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Beware third-party discount addiction

19 July 2012 by
Beware third-party discount addiction

Third-party discounts can be a solution to empty rooms, but don't get hookedon cheap business, urges Pride of Britain chief executive Peter Hancock

We all know how easy it can be for a drug habit to take hold. At first, the victim enjoys an occasional hit, then does so with greater frequency until the drug has him fully in its grip. During the early stages, he or she may protest that everything's under control, or even that non-users are missing out on the fun, such is man's facility for self-delusion.

To some extent, I feel that hoteliers who are starting to rely on the business they receive through third-party discount retailers are becoming addicts, too. Little by little, the proportion of room sales attributable to the likes of Groupon, Laterooms, Travelzoo and others grows until it dwarfs the number sold through normal channels at better rates. And let's not forget, there is a high cost of sale involved, too, sometimes as much as 30% commission.

Don't get me wrong, I think the aforementioned provide a brilliant solution to the problem of empty rooms and, if used sensibly, can be a great addition to a hotel's marketing mix. The difficulty arises when cheap rooms get sold well in advance, blocking the potential to sell them at more profitable prices, and when a culture develops within the hotel that accepts low rates as the norm rather than an emergency measure.

Yes, there are people out there who think to themselves: "I need a room in a certain place on a particular date, let's find the cheapest possible." I've done it myself. So it is very tempting to drop rates low enough to win that business. But it's important to remember that you may be competing against hotels that are actually selling rooms at a loss.

This is where the addict's self-delusion mani-fests itself again. Some hoteliers are not honest with themselves about the true cost of providing a room - over and above the fixed costs associated with being open at all - such as the cost of sale, provision of hot water, heating, staffing, laundry, food and maintenance, so they do not have a minimum "break even" price in their heads. It makes me sad to think of hardworking hotel teams filling their establishments up with guests who are costing them money to accommodate rather than contributing to profits, sadder still if rack rate bookings have been lost due to lack of availability.

Rehabilitation can be a slow but ultimately rewarding process. It requires management to have confidence in the value of their offering and not to view an empty room as failure. Having celebrated the anniversary of the Queen's coronation, you'll find plenty of recipes around for cold turkey.

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