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Why discounting could drive up prices

22 November 2011 by
Why discounting could drive up prices

As all customers now expect a deal, published tariffs will have to be increased if discounting is to continue, says Pride of Britain chief executive Peter Hancock

Even if I could afford it, I should hate to be cryogenically frozen at death because, assuming medical progress ever allowed me to wake up again, I'd be clueless on returning to the world of the living. That's because everything now changes so rapidly. The few crumbs of knowledge I have acquired about hotel marketing, for example, will be out of date before the blood has fully cooled.

Take the matter of discounted rooms. Suddenly web-based retailers such as Travelzoo and Groupon are shifting thousands of hotel rooms at knockdown prices and receiving a hefty rate of commission for their pains.

Price comparison sites like Trivago have made the task of finding the "best deal" much easier for consumers and we seem to be on a path that leads inexorably to a place where the biggest discounter wins the business.

How far can this go? There must be a tipping point beyond which it is no longer possible to make a profit on these terms. Hoteliers could, of course, decide in their droves to boycott all these sites and hold out for full rates via other channels. I think this is very unlikely given the numbers of subscribers already hooked on deals.

Much more probable is that published tariffs will start to be increased simply to enable the discounted rates to look better. Rack rates no longer apply, thanks to the flexibility of online booking engines, but if you're going to knock 50% off the price of a room and still cover the costs you need a high starting point.

Perversely, then, the proliferation of heavy discounts may actually push up prices to accommodate them, with all customers expecting to find a deal at all hotels. Eventually, the only people paying full rate will be those who lack the ability or inclination to book electronically. They will be our equivalent of the customer who decides to buy a new sofa in the one week in the year when DFS doesn't have a sale.

It's a gloomy prediction and I hope it's wrong. Perhaps our best hope is that the travelling public will become disillusioned with cheapness for the sake of cheapness and instead regain a healthy interest in quality.

The demand for luxury breaks remains strong and I don't see too many Reliant Robins parked outside the hotels on my rounds so let's accept that cost is not the only determining factor. Customers with good taste and high expectations are perfectly happy to pay a sensible rate and might even be suspicious of over-generous deals.

And if you're planning to be frozen for several years you'll need some very high quality hospitality to make waking up worthwhile.

TagsHotels and Opinion
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