Managing the last-minute channel: the hotel perspective
Hotel revenue managers are dealing with a rapidly shifting landscape, especially when it comes to last-minute bookings via mobile applications like HotelTonight.
The ramifications of these bookings are potentially far-reaching, especially in regard to encouraging consumers to book at the last minute to get the best deal on the mobile channel.
Discussions surrounding the value of these last-minute hotel booking apps have been spirited.
In the comments section of a recent Tnooz article, opinions range from the cautionary – “The hotel industry may be training guests to adopt bad habits” – to the realistic – “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…we are moving to more transparent pricing models.”
But what do actual revenue managers have to say about it all?
After reaching out to a few hotels in different ecosystems, one thing is clear: revenue managers are open to the benefits of these additional channels, while still taking a reserved approach to most fully understand these emerging revenue streams.
Not everyone will speak openly about their revenue management strategies, which highlights one of the underlying issues also brought up in the discussion of revenue management via emerging channels – hotels are too often allowing competitors’ rates to drive decisions rather than allowing the unique value propositions of both their own property and each channel to determine the fair market rate.
Not all consumers are seeking the lowest available rate, yet most consumers hate to discover that someone paid more than they did for the very same product. So managing these emerging channels is an essential task for the nimble and aware revenue manager.
Insight into the hotel perspective
We reached out to the Ace Hotel Revenue Management team, Irene Pallais of the New Orleans Hotel Collection, and Adele Gutman of the Library Hotel Collection, and we thank them for their candor. Transparent pricing is here to stay, so discussing these issues in an open forum is key to matching consumer behavior with best practices.
How has the rise in mobile bookings affected the revenue management strategy for your hotels?
ACE HOTEL: We definitely see some of our bookings coming from mobile channels, mostly last-minute traffic. However, the mobile channel is still in the early stages and far from being a fully-formed distribution channel with rate parity, information, etc.
Strategy-wise, we now have a wide range of tools, including mobile, opaque, OTA and our own website, to capture last-minute demand.
We look at mobile applications as sources of incremental revenue at this point. We’re not relying on them or including them in forecasts. For last-minute traffic, it works if you need it. In the future, we think it will become more relevant to revenue strategies, but by then it will probably look more like any other OTA than the current models we work with. They have a long way to go to impact revenue strategies, but we do see them becoming increasingly important in the future.
NEW ORLEANS HOTEL COLLECTION: As OTA’s now shop last minute channels, such as HotelTonight as well as their own, we have decided not to discount for same day mobile business specifically. If we decide to drop rate day of, we drop it for all channels so we don’t train our customers to wait for the last minute to get a better deal.
Mobile is expected to represent half of travel searches in 2013. In 2012, mobile has been a top priority for us and, by the end of this year, we will have a mobile booking engine and mobile website for all our properties.
LIBRARY HOTEL COLLECTION: The rise in mobile bookings has been wonderful for us. Although four Manhattan hotels, the Library, Casablanca, Hotel Elysee and Hotel Giraffe all have great traffic on our websites thanks to so many great reviews on TripAdvisor, those website visitors are usually planning travel several weeks or months out.
While we have limited ability to sell last minute on our own website, we can now maximize our revenue by also selling any leftover rooms at the last minute via HotelTonight and other mobile apps designed specifically for that purpose.
In your opinion, how will shifting consumer behavior towards booking hotels last-minute rather than in advance affect the hotel industry?
ACE: Until mobile becomes a real channel, and offers parity with other channels, the hotel industry will not benefit all that much from it. If guests know that by waiting until the last minute they might get a substantial discount, Best Available Rate and Advanced Purchase Rates could become irrelevant. However, if mobile channels are used more by business travelers who tend to book last-minute but are less price-sensitive, one can argue that you would be able to book rooms for more commensurate rates, similar to an airline yielding model.
NOHC: I think the majority of consumers will continue to book in advance, although in a shorter booking window than we’ve seen in the past. Same day bookings represent incremental revenue. Overall, consumers with set travel plans will not want to wait last minute to book their accommodations, especially for high demand destinations as New Orleans!
LHC: From our perspective, it does not seem to have any shift from advance to last minute. We actually are seeing that we have more revenue on the books in advance year over year. But now we are getting a completely different kind of traveler in addition to our usual bookings.
From our observations, these guests seem to us to be mostly couples who have decided that day to be spontaneous and take advantage of a great deal and stay in the city for dinner or a show. At the Library Hotel Collection, we had expected to see more from executives staying late and avoiding a suburban commute, but that hasn’t actually materialized. This means that mobile apps like HotelTonight are not just shifting market share along with travelers booking patterns but actually increasing the demand and making the pie bigger for everyone.
What other considerations are there for hotels looking to put distressed/last-minute inventory up on a 3rd-party mobile application?
