The Pitfalls of Last Minute Sales in Hospitality

Transcription

1 2011 The Pitfalls f Last Minute Sales in Hspitality By Max Starkv Last minute sales in travel are nt a new phenmenn. There have been many attempts t find a way t dispse f these empty airline seats, idle rental cars, and empty htel rms at any cst. Theretically it makes ecnmic sense: it is 4PM, I have 20 empty rms, and if I sell them at 50% ff rack, I will still be making sme mney frm my therwise perishable inventry, right? Wrng! HeBS digital, Inc. Address: 6W 48th St. 8th Flr, New Yrk, NY Phne: Fax: E mail: sales@hebsdigital.cm Web:

2 Last minute sales in hspitality at lwer discunted rates are nt sustainable in hspitality as this apprach jepardizes all ther distributin channels (htel mbile site, htel traditinal website, GDS, phne reservatins, even OTA distributin). This is especially valid tday in the viral and mbile envirnment we live in and with the smart hyper interactive travel cnsumers we are dealing with tday. A Case Study frm the Airline Industry Yu wuld assume that nce the gate clses and all empty airline seats becme lst revenue pprtunities, all airlines wuld be selling last minute tickets at the airprt. On the cntrary! The clser t the time f yur departure yu get, the higher the airfare: 21 day advance purchase; then 14 day advance purchase; then 7 day advance purchase, and finally the highest airfare if yu bk less than 7 days prir t the actual flight r at the airprt. Why? Because having last minute discunted tickets at the airprt wuld jepardize the airlines ther distributin channels. Yu wuld see big lines fr last minute tickets at the airprt and hardly anybdy wuld be purchasing tickets in advance. The airlines tried last minute sales back in the 1970s and, after destrying their price and distributin integrity, drpped it. As a rule, n airline tday is ffering last minute discunted tickets. What Is the Situatin in Hspitality? Last minute sales have been tried and failed repeatedly in the hspitality industry. Remember LastMinuteTravel.cm? Where is this site tday? At the height f the dt cm bubble this site even had a splashy multi millin Super Bwl cmmercial. Currently Htels.cm has a last minute htel deals sectin n their site ( htel deals/). Our analysis shws that these last minute deals are mre f a marketing gimmick and, due t cntracted rate parity prvisins with the htels, these last minute rates are n different frm the regular htel rates yu can find n the main sectin f the site, n any ther OTA, r n the htel wn website. Priceline annunced recently paque Last Minute Htel Deals as part f a brader last minute travel sectin n the site. Travel cnsumers can nw bk htel rms up t 11pm the same day they travel and still save up t 40 percent ver ther leading nline sites when they use the Name Yur Own Price mdel, which is Priceline s traditinal paque prgram. There is a new kid n the blck, a mbile nly last minute discunt OTA called HtelTnight.cm, which perates in the fllwing manner: Htels uplad rm alltment and rates fr the same day via an extranet Average discunts range 30% 35% Fr these last minute discunt sites t exist there must be a Market Equilibrium (Price Quantity) between: The Demand Side (quantity f engaged last minute deal buyers) and The Supply Side (quantity f fresh, intriguing last minute deals). As travel demand imprves, hteliers will becme increasingly reluctant t participate and prvide the supply side f the equatin with fresh, intriguing last minute discunts. Online travel cnsumers, disappinted by the lack f fresh/intriguing last minute discunts, will revert back t the traditinal bking channels: htel direct, vice, GDS and OTAs. As a result bth sides f the equatin will suffer and shrink. In this sense HtelTnight.cm and sme OTAs are trying t re create in the mbile space what ther players in the field have tried repeatedly and failed. My predictin is that HtelTnight.cm and similar last minute discunters will nt last lng as these sites emply a business mdel that is against the HeBS 2

3 hspitality industry s best practices fr channel management and rate parity, and will suffer as a result f supply and demand ecnmics Why Hteliers Shuld Avid Last Minute Sales? Here are nly sme f the reasns why it is nt a gd idea fr hteliers t utilize the last minute deal business mdel and why this business mdel will nt survive the test f time in hspitality, similar t the example frm the airline industry: Last minute sales sites are a recessinary phenmenn, nt a new and exciting distributin channel. There is nthing revlutinary abut their technlgy, which has been arund fr years. The mbile channel is nt the reasn fr the emergence f HtelTnight.cm and similar last minute discunters, it is a mere enabler. The recessin is the nly reasn fr these lastminute sites resurgence f late. Last minute sales f empty htel rms may sund lgical and makes sense in thery, but in reality they wrk against rate parity and destry all ther distributin channels and price integrity. The ecnmics des nt wrk fr the hspitality industry: Flawed business mdel: the discunted rate is ut in the pen, which ges against rate parity principles, cntractual bligatins with OTAs, preferred crprate accunts, grup rate cntracts, best rate guarantees, etc. Lack f paqueness establishes a lw market price: htel can hardly charge rack rate again since custmer has accepted the discunt rate as the market rate. Leads t cannibalizatin f existing custmer base: as discussed belw, mst mbile bkings happen in the last minute anyway. In this hyper cnnected scial and mbile wrld, the bking windw has shrunk tremendusly ver the past few years and travel cnsumers have embraced the mbile Web as a legitimate bking channel: Typically, mbile bkings are fr the next 48 hurs (Ggle). Many majr htel brands reprt that 80% r mre f their mbile bkings are fr the same r the fllwing day. Sixty ne percent f nline cnsumers are willing t bk travel via a mbile device (Ggle, September 2011). In ther wrds, peple are bking clser and clser t the day f the actual arrival, meaning that it is easier fr them t wait until the last minute and see what the last minute rates n HtelTnight.cm r a similar service are as ppsed t bking in advance via the htel desktp r mbile sites. In the age f scial and mbile wrd f muth, it will nt take lng fr all regular and frequent guests at yur htel t hear abut the lwer last minute rates ffered via an OTA r a service like HtelTnight.cm. What will be the result? The htel will sn witness that: Bked guests are canceling existing reservatins made via htel website, phne, GDS, OTAs and re bking via HtelTnight.cm using the lwer rates. Ptential guests are waiting until the last minute t see what the last minute rates are fr the prperty and ther htels in the city/lcatin they are traveling t and bking in the last minute. OTAs are after the htel fr these last minute deviatins frm the cntracted rate parity clauses HeBS 3

