The tourism industry was hit hard by COVID-19, causing the closure of hotels and millions of lost revenue.
NB: This is an article from Hotelchamp
With the acceleration of vaccinations throughout Europe, we are finally seeing the light at the end of the tunnel. Nevertheless, now is the time to think carefully about your hotel’s revenue and pricing strategy.
Internal and external factors influence guests when evaluating a hotel – ranging from location, amenities, reviews and personal taste. A factor that arguably lies at the crossroads of all these factors is price sensitivity. Price sensitivity can be defined as the degree to which a customer’s behaviour is affected by the cost of a service or product. They may be convinced of the benefits, but need extra reassurance or reminding when it comes to the value they’re receiving.
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The impact of price sensitivity
“Price sensitive” customers are often experts in comparison shopping, tipping the scale of the value equation in their favour by looking for the same benefits at a lower cost. For hoteliers, this often happens when a visitor is convinced of the facilities, features and location of a hotel, but might get cold feet when redirected to the booking engine and see the total amount due. These self-described ‘smart shoppers’ are not out of the ordinary—the average traveller typically searches 38 websites before booking a hotel. The success of bargain-based companies like Groupon, Voyage-Price, Secret Escapes, Accor-owned Very Chic only further shows how infatuated people have become with discounted products or services across all aspects of their lives, from shopping for a holiday to buying groceries.
In the post-COVID-19 world, guests are looking for more information about the hotel they want to stay in. They’re not satisfied anymore with brief descriptions of facilities and amenities that OTAs or flash sale sites present. According to a recent SiteMinder report, the direct channel has gained market share in almost every country analyzed, overtaking Expedia.com in most and closing in on Booking.com in some.
In light of this and with direct bookings increasing specifically within the leisure segment (also, the main drivers of the post-lockdown recovery), we can not risk going back to the pre-COVID world dominated by OTAs.
Rethinking your hotel’s strategy
In the post-COVID world, the main questions we need to ask ourselves are:
- How can we reshape our revenue and pricing strategy to drive more and different types of guests to our hotel?
- How can we influence the factors that determine whether a guest books our hotel—and eventually convince them to book directly with us?
As a starter, let’s face it—the travel sector can be very old-fashioned. It is probably the only sector in the world where external parties such as OTAs, flash sale sites and GDSs have ruled the industry’s price and revenue strategy. For a second, just remember a visit from your account manager from any given OTA, telling you how to drive more bookings if you lower the price or create special campaigns. That might bring significant revenue for a shorter period of time but do we really weigh up the long-term consequences on brand perception, growing commission bills and ever-declining RevPar?
Too often, we seem to distribute our rooms at a minimal profit for the sake of attracting new guests. The COVID-19 lockdowns have shown us that it is time to change that. It has revolutionised hotel distribution in the short and mid-term. With confidence in OTAs changing, there is an opportunity to reach a new segment of guests who normally rely on the OTAs and flash sale sites—the bargain hunters.
So short of slashing your entire pricing strategy, likely based on market conditions, company characteristics, strengths, and competitor-set, how do you appeal to these bottom-dollar bargain hunters?
Based on our analysis of over 500 million customer journeys from more than 1,000 hotels, we have developed various solutions that can both identify these factors and demonstrate better value to give your guests the extra nudge to book a stay at your property.
Here are 4 techniques to get bargain hunters to book directly with your hotel:
1. Identifying Price Sensitive Bookers
Every customer has some degree of price sensitivity. In individuals, this can change over time based on a number of factors such as the economic environment, personal circumstances or even their reason for travel. External factors, such as quality, service, competition and demand can also influence people’s level of price sensitivity as it provides a context within which they judge a price relative to the market. A good example of this is seen with commodity goods such as petrol, which has high price sensitivity. A price difference of just a couple of cents can be the primary influencing factor on where a customer will buy—sometimes to such an extent that in many markets this sensitivity to price even warrants daily news updates on where to find the most frugal fuel.
But unlike petrol and other standardised goods that may only be differentiated by price and location, hoteliers each have a unique product with distinct benefits that can be used to prove value to each individual customer. In order to do this though, price-sensitive bookers must be identified, targeted, and given unique incentives to book directly on the hotel website.
So, how do you identify price-sensitive bookers?
There are several key behaviours that may give you a hint as to how price-sensitive a website visitor is:
- The number of times they visited your page and didn’t book. People tend to online ‘window-shop’—browsing online but not taking the final step to book. Of course, the vast majority of your traffic consists of people browsing your rooms and rates, but repeat website visits from an individual indicates that they’re interested in your hotel but have yet to be fully convinced—quite possibly due to price.
- Whether they visited your offers page. Website visitors who are browsing through an offers page are likely guests who are price sensitive. Instead of simply browsing your website in an information-gathering phase, they have already started to evaluate, consider and weigh your benefits vs your costs. They likely possess a high intention to book and are satisfied with the benefits but are now looking for the perfect deal to lower the price.
