To Discount or Not to Discount?
By Bonnie Knutson Professor, The School of Hospitality Business/MSU | January 01, 2012
Come on now ... would you really get up at 5 in the morning on your day off to get to the mall by 6 if it weren't for the "25% Off Day After Thanksgiving Sale"? Would you really buy a whole case of WD-40 oil were it not for the big box store's volume discount? And what are you going to do with that second "free" pizza if you're a single person who rarely eats at home?
Marketers in the retail sector are betting that you, and many others like you, will get up early, buy the multiple cans of oil, and phone for the pizza. They are betting that you can't pass up what you see as a bargain. They are betting that you won't buy their product without some sort of a price incentive. If the proliferation of discount offers is any indication, they are right. Or are they?
While discounting is usually a boon to consumers, it is often the bane of business. Ask the airlines. Ask fast food operators. Ask GM, Ford, and Chrysler. Regardless of the industry, it seems as if the past few years have been awash in companies relying on discounts as a hallmark of their marketing strategies. And it is no different for the lodging sector.
Just for fun, I Googled "hotel marketing and discounts" and got 1,480,000 hits! I then Googled "hotel sales and discounts" and got 10,600,000 hits! Does this tell you something? If you ask a thousand hoteliers if they should discount their products or services in today's economic climate, chances are you will get a thousand different answers. From the many hotel managers with whom I've talked, their opinions seem to fall into one of two categories. On the pro side, there is the argument that it is just common sense to price based on the downturn (elasticity) in demand from all travelers - leisure, business, and group. Or there is the lemming mentality that believes when your competition discounts its rates, you have to follow. Then there is the Star Treker-turned-Priceline.com-spokesman-William Shanter mindset that points out how easily guests can access rates on the Internet and make their decision online; therefore, you have no choice but to cut rates if you want to even be on their consideration-list.
On the flip, or con, side is the line of reasoning that says once you cut rates, it is difficult to raise them back up. Others rationalize that it is better to add value rather than slash prices. And some even argue that, if you drop your hotel's rates significantly, your run the risk of attracting a market segment that you may by wrong for your brand image.
With hotels struggling to compete and make margin, the discounting question becomes more contentious. The issue is not what discounting can do for guests, but what discounting does for or to your business. Whether doctor, lawyer, or widget-maker, at some point in every business's market planning, it will face the moment of truth: Should I discount? The advantages of discounting hotel rates are well known. When done right, a discount can: