The Dark Side of Revenue Management: Avoiding Ethical Pitfalls

In the cutthroat world of hotel revenue management, where every dollar counts, it’s easy to get swept up in the pursuit of profit.

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

As the owner of a small hotel revenue management company, I’ve seen firsthand how the pressure to maximize revenue can sometimes lead to ethical dilemmas. We take a candid and unvarnished look at the darker side of revenue management, exploring the ethical pitfalls that hoteliers must navigate.

But don’t expect a sugar-coated analysis – we’re here to talk straight and add a dash of humour to the mix.

The Temptation of Hidden Fees Rate Manipulation

Let’s face it; we’ve all been tempted to play with rates to boost revenue. It’s the oldest trick in the revenue management book, you might even say that’s exactly what revenue management is. But I’m specifically referring to the practice of lowering prices during the booking process, then adding hidden fees later. The guest feels like they’ve been duped, but hey, you’ve made a few extra bucks, right?

Now, I’m not saying this is the path to take, but it’s a path some hotels have chosen. And while it might pad the bottom line temporarily, it’s a risky game. Guests today are savvier than ever. They’ll catch on to these tactics and share their experiences on social media faster than you can say “reputation management nightmare.” So, before you start tinkering with rates, ask yourself if it’s worth the potential damage to your hotel’s reputation.

In a recent email to hotel owners, Hilton executives expressed support for the bipartisan Hotel Fees Transparency Act introduced in the U.S. Senate. The act seeks to enhance transparency in hotel pricing for consumers. Hilton committed to advocating for upfront fee-inclusive pricing on all booking platforms, ensuring fair competition within the industry. They also pledge to promptly update their technology to display mandatory fees upfront on their websites and apps. This email shed light on the issue of hidden fees often used unethically in revenue management and emphasizes Hilton’s proactive approach to transparency and honesty in revenue practices. I’d recommend others follow the same path.

The ‘Drip Pricing’ Dilemma

Ah, drip pricing, the art of gradually revealing hidden charges during the booking process. It’s like peeling an onion; every layer reveals a new cost. But here’s the catch: most guests don’t like onions, especially when they’re crying over unexpected fees.

Sure, it might increase your revenue in the short term, but it’s a short-sighted approach. The backlash from frustrated guests can be fierce. They’ll vent their anger online, and your hotel will become synonymous with hidden fees and distrust. Is that the reputation you want?

The drip pricing dilemma hit me squarely in the face during a recent hotel booking for an upcoming convention in Las Vegas. Initially relieved to secure what seemed like a decent room rate, I started to believe I might actually emerge from this unscathed. But my optimism quickly evaporated when the final price at the bottom of my screen revealed an exorbitant 30% surge in additional fees! It was as if the fees had been lurking in the shadows, waiting for their grand reveal… at my expense. The irony would be in telling you which brand this hotel belongs to.

Online Travel Agencies (OTAs) and the Rate Parity Dance

Now, let’s talk about our friends from online travel agencies (OTAs). They’ve become a necessary evil for many hotels. But here’s where things get tricky. Rate parity agreements can sometimes feel like a straightjacket for revenue managers. You’re forced to maintain the same rates across all distribution channels, limiting your pricing flexibility.

But guess what? There are ways to work around it, bending but not breaking the rules. Some hotels offer “secret” discounts to guests who book directly, using clever codes or special promotions. It’s like having your cake and eating it too. You maintain rate parity with the OTAs while giving direct bookers a little extra incentive.

But is it ethical? Well, that’s a gray area. Some argue it’s a smart move, while others see it as gaming the system. It’s a classic case of revenue management walking the tightrope of ethics.

The Overselling Conundrum

Overselling rooms can be a tempting strategy, especially during peak seasons. You figure that a few no-shows won’t hurt, right? But what happens when everyone shows up, and you’re left with disgruntled guests and nowhere to put them?

It’s a risky game of probability that can backfire spectacularly. Overselling might boost revenue temporarily, but the cost of compensating irate guests and dealing with the fallout can outweigh the benefits. Plus, it’s just not cool to leave someone high and dry with no room on a Friday night.

Now, speaking from my own perspective, I believe that a certain degree of overbooking can indeed be a necessary component of a proper revenue management strategy. After all, it’s challenging to predict with absolute certainty how many guests will show up on any given day. However, and this is crucial, if you’re going to employ this strategy, it must be done with strict limits in place, and someone needs to be watching this closely.

