Rate Wars: When Hotels Engage in ‘Price Espionage’

In the experience-centric world of hospitality, where every guest is supposedly treated like royalty and every room promises the view of a lifetime, there exists a far less glamorous underworld.

NB: This is an article from Topline, one of our Expert Partners

It’s a world of covert operations, hidden agendas, and strategic maneuvering. I’m talking about the clandestine, and occasionally comical, world of hotel rate espionage. Forget James Bond; think more along the lines of a spreadsheet-wielding Sherlock Holmes.

Welcome to the “rate wars,” where hoteliers engage in a constant game of pricing cat and mouse. In this game, everyone is watching everyone else, looking for the smallest advantage, and all’s fair – well, almost. From fancy software tools that track every rate change in real-time to secret phone calls under the guise of a corporate booker, hoteliers have mastered the art of “price espionage.” But where do we draw the line between savvy strategy and, let’s say, a little too much enthusiasm?

Rate Shopping: The Foundation of Espionage

If there’s a single foundation upon which all hotel rate espionage rests, it’s rate shopping. This practice involves hotels constantly monitoring their competitors’ prices, looking for any fluctuation that might present an opportunity – or a threat. Think of it as the hotel industry’s version of surveillance, only instead of hidden cameras and wiretaps, we’re talking about web scrapers and pricing tools.

Advanced rate shopping tools offer real-time data, allowing revenue managers to adjust prices dynamically to stay competitive. If a rival property drops its rates for the weekend, a savvy revenue manager might decide to hold firm, banking on the idea that last-minute bookers will value the higher quality – or at least perceive a higher value.

The ethical dilemmas here are less about the act of rate shopping itself and more about how far you’re willing to go. For example, some hotels might go as far as having their Director of Sales (DOS) pose as an employee of a large corporate client, like Boeing, to inquire about rates directly from competitors. Picture this: a DOS in disguise, equipped with a burner phone, whispering to a rival’s front desk, I heard you have a corporate rate – what’s the best you can do? Is this innovative, or just a touch too much? You decide.

Corporate Rate Espionage: When Spies Go Undercover

Now, let’s take it up a notch. Beyond basic rate shopping, some hotels dive deeper into the murky waters of corporate rate espionage. This isn’t just about checking websites; it’s about finding out the secret rates competitors offer to specific clients and groups. How do they get this information? Sometimes through seemingly innocent phone calls, sometimes by booking stays under false pretenses, and sometimes by leveraging insider contacts. I’m not saying there’s a secret handshake involved, but if there were, it would likely be something like the passcode to the Wi-Fi at a “DOS Anonymous” meeting. Ehem.. Fenced.

What does a hotel do with this illicitly gathered data? Craft a counter-offer, of course! If a competitor offers a corporate rate of $149 per night, your property might swoop in with a $145 rate and throw in a complimentary breakfast for good measure. It’s like playing poker, only everyone is bluffing about how much their chips are worth.

While some hoteliers might see this as clever maneuvering, others view it as downright sneaky. There’s also the matter of potential legal implications if certain lines are crossed. Remember, it’s all fun and games until someone ends up in a lawsuit – or worse, a panel at the next hotel industry conference discussing “Ethics in Hotel Sales” with everyone pretending they’ve never done anything remotely similar.

The OTA Tango: Dancing with the Devil

Let’s talk about the necessary evil: OTAs. Sorry to all my friends at Expedia. For many hotels, OTAs are a love-hate relationship. They bring in bookings but at a cost – both financially and strategically. The challenge is maintaining rate parity across all distribution channels, as per agreements, while still offering something enticing to direct bookers. It’s like dancing with the devil while trying to keep your toes intact.

For branded hotels, this balancing act is even more delicate. Most major brands enforce strict rate parity rules, requiring hotels to maintain the same rates on their brand.com websites and OTAs. Deviating from these guidelines isn’t just frowned upon – it can result in hefty fees or penalties from the brand. These brands keep a close watch, and stepping out of line can feel like navigating a minefield. So, even a slight variation in pricing strategies can put a hotel in the crosshairs of its own brand’s enforcement team.

Some hotels have gotten creative, offering “hidden” discounts to guests who book directly. These might be cloaked in codes, special promotions, or loyalty perks that only direct bookers can access. It’s a bit like those speakeasies during Prohibition – everyone knows they exist, but you have to know the codeword to get in.

But is this gaming the system or bending the rules just a little? Opinions are divided. Some argue that these tactics help keep direct bookings alive in markets dominated by OTAs, while others see it as breaking the spirit of rate parity. Imagine a dance-off where everyone’s trying to outmaneuver each other without stepping on their partner’s toes. Fun to watch, sure, but exhausting to participate in.

Modern Pricing Tools: The Art of War in Real-Time

Today, this strategy is no longer managed manually; it’s powered by sophisticated Revenue Management Systems (RMS) like N2Pricing, IdeaS, Duetto, One Yield, and others. These systems are the engines driving dynamic pricing, using complex algorithms to adjust room rates in real-time based on a multitude of factors such as demand, market conditions, and, still critically, competitor pricing.

