If you are casually strolling along a mall or reading a newspaper, you may wonder if offering discounts seem to be the norm these days. Sales seem to spike up and the impact of discount can be seen in your revenue.
Can this band aid work for your business over a long time? As hoteliers we have trained the consumers to expect a discount. The immense push on generating revenue has resulted in the practice of revenue at any cost. However in the hands of a new manager, it can be a deadly choice to improve revenue.
Why offer a discount?
It seems to be the order of the day. During 2008 when the world economy went into a tailspin, offering discount to keep the hotel running and generate demand became a go to option for mangers for some time. However the strategy worked for the short time and soon became the most copied strategy. These days customers have been trained to expect a discount.
Honestly when you look at the big picture, you may think that discount is a good marketing strategy and can get you a bunch of new customers. They will represent a new segment of people who will come visit your hotel and hopefully you will be able to convert some to become repeat visitors.
However in realty most of these discount seekers are just that. Discount seekers. They will move on to the next place that offers them the discount. This was seen during the days of Groupon with many restaurants facing issues where this strategy did not work.
What to do ?
Considering that the discounts impact your revenue and your profitability , some careful planning and discipline should be involved in discounting.
Understand the why?
In any conversation about discounting, ask yourself why are you doing this. There are many reasons to do it but understanding the why behind the discount is key. Is it to create awareness to a new segment about the hotel. Is it to encourage repeat business. It it to reward loyal guest.
Once you know the why, it will be easier to look at it as a marketing expense or an expense for some other reason and adjust your discount percentage appropriately.
Answer this question: Are the discounts being used across board or strategically in segments where we wish to grow market share?
Understand the when?
When you offer discounts impact the overall sales of the hotel. A happy hour extended for an additional hour, a last minute deal etc all impacts revenue for the hotel. You need to create a clear guideline based on what works for your hotel on when you offer these discounts.
If you get majority of your booking in your hotel between the 1 -3 day window, try not to discount this window.
The key is to understand the business pattern and work with it to encourage sales. Most modern revenue management tools will help you to analyse this pattern
Understand who is getting discount
If you have not done this, as a first step, segment your business. Segmentation helps you to serve the needs to the particular guest better. A typical segmentation would be Direct booking, Corporate, Leisure and Contract. Each segment has a different cost of doing business and the way they operate. Decide your discounting strategy based on the segmentation of business and then at the end of every month measure the deviation from the accepted norms.
Once you review the discount pattern, consider asking does the discount provide additional business as expected or you are not benefiting from the decision. If it does not make sense, stop or change the discount pattern.
Applied selectively, the impact of discount should be positive impact on sales and the bottom line. The key is to understand why you are doing it, who is getting the discount and how you are implementing it.
Also be sure to review the impact of the discount to understand if it worked for you or not.