|The Pitfalls of Last-Minute Sales in Hospitality.|
By Max Starkov
Friday, 14th October 2011
Last-minute sales in travel are not a new phenomenon, there have been many attempts to find a way to dispose of these empty airline seats, idle rental cars, and empty hotel rooms at any cost.
Theoretically it makes economic sense: it is 4PM, I have 20 empty rooms, and if I sell them at 50% off rack, I will still be making some money from my otherwise perishable inventory, right? Wrong!
Last-minute sales in hospitality at lower discounted rates are not sustainable in hospitality as this approach jeopardizes all other distribution channels (hotel mobile site, hotel traditional website, GDS, phone reservations, even OTA distribution). This is especially valid today in the viral and mobile environment we live in and with the smart, hyper-interactive travel consumers we are dealing with today.
What Is the Situation in Hospitality?
Last-minute sales have been tried and failed repeatedly in the hospitality industry. Remember LastMinuteTravel.com? Where is this site today? At the height of the dot-com bubble this site even had a splashy multi-million Super Bowl commercial.
Currently Hotels.com has a last-minute hotel deals section on their site ( www.hotels.com/last-minute-hotel-deals ). Our analysis shows that these last-minute deals are more of a marketing gimmick and, due to contracted rate parity provisions with the hotels, these “last-minute” rates are no different from the “regular” hotel rates you can find on the main section of the site, on any other OTA, or on the hotel’s own website.
Priceline recently announced opaque Last-Minute Hotel Deals as part of a broader last-minute travel section on the site. Travel consumers can now book hotel rooms up to 11pm the same day they travel and still save up to 40 percent over other leading online sites when they use the “Name Your Own Price” model, which is Priceline’s traditional opaque program.
There is a new kid on the block, a mobile-only last-minute discount OTA called HotelTonight.com, which operates in the following manner:
For these last-minute discount sites to exist there must be a Market Equilibrium (Price-Quantity) between: The Demand Side (quantity of engaged last-minute deal buyers) and The Supply Side (quantity of fresh, intriguing last-minute deals).
- Hotels upload room allotment and rates for the same day via an extranet
- Average discounts range from 30%-35%
As travel demand improves, hoteliers will become increasingly reluctant to participate and provide the supply side of the equation with fresh, intriguing last-minute discounts. Online travel consumers, disappointed by the lack of fresh/intriguing last-minute discounts, will revert back to the traditional booking channels: hotel direct, voice, GDS and OTAs. As a result, both sides of the equation will suffer and shrink.
In this sense HotelTonight.com and some OTAs are trying to re-create in the mobile space what other players in the field have tried to do repeatedly and failed. My prediction is that HotelTonight.com and similar last-minute discounters will not last long as these sites employ a business model that is against the hospitality industry’s best practices for channel management and rate parity, and will suffer as a result of supply and demand economics.
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:
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:
- 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 HotelTonight.com 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:
1. 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.
2. Lack of opaqueness establishes a low market price: hotels can hardly charge rack rate again since the customer has accepted the discount rate as the market rate.
3. Leads to cannibalization of existing customer base: as discussed below, most mobile bookings happen at the last minute anyway.
In other words, people are booking closer and closer to the day of actual arrival, meaning that it is easier for them to wait until the last minute and see what the last-minute rates on HotelTonight.com or a similar service are as opposed to booking in advance via the hotel desktop or mobile sites.
- 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 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 HotelTonight.com. What will be the result? The hotel will soon witness that:
- Booked guests are canceling existing reservations made via the hotel website, phone, GDS, OTAs and re-booking the lower rates via HotelTonight.com.
- 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 at the last minute.
- OTAs are after the hotel for these last-minute “deviations” from contracted rate parity clauses.
The following article is Max Starkov’s latest contribution to the “Successful eMarketing” blog on HOTELS magazine’s website.
About the Author:
Max Starkov is President & CEO of HeBS Digital (Hospitality eBusiness Strategies), the hospitality industry’s leading direct online channel strategy, full-service digital marketing and website design firm.