Effective Discount Strategies in the Hospitality Industry
In the highly competitive hospitality sector, businesses constantly seek innovative ways to attract and retain customers. Offering attractive discounts is an effective strategy widely employed by hotels, resorts, restaurants, and other hospitality establishments. This article aims to explore and analyze the various discount strategies that can help businesses in the industry maximize their revenue while meeting the expectations of price-sensitive consumers.
Need for discounting strategies in the hospitality industry.
The hospitality industry often employs discounting strategies for several reasons, all of which are aimed at attracting customers and increasing revenue in a competitive market.
Attracting New Customers: Discounts can be a powerful tool to attract new customers who might be hesitant to try a new hotel, restaurant, or other hospitality service at full price. Lower prices can encourage potential customers to take a chance on your establishment.
Increasing Occupancy: Hotels, resorts, and other accommodations often use discounting to fill rooms during off-peak seasons or when demand is low. Lower prices can help drive occupancy rates and generate revenue that would not exist.
Maximizing Revenue from Excess Capacity: During times when a hotel or restaurant has excess capacity (e.g., empty rooms or tables), offering discounts can help generate some revenue instead of leaving those resources unused.
Competitive Advantage: In a competitive industry like hospitality, offering discounts can give an establishment a competitive advantage. Price sensitive customers often compare prices across channels and choose options that provide the best value for their money.
Promoting Special Offers: Discounts can be used to promote special occasions or events, such as holidays, anniversaries, or themed nights. These promotions can create excitement and draw in customers looking for unique experiences.
Customer Retention: Offering discounts to returning customers can help build customer loyalty and encourage repeat business. Loyalty programs that offer discounts or rewards for repeat visits can be an effective way to retain customers. Today, most hotel brands offer lowest priced offerings to their loyalty program members.
Cross-Selling and Upselling: Discounts can be strategically used to encourage customers to try additional products or services they might not have considered otherwise. For example, a hotel might offer discounted spa treatments to guests who book a room during a specific period.
Marketing and Brand Awareness: Discount promotions can serve as marketing tools, creating buzz and drawing attention to the establishment. They can also help in building brand awareness and expanding the customer base.
Clearing Excess Inventory: In the hospitality industry, inventory can refer to more than just physical products; it can also include unsold hotel rooms or unused event spaces. Offering discounts can help clear out this excess inventory.
Types of Discounting Strategies
Discount strategies can be categorized into four key buckets: (i) Time-based, (ii) Volume-based, (iii) Value-added and (iv) Targeted discounts.
Time-based Discounts are used to optimize occupancy and revenue for specific durations.
Seasonal promotions. Just like any other industry, most destinations have fluctuations in demand based on seasons or holidays. Offering discounts during slower seasons or off-peak periods can stimulate demand. By offering promotions to with align with demand, hotels can incentivize bookings and boost occupancy rates.
Flash sales. Limited time offers or last-minute deals create a sense of urgency among consumers. Promoting flash sales on brand.com or cross-channels can encourage customers to make immediate bookings, taking advantage of the discounted rates.
Volume-based Discounts are provided as they help build occupancy rates for hotels which helps further drive-up rates closer into the booking window.
Group bookings. Attracting large groups or corporate clients can be highly profitable for hospitality businesses. Offering discounted rates, customizing services, or providing additional perks, such as free upgrades or meeting rooms, incentivizes these groups to choose a particular hotel/hotel brand over competitors.
Extended-stay discounts. Encouraging longer length of stay is beneficial to customers and hotels. Offering discounts that scale with the length of stay can incentivize customers to commit to a longer stay. Extending length of stay not only increases revenue but also enhances customer satisfaction and reduces the operational overhead associated with check-ins and check-outs.
Value-based Discounts are used to incentivize upsell and cross-sell across products and drive customer satisfaction. Value-based discounts can be a lever in driving Average Daily Rate (ADR) for a hotel.
Packages. Hotels often bundle accommodation, dining and/or local attractions to create packages that have higher perceived value for the customers. Effective packages not only incentivize the customers to book a specific hotel for their stay but also increase the overall spend per customer.
Complimentary services. Like packages, complimentary services such as room upgrades, breakfast, free parking, can enhance the perceived value for the customer. These services may incentivize an on-the-fence customer to book a particular hotel vs competitor even if it were slightly more expensive.
Targeted Discounts are created for a specific customer segment to incentivize bookings and sway booking behaviors.
Loyalty Programs. Loyalty programs are an effective way to reward repeat customers. Hotel brands have long established loyalty programs that incentivize customers to increase their share of wallet with a brand which thereby unlocks incremental perks. Loyalty programs also creates brand advocates who are likely to promote the hotel brand to friends and family.
Member-only discounts. Encouraging customers to join membership program is mutually beneficial. It creates a sense of exclusivity to the customers which increases stickiness for the brand. Members also provide valuable data to personalize offers and tailor services according to customer preferences. This data-driven approach can further enhance customer loyalty and generate additional revenue.
Ensuring successful implementation of discounting strategies
Effective implementation is critical for driving success of discounting strategies in the hospitality industry.
Financial Analysis. Building a solid framework that accurately predicts the impact of discounting on the profitability of the hotel(s), not limited to operational impacts, demand, and revenue implications.
Target customers. Having a robust understanding of the customer segment(s) likely to be primary beneficiary of the discount strategy. It’s also critical to determine any unforeseen revenue cannibalization for other customer segments not directly targeted by the discounts. E.g., A Black-Friday promotion primarily aimed at fueling leisure travel may cannibalize a higher rate business travel demand at a lower rate.
Communication and Marketing. Creating an effective Go-to-market motion it critical for driving the success of discount strategies. Hospitality companies should leverage various marketing channels to promote the discounts such as social media, email marketing, target marketing to reach the target audience. Clearly communicating value of the discount strategies is vital for capturing customers’ attention.
Fencing. Establishing well-defined fencing on the terms of usage is essential to avoid discount exploitation. Defining black-out dates, booking dates, stay periods or other requirements is important to ensure that discounts are utilized reasonably and do not negatively impact revenue or overall operations.
Measuring effectiveness. It is important to define key performance indicators (KPIs) for each discount tactic implemented and track against those KPIs. Capturing booking trends, customer feedback, and financial performance to assess the effectiveness of different discount offers is critical for future data-driven decisions and continuously improve overall profitability.
Conclusion
In a competitive landscape, the implementation of effective discount strategies plays a vital role in the success of hospitality businesses. By offering well-designed and targeted discounts, establishments can attract new customers, retain existing ones, and maximize revenue. However, it is crucial to carefully analyze costs, consider target markets, communicate discounts effectively, establish clear terms and conditions, and measure their effectiveness regularly. Implementing these strategies ensures that discounts remain a positive and profitable aspect of the hospitality industry.
