With shifting consumer expectations due to the proliferation of last-minute booking apps, hotels must consider the implications of offering rooms via the last-minute mobile channel.
The promise of reducing empty rooms via last-minute bookings is nothing new – last minute travel has always been big in Europe, where the close proximity of dozens of relatively inexpensive destinations encouraged many consumers to care less about advance planning in favor of a lower priced getaway.
While the packaged holiday industry has enough flexibility to offer variable inventory at a reduced rate, individual hotels are capacity-limited with relatively fixed rates. Publicly discounting rates – especially at the last-minute – can lead to some undesirable consequences for hotels: upsetting loyal customers, undercutting full-priced rates, and training the customer to wait for last-minute deals.
In a presentation at the EyeForTravel Travel Distrubtion Summit last week in Las Vegas, Max Starkov of HeBS Digital suggested that hotels should never discount via flash sale sites or last-minute bookings. Max elaborates on his comment in an email:
The most common mistake by hoteliers we are witnessing today is the urge to discount in the mobile channel.
A boutique hotel in NYC was engaged in heavy last-minute discounting in the mobile channel. It did not take long for all regular and frequent guests at the hotel to hear about the lower last-minute rates offered via an OTA and a service like HotelTonight. The hotel soon saw that booked guests were canceling existing reservations, and re-booking, or waiting until the last minute to see what the last-minute rates are for the property and other hotels in the city/location they were traveling to and booking at the last minute.
Anecdotal experiences and observations offer a clear perspective of a rapidly evolving landscape when it comes to hotel bookings.
HotelTonight’s last-minute hotel bookings app has been downloaded over 3 million times, and is most certainly the leader in changing the way that some travelers book hotels. Conference goers are bouncing around hotels each night, vying for the cheapest deal. Connoisseurs are using the app to check out as many hotels as possible in one city. Business travelers are waiting to book hotels until they are on location.
Nonetheless, the potential upside to capture business that might not have existed before is much more important than any worry about training consumers to only seek last-minute deals. HotelTonight’s COO Jared Simon explains:
There’s no question that mobile is quickly becoming the dominant online booking medium. With regard to the distribution of advance purchase vs. last minute purchases, we see the trend toward tighter booking windows that has been in place for the last decade continuing, but the proliferation of new booking tools will never eliminate consumers’ interest in booking in advance in many situations. The best revenue managers will recognize that a single person may have different booking needs at different times and will ensure that their hotels are in front of those bookers with a relevant offer regardless of the booking need.
Max from HeBS Digital also points out that consumer behavior generally follows supply:
Overall, I do not expect travel consumer behavior to change dramatically in the near term. It is only natural last-minute booking to increase during economic downturns. Travel consumers know that there is plenty of availability and this is why they tend to book closer to travel date. Advance bookings will go up and down in synch with supply and demand.
The big players continue to push aggressively into the last-minute hotel deals space, with Travelocity’s Lastminute.com releasing a hotel deals booking app that promises “instant access to 3-5 star hotels with discounts up to 55%.”
Two of the key differentiators that will certainly convert more consumers to last-minute are the Top Secret Deals that provide super-discounted stays at unnamed hotels, and the photo-based card capture that eliminates the onerous typing of credit card information.
Of course, a brand like LastMinute.com has baked last-minute into their brand promise. Consumers have already been seeking last-minute deals prior to mobile apps. In addition, the opaque secret deals will likely be preferable for those hotels still reluctant to publicly discount their room rates.
There are still risks for hotel brands to participate in these channels, as Minoo Patel, VP of Mobility and Social Media Practice, NIIT Technologies, points out:
“Hotel revenue management needs to be managed very carefully so as to avoid conditioning customer expectation toward last minute deals. As with other aspects of the travel lifecycle, there is always a segment of consumer demand that can be leveraged towards higher yield rates, but last minute deals need to be carefully managed in order to prevent revenue dilution. Hotels need to put these deals into context, assessing the relative value of discounted deals for consumers versus the discounted advance booking deals, which are made via higher commission outlets such as hotwire.com or hotels.com.”
The consumer will book hotels last-minute when the deals are there for hotels they want, and when the inventory tightens up, they will shift back to advance bookings to lock in the hotel they want. And for the price conscious consumer, there will be dozens of tools across channels to help them secure the best price for their travel dollar.