In modern practice, RMS tools do the heavy lifting. They rely on robust sets of rate shopping data to feed their algorithms – data that is continuously gathered from the market to ensure the system makes the most informed decisions possible. The better the data, the smarter the pricing.

However, this automated approach is only as good as the data that feeds it. Without accurate and comprehensive rate shopping data, even the most advanced RMS can falter. Hotels need to ensure they are collecting high-quality data from multiple sources to give their systems the best chance of optimizing rates correctly. A gap in data can mean leaving money on the table or, worse, selling rooms far below market value.

Gone are the days when revenue managers frantically adjusted rates manually every few minutes. Now, RMS tools handle the rapid changes, but they still require a constant stream of accurate market data to function effectively. In this data-driven environment, the precision of dynamic pricing depends entirely on how well hotels gather, analyze, and use their rate intelligence. It’s a complex dance of data and algorithms, but when executed well, it keeps hotels ahead of the competition.

Training Guests to Play Chicken

Let’s talk about a game of chicken that hotels may have unwittingly started: the last-minute booking strategy. Over time, hotels desperate to fill empty rooms have resorted to dumping rates at the eleventh hour, hoping to catch those elusive, spontaneous travelers. The idea is simple: if the room is going to sit empty anyway, might as well sell it cheap. But the chickens have come home to roost – this tactic has trained guests to wait it out, betting that rates will drop as the check-in date looms closer.

Guests have become savvy, ready to pounce at the perfect moment when the price finally plummets. Some have even adopted strategies of their own, using price-drop alerts and tools like Hopper or HotelTonight, turning what was once a clear-cut decision into a suspenseful waiting game. For many travelers, the thrill isn’t just in finding a hotel room; it’s in scoring the perfect deal at the last possible second.

The unintended consequence? Hotels have inadvertently trained a whole generation of guests to delay their bookings, knowing they might get a better price if they just wait a little longer. For hotels, it means greater uncertainty, fluctuating revenues, and a lot more sweating over that last-minute inventory. It’s hard to forecast demand when your guests are playing a high-stakes game of “Will they or won’t they?” every week. And for guests, it’s a game of roulette – hold out too long, and you might just find yourself sleeping in your car or at the no-name motel with a suspicious-looking carpet.

So, the lesson here? Maybe it’s time for hotels to rethink this strategy and stop training their guests to expect a price drop every time.

The Two Types of Revenue Managers: Old School vs. New School

It’s been my observation that revenue managers fall into two distinct camps: the “Old School” veterans who cut their teeth on fundamentals, and the “New School” tech enthusiasts who rely heavily on the latest software and data analytics to make decisions. Each group brings unique strengths to the table, but the real magic happens when you blend both approaches, using new technology without losing sight of the basics that built this discipline.

The “Old School” revenue managers are those who remember the days when yield management was done with a spreadsheet and a gut feeling. They are masters of the fundamentals: understanding seasonality, reading market signals, and building relationships. These pros know that a well-timed phone call or a smartly negotiated contract can sometimes outperform even the best algorithms. They’ve built their strategies on experience and intuition, which often gives them an edge when the data is murky or incomplete.

Then, we have the “New School” revenue managers—tech-centric, data-driven, and constantly looking for the next tool or platform to give them an advantage. They wield RMS systems like IdeaS, Duetto, and N2Pricing like a maestro wields a baton, orchestrating a symphony of real-time data to squeeze every possible dollar out of inventory. Their comfort with data allows them to react swiftly to market changes, dynamically adjusting rates with the click of a button based on live analytics and sophisticated algorithms.

So, which camp is right? Well, I personally stack my team at Topline with both. New technology provides unprecedented insights and capabilities, but it’s only as good as the strategy behind it. Forgetting the fundamentals – the basic principles of supply and demand, understanding your market segments, and maintaining guest relationships – can lead to costly mistakes. After all, no amount of data crunching can replace the human element: knowing your guest, your brand, and your unique selling proposition.

To yield the best results, revenue managers need to leverage the power of new technology while keeping one foot firmly planted in the tried-and-true fundamentals. It’s about knowing when to trust the data and when to trust your instincts. In other words, while the “Old School” teaches us the importance of experience and intuition, the “New School” reminds us of the need for innovation and agility.

As the industry evolves, those who can seamlessly integrate these two approaches – using cutting-edge tech tools to enhance, not replace, the foundational strategies of revenue management – will be the ones who truly succeed. After all, the future belongs to those who can adapt, innovate, and remember where they came from while embracing where they are going.

Strategically Blending Tradition with Innovation

In these contemporary rate wars, there’s no denying that the game has changed – and continues to change at breakneck speed. From sophisticated RMS tools that make dynamic pricing a breeze to the creative ways hotels are navigating rate parity and OTA strategies, the industry is both more complex and more exciting than ever. But as we embrace these new tactics and technologies, we must remember that the fundamentals of revenue management got us to this point.

The future belongs to those who can adapt and innovate while remembering that the core of our business is about more than just numbers – it’s about people, trust, and relationships. By embracing both new school tactics and old school wisdom, hoteliers can stay ahead in this ever-competitive landscape and win not just the rate wars but also the hearts of their guests.

Read more articles from Topline

Reprinted from the Hotel Business Review with permission from www.HotelExecutive.com.