- The number of visits to the booking engine. These are guests that have started and stopped the booking process a number of times. The main reason they might have done this is that they’ve reached your booking engine and seen the calculated cumulative cost, a figure that may be higher than expected or require more consideration. This guest is not necessarily lost though—according to the Baymard Institute, 69.23% of consumers abandon their cart at least once before purchasing.
By identifying these signifiers, it is possible to deploy a one time deal on your hotel website to encourage price-sensitive visitors to book and Hotelchamp can help you to implement these. For example, someone has visited your hotel website four times and the booking engine once but has not yet made a booking on your website. Clearly, this visitor is interested in your hotel but there is something holding them back from committing. By showing a 10% off limited time offer of 24 hours, you can drive urgency and persuade them to book this limited-time, low price offer. By securing the direct booking with urgency, you are limiting their time to find an alternative hotel or offer through an OTA.
2. Revenue Maximisation Strategies
Almost every industry experiences regular periods during the week where there is low revenue. There are, of course, countless conventional methods to maximise your hotel revenue to offset this in non-peak periods—from charging for parking facilities to selling food and beverage packages. But to tackle this problem head-on and increase revenue and profit during these key periods, hoteliers can use smart technology instead of simply charging for parking facilities.
By incentivising guests to extend their stay to cover low occupancy periods, you can take advantage of otherwise unsold inventory. For instance, when a visitor searches for a short stay with a check-out date one day prior to your low occupancy weekdays, then you can present them an offer, for example: “Get 20% off when you add Wednesday to your stay.” As these visitors would not have booked on this day otherwise, this special discount comes at no opportunity cost. This situation is a win-win—the guest receives a considerable discount and your hotel sells inventory on a typically low occupancy day. A discount can impact your business significantly because shoppers are more likely to focus on what they’re saving and so often end up adding “extra features” to their booking on account of a discount.
3. Scarcity, Urgency and Social Proof
Price urgency is a strategy closely related to the psychological principle of “Scarcity”, popularised by Dr. Robert Cialdini. The principle is based on the observation that when people think a product will soon become unavailable to them, they are more likely to buy it so as not to miss the opportunity.
This same psychology can be leveraged with hotels when it comes to price-sensitive guests. Instead of a scarce number of shirts or shoes though, hotels can strategically ration cheaper rates, providing an incentive for price-sensitive guests to book now lest they miss out on the best bargain. Targeting and delivering these reduced rates to only the right guest is crucial though in order to effectively drive credible urgency whilst delivering maximum revenue.
Urgency and Scarcity is not only a tool to drive impulsive purchases as OTAs and flash sale sites use but it is a social-proof element itself. Imagine you are searching for Berlin hotels on an OTA and you are between Hotel X and Hotel Y both of which have the last room left. In that case what drives our decision? For the sake of argument, assume all conditions are the same like facilities, booking terms etc. Well, according to a study by the University of Cardiff exactly at this stage 83% of people are looking for social proof such as reviews or the number of people booking that hotel in the last 24 or 48 hours to drive their decision.
A particularly effective way to use scarcity to appeal to price-sensitive customers can be to use it in conjunction with promotions or discounts, such as a special offer available only for a limited period of time, or an email voucher that expires after a certain number of days.
4. Optimise Revenue
A good strategy for price-sensitive customers is built on insights and guest behaviour. A great strategy is one that then evolves based on real-world application. Guests and their preferences are unique, and so to find out exactly what YOUR guests value, AB testing can be invaluable to trial new approaches. AB testing is, in a nutshell, “split testing”—comparing two variations of your hotel website and measuring which variant is performing best.
As well as trialling variations of your customer journey, AB testing can also provide sometimes surprising insights into your eCommerce strategy. Dutch hostel chain StayOkay AB tested the value of a discount coupon offered to their price-sensitive bookers to establish which generated more bookings and the revenue per transaction. With Hotelchamp, StayOkay tested 3 different versions of their website, displaying the variants to a total audience of 800,000 visitors over the course of a year to determine which performed best. The offering versions tested were: 5% discount, 10% discount and no discount.
As expected, the results proved that fewer customers converted when no discount was given. Interestingly though, this same group also spent less overall, often choosing to go for the most basic packages and foregoing any add-ons. Following this same trend, surprisingly the highest average revenue per session actually came from those who were offered the 10% discount. It’s easy to assume from a mathematical standpoint that by offering guests a higher discount, you are in turn giving up a proportional amount of revenue. The results from StayOkay’s AB test actually prove that this is not the case.
It is possible to test a whole range of variables, including messaging, design, offers and guest targeting (e.g. couples vs solo travellers, weekend travellers vs weekday travellers). This testing is invaluable in discovering exactly what value appeals to which guest online, allowing you to further optimise your customer journey.
What’s next?
Ultimately, it is always worth remembering that price is only an issue in the absence of value. The true key to convincing these price-conscious guests is to demonstrate the benefits that outweigh the cost. By identifying these customers and demonstrating this value, hoteliers can give their guests the extra nudge to book their stay.
Editors note: This post was originally published in July 2018 and has been refreshed and updated for accuracy and new best practices.