4 A Case Study frm the Hspitality Industry: There is a very gd case study frm New Yrk City where a luxury butique htel was (mis) using Twitter t ffer last minute discunts fr unsld rms fr the night: Every day at 5PM the htel wuld send ut a Twitter nly Last Minute Special that was 25% 30% belw BAR (discunt varied based n number f empty rms available fr the night). All 8,000 10,000 Twitter fllwers received this last minute special. Ptential guests, new and ld, frequent and ccasinal, were waiting fr these last minute specials t bk via their mbile phnes r call frm the airprt r frm the taxi cab while en rute t the htel (5PM traffic t Manhattan yu get the picture). There have been numerus cases when peple were waiting in the lbby f the htel t receive the 5PM last minute deal and then walked up t the receptin desk and bked their stay right then! There have been many cases where guests arriving with advance reservatins bked at much higher rates via the htel website, vice, GDS r an OTA, demanded at the frnt desk t be accmmdated at the lwer last minute rate f the day. The frnt desk had t blige reluctantly. Majr ruckus and nisy scandals at the frnt desk were a cmmn ccurrence n a daily basis. In 6 mnths r s the htel discntinued the practice and spent at least a year after that repairing the damage t its price integrity. What Shuld Hteliers D t Avid Last Minute Sales? Nw that we have discussed that last minute rm sales are against industry best practices and d nt wrk in hspitality, what shuld hteliers d? T begin with, if hteliers are ding everything right in the direct nline channel, the htel wuld nt need t use last minute discunters. Instead f relying n last minute discunters, hteliers shuld invest in the direct nline channel, bth traditinal and mbile Web. Hteliers need a rbust direct nline channel strategy accmpanied by adequate marketing funds t be able t take advantage f the steady grwth in the Internet channel and the shift frm ffline t nline bkings in hspitality as well as the explding mbile channel. Hteliers must carefully emply ROIcentric initiatives including website redesign (bth desktp and mbile), website ptimizatin and SEO, SEM, marketing, nline media and spnsrships, mbile marketing, and prven scial media initiatives. Secnd, make the mbile web yur pririty in Q and The mbile channel has already becme an imprtant travel planning and transactin channel in the U.S. and wrldwide. Htel guests and travel cnsumers are already mbile ready, and hteliers and travel suppliers have t respnd adequately t this grwing demand fr mbile travel services. By 2014, mbile Internet users will surpass the number f desktp Internet users. The mst imprtant statistic, thugh, is the number f smartphne users. Smartphnes are changing hw we d business in hspitality, hw we market, hw we service custmers. There are nearly 75 millin smartphne users in HeBS 4

5 the U.S. alne; their number will exceed 100 millin by Fur and a half percent f all U.S. Internet traffic already cmes frm smartphnes! (cmscre) Hteliers shuld d their best t capture these last minute mbile htel searches and mbile bkings and steer them tward their mbile sites. The main fcus shuld be: Enhancing the prperty s mbile site via better design, better textual and visual cntent and better user experience. Creating mbile friendly textual and visual cntent that presents the htel prduct well. Imprving the mbile user s experience via well develped mbile site navigatin, a mbile bking engine widget, mbile calendar f events, etc. Increasing website discverability via mbile SEO and mbile SEM (e.g. Ggle mbile AdWrds) and nline media initiatives. Making the mbile website mre interactive via mbile scial media initiatives, interactive sweepstakes, and cntests. Sliciting sign ups t the mbile pt in list via the traditinal htel website and the mbile website, via htel marketing campaigns and via varius sweepstakes and cntests such as interactive scavenger hunts, QR Cde prmtins, etc. Tracking cnversins and user behavir via mbile analytics (e.g. Omniture) and special tracking phne functinalities. Third, hteliers shuld fcus nt n naked rate discunts like last minute deals, but n htel special ffers, packages and prmtins that prvide real value: Limited time ffers Advance purchase prmtins Cmplimentary breakfast, amenities Free upgrades Lyalty pint prmtins Value packages: family getaways, rmantic getaways, weekend getaways, spa packages, etc. In this multi channel marketing wrld we perate in, simultaneusly unleashing a prmtinal campaign abut a value ffer acrss all available marketing channels will prduce a cmpunded effect and far greater returns than each individual marketing frmat. Fr instance, if yu launch an campaign t the htel s pt in list abut a family getaway, cmbine it with a tweet n Twitter, a psting n Facebk, a prmtin n the prperty website (desktp and mbile), and a paid search campaign n Ggle and Yah/Bing. In this ecnmic envirnment, it is essential fr hteliers t embrace all three f the abve steps in rder t increase market share by taking advantage f this new mbile travel planning and bking cnsumer behavir, as well as the shrtened bking windw and last minute nature f mbile bkings. Abut the Authr: Max Starkv is President & CEO f HeBS Digital (Hspitality ebusiness Strategies), the hspitality industry s leading direct nline channel strategy, full service digital marketing and website design firm ( HeBS 5