Interview: Knowing when to discount and what to discount is essential in the revenue management game. It requires some serious forecasting and the ability to resist going straight for the steepest discount. Unsurprisingly, Hyatt Hotels has a view on this as EyeforTravel’s Ritesh Gupta found out when he spoke to Paul Murray, the group’s vice president of revenue management, North America.

One thing seems clear: hotel operators are best served when revenue management adheres to a rational pricing philosophy. In other words when hotels offer a competitive retail price that is attractive to a particular customer segment based on how the guest perceives that hotel’s value. As a result of this discounting rates and offering promotions becomes a supplementary tool, rather than the focus of the strategy, Murray explains, adding that finding the correct mix of guest segments should be the target for operators. This will ensure that each hotel has a strategy to rely on the most profitable segment of guests thus generating demand for each hotel.

EFT: It is said that the key to developing a comprehensive pricing strategy is to embrace the fact that customers’ pricing needs differ in three primary ways: pricing plans, product preferences and product valuations. Do you agree?

PM: Yes, these elements are the cornerstone of revenue management so that a hotel can position itself competitively in the market based on perceived value and attract guests from segments that are most attractive to the overall strategy of the hotel.

EFT: How should one approach discounting?

PM: Discounting should be a targeted activity to attract guests during hotel need periods and restricted by elements such as booking period, stay dates, and possibly elements of advance payment. When hotels move away from these types of restrictions, it is very easy to slip into situations of trade down and displacement of higher rates.

EFT: What would be your recommendations for discounting?

PM:

So this is what I would say. Do:

•    1.  develop a sound forecast to identify targeted need periods.

•    2.  employ a rational price strategy that offers competitive rates for the perceived value of your hotel among competitors, before deploying discounted rates.

•    3.  optimise the hotel’s mix of guest segments before discounting.

•    4.  develop a strategy prior to the deploying any special offer and then measure success against those goals afterwards.

•    5.  restrict discounts in booking dates, arrival dates, or other fences.

When it comes to what you shouldn’t do, my advice is don’t:

•    rely on discounting as a core strategy.

•    race to the lowest rate when offering discounts.

•    offer discounts when there is a risk of displacing higher rated business.

•    forget about value-add options for special offers, such as breakfast, parking, or Internet access.

EFT: It seems there is an appetite from consumers to always lap up special deals, discounts and special offers. How should hotels maximise their benefit from this?

PM: Participation in all types of discounting and promotions, no matter the vehicle, needs to be studied carefully. It needs to be deployed with a strategy that includes establishing rooms and revenue goals in advance of participation as well as post-offer evaluation that measures against the pre-established goals to determine success. Then they need to apply knowledge gained from past experience to the next opportunity.

EFT: How do different customers view different types of discounting? 

PM: Each guest segment is motivated by different values.

A corporate traveller may prefer free Internet access while a leisure traveller may be attracted by lower rates. The key is to be tuned to the needs of each segment and provide value to each group of guests.

Typically, one can view special offers as a value addition, such as breakfast, parking, or tickets to the local theatre or as a discount from retail rate which could include a lower rate or free nights. Value-add offers are many times the first choice and should be targeted at or above retail rates where possible. In some cases, elements of both strategies are required to attract high volume guests.

EFT: How can one avoid price wars and low average daily rates?

PM: Deploying rational pricing strategies should not lead to a chase of rates to the bottom. There are other methods to attract guests at low rates during low demand periods without publicising these discounts to the general public. Options include package deals, wholesale partnerships and participation in opaque channels such as Hotwire

EFT: Revenue managers should use robust forecasts to identify days when there is a need to increase demand, and then apply promotions or discounts specifically to those days. What is the best way to approach this?

PM: First and foremost it is important to have an accurate and effective method for forecasting in order to identify dates of extreme need. Then a hotel should affirm that the mix of guest is optimal for the long term success of the hotel.

Last, when discounting becomes the best choice, one must view options in a stair step priority, first choosing the least costly and most effective method then moving down to the next option once the first step is deemed unsuccessful.

Too often is easy to go straight to the steepest discount in hopes to attract guests at the cost of optimising revenues.