Discounts: do you know how much you're leaving on the table?

With over 25 years in the hospitality industry, we’ve always operated in a highly intermediated sector. Back then, tour operators and travel agencies were the main third-party sales channels, helping hoteliers fill their properties. Today, with the advancement of digital transformation, OTAs fulfill this role. Throughout my career, despite changes in commercial partners, one thing has remained constant: these players pressure hoteliers to offer discounts to “maintain competitiveness.”

As a result, the sector has internalized and normalized the practice of discounting in the Commercial area in a rush to attract more guests. Now, many hoteliers resort to this practice without truly understanding or even reflecting on the financial impact of this decision. Be honest, my dear reader, when you reduce your room rates, do you really know how much you're leaving on the table? The answer seems obvious, but I ask you this question and confess that I already know the answer: I am sure you do not account for this investment.

I understand this is an issue that needs to be addressed seriously by the Finance, RM (Revenue Management), and Sales & Marketing departments of hotels. I bring this healthy provocation because I know hoteliers do not record every discount offered, effectively stripping value from potential revenue and further squeezing already tight profit margins.

The practice is so common that it is rarely reflected upon how much is left on the table, and it is often done out of fear that if prices are not lowered, there will be no sales. Therefore, I believe discounts should be viewed as an investment and, as such, need to be accounted for as a cost.

Imagine you decide to lower your rates by 10%. This amount is, therefore, a cost you are assuming to try to increase your occupancy. It is crucial that this be registred as an expense line because, by not doing so, you risk losing sight of the real financial impact of this practice.

The Difference Between Having the Lowest Price and the Best Price

We know guests today understand that prices can fluctuate in the travel market, following supply and demand dynamics. Therefore, defining a pricing strategy appropriate to the product's positioning is very important.

The interesting part is that the guest does not know the cost of your rate before starting their search and will not stop booking your hotel – if it is well-located, with great photos and reviews – just because your price is 10% higher or lower.

That said, we can also assert that the price war happens much more among channels (like OTAs), which promise the lowest price, than between the hotel and the guest, who, in turn, does not give up on having the best quality and the best experience.

What to Do?

Here lies the opportunity! Avoiding the price war and maintaining rate parity with your partners is a very challenging point, but having a good strategy for this is possible, and it is what will allow you to change the game. Tools like loyalty programs, cashback and operational differentiators are interesting paths for these changes – and guests have already validated their interest.

To get there, change the way you think about price management habits and start paying more attention to the added value of your product. Surely, your hotel has its value, and therefore it needs to be preserved, making moderate fluctuations and moving towards the inclusion and promotion of these benefits in your direct sales to preserve your sales margins and ensure excellent quality delivery to the consumer.

So, don't stay in your comfort zone and start accounting for discounts as costs. This should be a new internal KPI, and with it, you can better reflect on your commercial strategy and improve your results without practicing old habits.

I know I am proposing a significant paradigm shift. I also understand that all changes cause discomfort. After all, we are used to giving discounts, and this has always (or mostly) worked somehow. Now, I provoke again: at what cost?

--

Entrepreneur and passionate about travel, hospitality, and loyalty, Marcelo Bicudo worked for many years in the hospitality industry and on database marketing projects, including loyalty programs. In 2015, he launched Allpoints, and in 2023, Travelcash , a travel fintech that combines his two passions to become a travel currency and travel marketplace. Now, he is determined to attract our dream team and make Travelcash a global company.