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Mobile rates: Should they be discounted?
March 27 2013

Revenue managers discussed during a HSMAI webinar whether hoteliers should offer discounted rates via mobile channels or keep rates in parity.

  • Because overall hotel demand in the U.S. is strong, hoteliers have pricing power.
  • Revenue managers suggest using the mobile device to drive direct demand.
  • Hoteliers shouldn’t be afraid to use the mobile channel as a last-minute discount avenue when the need arises.
By Jason Q. Freed
HNN contributor

REPORT FROM THE U.S.—As the number of consumers searching and booking travel on mobile devices skyrockets, hotel revenue managers are adapting their distribution strategies to capture a new group of travelers.

Because overall hotel demand in the U.S. is strong, hoteliers have pricing power and should explore the myriad ways they can optimize their presence on mobile devices outside of simply discounting, said panelists Tuesday during a Hospitality Sales and Marketing Association International webinar.

The webinar, titled “Mobile: Taming the Wild West of Revenue Management,” focused on mobile users—who are different than desktop users, panelists said—and the best ways hoteliers can reach them.

“Stop saying mobile is the future; it’s here, it’s mainstream and that should correlate to your pricing strategy,” said Ash Kapur, VP of hospitality revenue management and distribution for Starwood Capital Group.

Hotel pricing strategies on the mobile device continue to evolve. Once thought of as purely a discount channel, revenue managers suggest using the mobile device to drive direct demand. Those rooms can be priced in parity, panelists suggested.

However, Calvin Anderson, corporate director of revenue strategy for Alliance Hospitality Management, said hoteliers shouldn’t be afraid to use the mobile channel as a last-minute discount avenue when the need arises. The last-minute mobile guest can represent incremental demand that otherwise wouldn’t have booked a hotel room, he said.

“I’m a big proponent of using mobile but making sure its incremental revenue,” he said. “Don’t let someone else eat your pie.”

What mobile looks like
Because mobile is a new medium, most hoteliers are lacking data on the channel. For Starwood Capital, mobile was contributing 3% to 5% of hotel website traffic and revenue just a few years ago; today some hotels are seeing 20% of the traffic and revenue from the mobile channel, Kapur said.

In the mobile world, the simpler the platform the better, he added. The best mobile experiences make it easy for guests to look around and make transactions.

Bookings, Kapur said, are occurring more so on mobile browsers than on apps. He cautioned that many hoteliers are “in a rush to get to the app lands,” but research shows that more attention should be paid to ensuring hotels have a clean, crisp mobile site.

A good mobile site gets the user to his or her destination—whether that be a content page or a booking engine—within three or four clicks, Kapur said.

“Get as much on one page as much as possible,” he said. “Make it simple to book.” A bad mobile site is the No. 1 deterrent for booking travel on a phone, Kapur added. 

He agreed that mobile discounting should be a need-based approach. “When in need of last-minute pickup, do what it takes as a revenue manager,” he said.

However, Kapur suggested not having “mobile-only rates” or discounting the rate just because it is being offered on a mobile channel. Instead, view mobile as mainstream. There are some travelers that will see a hotel’s rate and availability only through the mobile device and never even touch a desktop, he said.

“If your consumer is seeing different rates, different channels, different times, are we encouraging the guest to shop around?” he said. “Make the investment, get the consumer to the site and then suggest they stick around.”

Incremental demand
Alliance’s Anderson suggests a different approach. He said hoteliers have to learn to provide “out-of-parity” rates to capture different consumers at different points in their research and booking journeys.

Most importantly, though, hoteliers must ensure they’re not “robbing Peter to pay Paul,” or offering discounted rates via mobile channels to guests who would have booked on that channel at full rate, he said.

“Technology accesses the latent incremental demand that has always existed by showcasing the best values out there,” Anderson said, adding there’s a large customer base that will travel spur of the moment. For example, consumers looking for a short weekend getaway at an inexpensive price will book last minute but otherwise might stay home for the weekend.

Anderson said offering discounted prices via mobile channels won’t necessarily train the guest to look for discounts.

“It’s a free market, and our guests will only grow more accustomed to value-driven price points,” he said. “We’re used to seeing value and looking for discounts all the time. Hoteliers are often holding on to an old mindset that this is how much a hotel costs and you’re not going to get a deal.

“The guests are getting smarter, and unless we play smart we’re going to lose big time.”

However, simply offering mobile channels a discounted rate is not smart, Anderson said.

“Look for incremental revenue—where is the extra money?” he said. “If you can determine that, then it’s just utilizing it.”

3/27/2013 1:51:00 PM
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, similar to the example from the airline industry: • 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 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, etc. ? Lack of opaqueness establishes a low market price: hotel can hardly charge rack rate again since customer has accepted the discount rate as the market rate. ? Leads to cannibalization of existing customer base: as discussed below, most mobile bookings happen in 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. • Sixty-one percent of online consumers are willing to book travel via a mobile device (Google, September 2011). In other words, people are booking closer and closer to the day of the actual arrival, meaning that it is easier for them to wait until the last minute and see what the last-minute rates on or a similar service are as opposed to booking in advance via the hotel desktop or mobile sites. 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 What will be the result? The hotel will soon witness that: • Booked guests are canceling existing reservations made via hotel website, phone, GDS, OTAs and re-booking via using the lower rates. • Potential guests are waiting until the last minute to see what the last-minute rates are for the property and other hotels in the city/location they are traveling to and booking in the last minute. • OTAs are after the hotel for these last-minute “deviations” from the contracted rate parity clauses.
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