Simple supply and demand should regulate the behavior, but for those hotels looking to graduate the last-minute guest into a loyal repeat visitor, Minoo offers a closing piece of advice:
“Consumer experience at a hotel is a significant motivator when it comes to re-purchases, even at the last minute. Hotels should be careful not to alienate guests that want to return for a subsequent visit by demanding exorbitant room rates in order to avoid slipping into a commodity relationship with their clientele. Leveraging mobile and social media channels as key relationship-building components of an overall customer engagement practice, provides hotel guests with reasons not to treat you as just another “hotel-room-for-the-night” supplier.”
NB: Hotel check-in image from Shutterstock
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About Nick Vivion
I disagree with Max’s opinion: “Overall, I do not expect travel consumer behavior to change dramatically in the near term. It is only natural last-minute booking to increase during economic downturns.”
Behavior is changing and last minute is not just increasing because of economic downturn. Mobile is bringing change, whether you call it dramatic or not is just an opinion. I believe that access to last minute, local (to my current position) inventory which is easy and convenient to book at a “perceived” value rate via mobile is certainly changing booking behavior of consumers who are not brand loyal. You now see the race of every intermediary to offer the same service that HotelTonight pioneered. Hoteliers & rev mgrs are faced with yet another channel to manage, let’s not stick our head in the sand and say otherwise.
Also like Minoo’s advice to hotels on focusing on customer experience, you’ve got them there (perhaps at a cost to ADR), now is your chance to shine.
I’m inclined to agree with you, Greg. When you look at businesses that have discounted in the recession – Subway’s $5 footlongs being a very visible and simple example – they find it hard to get back to full pricing once consumers have changed expectations.
One thing that makes HotelTonight so interesting is that it’s actually FUN – for an engaged traveler, switching hotels and going last-minute can actually add an element of surprise and whimsy to the travel experience. For many travelers bored with the cookie-cutter travel planning experience, this X-factor offers enormous appeal.
N
To be crass about it, traveler behavior is conditioned through the reward/punishment process.
Consumers have varying degrees of experience booking travel and are therefore at different stages of their behavioral education process.
Frequent travelers learn to patronize the same brand for perks like upgrades, points and special offers that add incremental value.
Pain avoidance normally amounts to paying too much for not enough product or service. However, with greater price transparency due to social media and meta-search sites, some travelers are pained by paying more than someone else, even if their higher price was still a great deal.
The highly competitive and fragmented hotel industry creates a fertile environment for innovative approaches to reward guests through new business models, channels and platforms. The methods that gain traction create new ways to reward consumers IF they can garner sufficient support (or indifference) from travel suppliers.
Unfortunately, the outcome can be highly disruptive for businesses that fail to adapt their value proposition and distribution channel strategies accordingly.
The problem is that for highly perishable service products like hotels, demand capture uncertainty – especially when lead-time is waning – can be a very bad thing.
HotelTonight rewards consumers by helping them get a good hotel at a good price on very short notice – something that previously too much greater effort to accomplish. Nick makes a great point – it’s also fun for some traveler to add some spontaneity to their trip (Priceline’s name Your Own Price model accomplishes this as well) especially if they are saving some money.
Reservation churn was not a big problem under the merchant model that required full prepayment and normally made changes and cancellations difficult. Moving toward an agency model that enables penalty-free cancellation helps groups like Tingo, Backbid, Lastminute and HotelTonight flourish.
The interesting question is how many people booking at the last minute to get a great hotel deal actually booked their flight weeks earlier to get a great airfare?
The hotel industry may be training guests to adopt bad habits.
The hoteliers need to know their guests and better understand the dynamics of their distribution channels. If they don’t, rewarding guests for behavior that negatively impacts their bottom line becomes a very real risk.
Thanks for that in-depth response. Hotels will need to learn to manage yet another channel, while still maintaining great service and experience that turns these last-minute guests into loyal repeat visitors. By creating memorable experiences and hooking people onto the brand, the hotels can then move people from the last-minute channel to a bit earlier in the process. The guest will want to have that experience, so will do what they can to book early to ensure they get to stay where they love to stay – and where they feel valued as a customer.
There will always be price-sensitive customers booking on the channels with the best deals – and there will always be customers looking for the most bang for their buck, including a fun booking experience that follows through to a memorable hotel stay.
What advice do you have for hoteliers to reward guests for behavior that positively impact their bottom line?
N
N
Nick,
I can be pretty cynical on the topic of converting deeply discounted customers to loyal guests at regular rates.
It’s all about value. In the case of HotelTonight, there is a clear value proposition – get a deal on a hotel fast.
