Digging in Deep with Discounting

Dale J. Venturini

President/CEO, Rhode Island Hospitality Association

“Don't compromise yourself. You are all you've got.” – Janis Joplin

The recession has spawned a burgeoning market of discount forums for hotels and restaurants. Consumers can purchase restaurant gift cards for up to 50% off through dedicated websites, local radio stations and television stations. It seems that nearly every medium is trying to corner the market on giving you the biggest bang for your buck.

Who wouldn’t want to purchase a $100.00 gift certificate at their favorite restaurant for only $50.00? Why, we’d be foolish not to! We have become a society that regularly expects discounts. We assume that we are constantly overpaying and if we don’t get a deal on our hotel room through Orbitz, Priceline, Kayak, or a host of other discount travel sites, we are obviously overpaying.

Retail shopping has long been targeted by discount sites. When consumers order clothes, furniture or even pet supplies online, there are dedicated coupon and promotional code sites just waiting for a consumer to peruse offerings on everything from 10% off their order to free shipping codes. In fact, who orders anything online anymore without a promotional code? That’s why there is a dedicated area on nearly every retailer’s website just begging you to put a code in for a special deal.

The actor, William Shatner, shows us through his clever commercials that hotels often sit on high-priced rooms until the last minute. In fact, if you wait to book until you’re about to arrive, you can often get a four or five-star hotel for as little as $69.00...in fact, name your price! Hotels have inventory and they don’t want their rooms to go vacant. So, negotiation is anyone’s game.

What does all of this tell consumers? Well, it clearly is teaching that the hospitality business is in fact in the business of overcharging people. And, if we all wait until the very last second, we can often get deep discounts. Now, those of you who are hoteliers know that you would prefer holding your rates and having advanced bookings. Restaurateurs would prefer that consumers pay face value for gift cards. However, as an industry affected so harshly by our nation’s sagging economy, we’ve resorted to deep discounts on our products.

We have, in effect, trained customers to expect to pay less. However, once consumers are used to getting deals and paying discounted rates, it is very hard to bring prices back up to where they should be in normal economic times. This is a dangerous and spiraling practice that we should not, as an industry, buy into.

While I understand that we have to provide incentives and discounts on occasion – particularly to entice group or large-scale business – price cutting and rate lowering is not a practice that should be considered lightly. Instead, we need to focus on value-added incentives to ensure and protect the quality of the brand.

Hotelier Angelo DePeri general manager at the Renaissance Providence Hotel in Providence, RI, has taken this tact to attract consumers to book at his hotel. “We have tried to maintain our rates by focusing on value added amenities like free internet and breakfast.” DePeri has lost business to area hotels that are willing to offer deep discounts, but has been able to maintain his rate and book business because of adding perks and incentives.

In tourism-dependent Newport, RI, Hotel Viking general manager Mark Gervais felt the affects of last year’s economy heavily, but hasn’t let the economic downturn change his rate structure. “I am a firm believer that discounting heavily will take you years to get the rates back up. I do see many hotels using the strategy that lower rates create demand, but I don't believe in that practice even a little bit.” Gervais reports that the Viking has rebounded well in 2010 and expects the trend to continue through 2012.

Remember, at the end of the day, how you represent and price your business to consumers is a reflection of what you believe your brand is worth. If you are continuously discounting your products and services, you’re sending the wrong message to consumers. Once you start down that slope, it is almost an insurmountable obstacle to climb back up. It is far better to offer incentives and value-added amenities to an existing rate than slash prices. And, it gives an operator the ability to ease off on the incentives without compromising value once the demand increases. Once you cut prices, however, it’s almost impossible to bring them back up.