ACE: Hotels need to make sure they have at least matching offers on their own booking engine and channels. If not, they’re encouraging prospective guests to a) book last minute, b) book through other channels at a larger discount or c) book through commissionable channels. And if that continues, it’s hard to imagine why anybody would continue to book direct.
NOHC: Hotels should be conscious of the rate they allocate towards last minute mobile channels. The discount does not have to be large in order to attract bookings.
LHC: For each hotel there is a line we won’t go lower than, particularly because at our properties we include extras such as Continental breakfast and evening wine and cheese receptions, so our variable costs for an occupied room is higher than for hotels that offer room only.
Just like with any OTA, we try to ensure the hotel is fully described with lots of images so that the people who choose us are not just choosing us for the rate but because it is the style of hotel they really want. Welcoming travelers that are expecting something different from what they get can hurt your reputation, so we would rather not have the booking than have a guest isn’t really a fan of our unique experience.
How do you see the future of hotel bookings for your hotels, in regards to in-advance purchases vs. last-minute, mobile vs. desktop, etc.?
ACE: We will probably move towards more advanced purchase in terms of yield as we still want to reward people who plan ahead. A fair amount of booking would come from the mobile channel, when people go home or have free time to browse around. Desktop booking will probably come during business hours when people are multitasking at work.
Hotels should be conscious of the rate they allocate towards last minute mobile channels. The discount does not have to be large in order to attract bookings.
NOHC: We are already starting to see a shift in the booking window. The booking window is shorter and we are seeing a fast increase in mobile web bookings year over year. While mobile bookings represent just about 1 to 2% of our web revenue, we anticipate mobile bookings to only increase.
LHC: On our own websites, we are seeing about 10% of our brand website bookings coming from iPads. I am sure that is going to rise quickly. Although we have mobile websites for smart phones we still don’t see a lot booked on the mobile booking engine, but we believe the visitors are using click to call. When it gets easier to use, that will surely increase as well.
I wish that people would stop calling iPads mobile. They are really more like a laptop replacement and people are oten in their homes when they use them, not out and about.
How have last-minute apps for hotels such as HotelTonight have been good/bad for your business?
ACE: It’s good and bad. The positive aspects of HotelTonight are that it’s very easy to use, effective and it’s not guaranteed that your hotel is always going to be available on their app. That provides a sense of “fencing” or “opacity” in the booking process. If the prospective guest can “predict” that your hotel is going to be there on the dates that they travel and they wait to book at that time then the model needs to be revisited.
NOHC: Currently we sell very little in slow times on HotelTonight but instead give them the option to pre-buy rooms over the heaviest time frames at full rate 1 room at a time to have some availability.
The shorter the window, the more difficult to forecast even 10 days in, so we now have to make assumptions on expected pick up that affect staffing in all departments for the hotel.
LHC: For us, it has been pure good, but we are careful to remember not to start counting on our ability to sell several rooms at the last minute. We need to use all our merchandising and revenue management skills to sell our rooms in advance on our own site first.
Airlines have adopted an opposite model — the closer you get to departure, the more expensive the ticket is. Why should hotels be adopting the opposite model, where the cheapest rates go to those who wait the longest to purchase?
ACE: Hotels shouldn’t reflexively adopt the opposite model. The reasons they do are often because of revenue strategies that are too aggressive with rates, in order to match competitors in their market or to make up for mis-forecasted demand.
There’s much less competition in the airline world, which is part of the reason why they can maintain that model. On any given date in New York for example, there are five to ten hotels within the same block. So you can’t expect everybody to forecast and price the same way the airlines do based on demand patterns.
NOHC: Our approach is to price according to demand. We have several high demand dates throughout the year and the closer it gets to the date, the higher the rate. The best deals and last minute offers are funneled towards the low season and off-peak dates. It is to the traveler’s benefit to book in advance to avoid any increased room rates or sold out rooms. We often offer advance purchase rates to encourage early bookings 45 days out.
LHC: Our rates do go up as we get closer to the date. The vast majority of our customers who are, for example, coming to NYC on vacation to celebrate a milestone birthday, anniversary or honeymoon, are going to secure their preferred roomtype several months in advance. The more in advance, the better their rate will be.
However, when the day arrives, and we have 3-5 rooms left, we are going to post them at a last minute rate in hopes of getting people who are not really travelers but more likely suburbanites who want to enhance their lives with occasional spontaneous outings in our wonderful city. Our hotels have occupancy over 90% annually, so people who really want to stay with us will not wait until the same day because they would most likely not see any availability for the roomtype and length of stay they need.
NB: Hotel image from Shutterstock
Nick Vivion was a reporter (and later also global events lead) for Tnooz between August 2012 and July 2015. He was the launch co-founder of Booty's, a global street food restaurant in New Orleans and was recently AVP Operations, North America at Zomato.