (quantity of engaged last-minute deal buyers) and the supply side (quantity of fresh, intriguing last-minute deals).

As travel demand improves, hoteliers will become increasingly reluctant to participate and provide the supply side of the equation with fresh, intriguing last-minute discounts. Online travel consumers, disappointed by the lack of fresh/intriguing last-minute discounts, will revert back to the traditional booking channels: hotel direct, voice, GDS and OTAs. As a result, both sides of the equation will suffer and shrink.

In this sense HotelTonight.com and some OTAs are trying to re-create in the mobile space what other players in the field have tried repeatedly and failed. My prediction is that HotelTonight.com and similar last-minute discounters will not last long, as these sites employ a business model that is against the hospitality industry’s best practices for channel management and rate parity, and will suffer as a result of supply and demand economics.

Why hoteliers should avoid last-minute sales

Here are only some of the reasons why it is not a good idea for hoteliers to utilize the last-minute deal business model and why this business model will not survive the test of time in hospitality:

  • Last-minute sales sites are a recessionary phenomenon, not a new and exciting distribution channel. There is nothing revolutionary about their technology, which has been around for years. 
  • The mobile channel is not the reason for the emergence of HotelTonight.com and similar last-minute discounters, it is a mere enabler. The recession is the only reason for these last-minute sites’ resurgence of late.
  • Last-minute sales of empty hotel rooms may sound logical and makes sense in theory, but in reality they work against rate parity and destroy all other distribution channels and price integrity.
The economics does not work for the hospitality industry:
  • Flawed business model: The discounted rate is out in the open, which goes against rate parity principles, contractual obligations with OTAs, preferred corporate accounts, group rate contracts, best rate guarantees, et cetera.
  • Lack of opaqueness establishes a low market price: A hotel can hardly charge rack rate again, since the customer has accepted the discount rate as the market rate.
  • Leads to cannibalization of existing customer base: Most mobile bookings happen at the last minute anyway.
In this hyper-connected social and mobile world, the booking window has shrunk tremendously over the past few years and travel consumers have embraced the mobile Web as a legitimate booking channel:
  • Typically, mobile bookings are for the next 48 hours (Google).
  • Many major hotel brands report that 80% or more of their mobile bookings are for the same or the following day.
  • 61% of online consumers are willing to book travel via a mobile device (Google, September 2011).
In the age of social and mobile “word of mouth,” it will not take long for all regular and frequent guests at your hotel to hear about the lower last-minute rates offered via an OTA or a service like HotelTonight.com. What will be the result? 
  • Booked guests are canceling existing reservations made via hotel website, phone, GDS, OTAs and re-booking via HotelTonight.com using the lower rates.
  • Potential guests are waiting to see what the last-minute rates are for the property and other hotels in the city/location they are traveling to and waiting to book.
  • OTAs are after the hotel for these last-minute “deviations” from the contracted rate parity clauses. 
Hospitality industry case study 

There is a very good case study from New York City where a luxury boutique hotel was using Twitter to offer last-minute discounts for unsold rooms for the night:

  • Every day at 5 p.m. the hotel would send out a Twitter-only last-minute special that was 25% to 30% below BAR (discount varied based on number of empty rooms available for the night).
  • All 8,000 to 10,000 Twitter followers received this last-minute special.
  • Potential guests, new and old, frequent and occasional, were waiting for these last-minute specials to book via their mobile phones or call from the airport or from the taxi cab while en route to the hotel. 
  • There were numerous cases when people were waiting in the lobby of the hotel to receive the 5 p.m. last-minute deal and then walked up to the reception desk and booked their stay right then!
  • There were many cases where guests arriving with advance reservations booked at much higher rates via the hotel website, voice, GDS or an OTA, demanded at the front desk to be accommodated at the lower “last-minute rate of the day.” The front desk had to oblige reluctantly.
  • Major ruckus and noisy scandals at the front desk were a common occurrence on a daily basis. 
In six months or so the hotel discontinued the practice and spent at least a year after that repairing the damage to its price integrity. 

How should hoteliers avoid last-minute sales?

To begin with, if hoteliers are doing everything right in the direct online channel, they don’t need to use last-minute discounters. Instead of relying on last-minute discounters, hoteliers should invest in the direct online channel, both traditional and mobile Web. 

Hoteliers need a robust direct online channel strategy accompanied by adequate marketing funds to be able to take advantage of the steady growth in the internet channel and the shift from offline to online bookings in hospitality as well as the exploding mobile channel. Hoteliers must carefully employ ROI-centric initiatives including website redesign (both desktop and mobile), website optimization and SEO, SEM, email marketing, online media and sponsorships, mobile marketing, and proven social media initiatives. 

Second, make the mobile web your priority in Q4 2011 and 2012. The mobile channel has already become an important travel planning and transaction channel worldwide. 

By 2014, mobile internet users will surpass the number of desktop internet users. The most important statistic, though, is the number of smartphone users. Smartphones are changing how we do business in hospitality, how we market and how we service customers. Hoteliers should do their best to capture these last-minute mobile hotel searches and mobile bookings and steer them toward their mobile sites. The main focus should be:

  • Enhancing the property’s mobile site via better design, better textual and visual content and better user experience.
  • Creating mobile-friendly textual and visual content that presents the hotel product well.
  • Improving the mobile user’s experience via well-developed mobile site navigation, a mobile booking engine widget, mobile calendar of events, et cetera.
  • Increasing website “discoverability” via mobile SEO and mobile SEM (e.g. Google mobile AdWords) and online media initiatives.
  • Making the mobile website more interactive via mobile-social media initiatives, interactive sweepstakes and contests.
  • Soliciting sign-ups to the mobile opt-in list via the traditional hotel website and the mobile website, via hotel email marketing campaigns and via various sweepstakes and contests such as interactive scavenger hunts, QR code promotions, et cetera.
  • Tracking conversions and user behavior via mobile analytics (such as Omniture) and special tracking phone functionalities.
Third, hoteliers should focus not on “naked” rate discounts like last-minute deals, but on hotel special offers, packages and promotions that provide real value such as limited-time offers, advance purchase promotions, complimentary amenities, free upgrades and loyalty point promotions.

In this multi-channel marketing world we operate in, simultaneously unleashing a promotional campaign about a value offer across all available marketing channels will produce a compounded effect and far greater returns than each individual marketing format. For instance, if you launch an email campaign to the hotel’s opt-in list about a family getaway, combine it with a tweet on Twitter, a posting on Facebook, a promotion on the property website (desktop and mobile) and a paid search campaign on Google and Yahoo/Bing.

In this economic environment, it is essential for hoteliers to embrace all of the above steps to increase market share by taking advantage of this new mobile travel planning and booking consumer behavior, as well as the shortened booking window and last-minute nature of mobile bookings.

Comment