The hotel’s value proposition to convert a first-time guest into a loyal customer – at a higher price point – is the fundamental challenge.
If a guest experiences a particular 4-star hotel at a great last-minute price, most would be thrilled. That level of satisfaction quickly fades when the pricing returns to normal. A repeat purchase becomes even more doubtful if a comparable competitive hotel (similar quality / location) is offered through the last minute channel at a lower price than the subject hotel over the dates of the return visit.
My question is whether the guest is more likely to become loyal to the product (the 4-star hotel) or the channel (taking a chance to get a great deal on a last minute room.) If they tried a new hotel & liked it, why would they resist trying a new hotel to see if that one might be better?
Tonight in NYC, Hotel Elysee (92% rating with 52 reviews) has rooms for $225 – a discount from $495 according to HotelTonight; in reality, from $459 off the hotel website.
I love the Elysee – great location + The Monkey Bar. But do I love it enough to spend more than double to make certain I can stay there on my next trip? Or do I try The Standard that also has a 92% rating from 25 reviews that is offering $250 for a $395 room (same as the hotel website)?
If my only choices were The Elysee at $459 or The Standard at $250, I might try The Standard (someplace I have never stayed) How do I know it won’t be my new favorite?
However, the decision gets more complex – Should I forget about HotelTonight and roll the dice with Hotwire? They have a 4-star and grab a 4-star Theater District Hotel with a 95% rating for $118 tonight.
if I must know the hotel’s name, maybe I consider The Hilton Garden Inn Times Square (someplace I have stayed – 3.5 stars & 4.5/5.0 review score) for $110 on Hotels.com…
The answer depends – Is it my money or someone else’s money? What is the minimum level of hotel I am willing to accept? Is the location acceptable? (The Standard may be too far away…)
My point is that hotel revenue managers must now understand all these dynamics, plus the added dimension of channel and business model to make good decisions.
EVen the most affluent guests don’t want to look like an idiot when their buddy tells them that they paid double what he did for the same type of room. I’ve seen traditionally price insensitive Cardiologist / Real Estate Developer / Oil Company Exec friends have this sort of discussion.
Wasting money isn’t cool – no matter how much you have.
The key for hotels is to provide equitable pricing for their guests – a price that offers value compared to other hotels and allows the property to provide services that exceed the expectations of the guest. It takes sound strategy and operational discipline.
The hotelier needs to look at its BAR potential pricing and compare it with its achieved revenue yield. Customer acquisition costs, distribution costs & operating costs need to start leading to GOPPAR & NOPPAR based decisions.
The analysis has to be holistic – the multiu-channel guest demands it.
Hi Robert, educational as usual… quick question on your note, in my experience HT is not agency model, my credit card shows HT as merchant of record, have they recently changed? thx, greg
Greg –
Hotel Tonight operates under the merchant model, but sources customers from two fundamental groups –
a) people who do not plan and fail to pre-book a hotel
b) people who make reservations, but have the flexibility to make last minute changes
That second group – normally operating under the agency model / commission model are the bookings that are at risk of being converted to HotelTonight. Traditional OTA merchant bookings, package or opaque bookings normally have too many penalties attached to flip to HotelTonight.
Looking at it a different way, a hotel might sell a room through Booking.com, but if it is fully cancellable & refundable on the day of arrival, they may run the risk of having it cancelled and rebooked through HotelTonight at a much lower merchant rate – or, worse, losing the business to a competitor without a method to replace it with last minute business.
While hoteliers risk encouraging bad bookings habits among its regular clients and OTA traffic by dropping rates at the last minute, having been on both sides of the table OTA and hotel sales & revenue one of the few reasons revenue/ hotel managers find themselves needing to drop at the last minute are:
1) Pressure from headoffice and owners saying we needs to achieve X amount and therefore lift the rates to X amount which is usually not thoroughly researched at the start of the year or season. What happens eventually is not sufficient numbers book at X rates and the revenue manager is forced to give in to achieve occupancy. The focus is based on last years figures or owners “feel” of the business.
2) The sheep mentality takes over, hotel looks across the road (or competitor set on STR or through independent research using tools like Rate tiger) and realises competitor B is dropping rates so we should reduce accordingly. Again the focus is on the competitor as opposed to the actual product.
Consumers are smartening up and no one is going to be mugged by paying £200 per night for a room that usually costs £100 per night – those days are simply over, we are moving to more transparent pricing models. People will still pay £150 for what is normally £100 but the value proposition have to be based on what the product offers.