Setting a cap on the number of rooms that can be overbooked ensures that you don’t find yourself in a situation where you can’t accommodate everyone. And having diligent oversight is essential to prevent overbooking from becoming a high-stakes gamble that risks guest satisfaction and your hotel’s reputation. Properly managed, overbooking can be a tool to optimize revenue, but it’s a tool that requires a steady hand and a watchful eye.

Playing with Availability

Manipulating room availability is another ethically murky area. By making it seem like rooms are scarce, you create a sense of urgency that encourages guests to book quickly. It’s a psychological trick that can be highly effective, but it also flirts with deception.

Guests who feel rushed or pressured into making a decision may not have the best experience. They might resent feeling manipulated and may not return to your hotel. It’s a fine line to walk – creating urgency without resorting to manipulation.

One notable player in this urgency-inducing game is the Online Travel Agencies (OTAs). They are notorious for stoking that feeling of scarcity by displaying messages like, “Only a few rooms left at this rate!” While this tactic can indeed prompt bookings, it can also leave guests questioning the authenticity of such claims. They might wonder if there are genuinely only a few rooms left or if it’s just a ploy to get them to click that “book now” button.

In the end, it’s essential to strike a balance between creating a sense of urgency and maintaining trust with your guests, ensuring that they feel genuinely informed and empowered in their booking decisions. I’d recommend you find a better role model than the OTA’s for this one.

The Human Element: Staff Incentives

Let’s not forget the human element in revenue management. Sometimes, hotel staff, including General Managers, Directors of Sales, and Front Office personnel, may find themselves motivated by bonuses or incentives tied to revenue targets, which can inadvertently lead to unethical practices like pushing guests into more expensive rooms when standards are available, or charging additional fees for services that are usually included.

At my revenue management company, my responsibility is to set clear guidelines and foster a culture of transparency and honesty among our remote team. Ethical revenue management is not just a buzzword but a cornerstone of our company’s identity. However, it’s crucial to recognize that the responsibility for hotel staff’s ethical behavior ultimately rests with hotel owners and management.

While I can provide guidance and recommendations, I cannot directly control the actions of your staff. It’s incumbent upon you to ensure that your team, from the GM to the DOS to the Front Office staff, operates in alignment with ethical standards and upholds the reputation and integrity of your property.

We’ll explore this more in the next section.

Ethical Dilemmas in Upselling and Cross-Selling

Upselling and cross-selling are common tactics used to boost revenue in hotels. However, they can be a double-edged sword. When done right, they enhance the guest experience by offering relevant upgrades or services. But when done unethically, they can leave guests feeling like they’ve been taken for a ride.

For example, imagine a guest checking in after a long journey, tired and eager to relax. The front desk clerk, motivated by an upsell incentive program, aggressively pushes additional services, from spa treatments to room upgrades. The exhausted guest ends up feeling pressured into spending more than they initially intended.

The ethical dilemma here lies in finding the balance between suggesting additional services that genuinely enhance the guest’s experience and pushing services solely for the sake of increasing revenue. It’s a delicate dance, and the wrong steps can lead to a guest’s dissatisfaction. Bottom line: if your staff is “upselling” breakfast at a hotel where it’s already inclusive, I might suggest that you kindly rethink your strategy.

The Gray Area of Loyalty Programs

Now, let’s wade into the murky waters of loyalty programs. On the surface, these programs seem like a win-win for hotels and guests. Guests get perks and discounts for their loyalty, and hotels secure repeat business. However, things can get ethically tricky when hotels start playing games with their loyalty programs.

For instance, have you ever received an email enticing you to join a hotel’s loyalty program for an exclusive discount, only to discover that the discount barely covers the increased room rate? It’s a classic bait-and-switch manoeuvre that leaves guests feeling deceived.

In the world of loyalty programs, there’s a fine line between rewarding loyal guests and taking advantage of them. Hotels need to ensure that the benefits they offer through these programs are genuinely valuable to guests and not just clever marketing tactics to inflate room rates.

Navigating the Ethical Maze of Revenue Management

In the complex world of hotel revenue management, ethical dilemmas are bound to arise. The pursuit of profit, while important, should never come at the expense of honesty, transparency, and guest satisfaction. Ultimately, it’s essential to take a step back and reflect on our work, ensuring that it contributes positively to society rather than becoming a drain on trust and ethical standards.

Remember, ethical revenue management is not a hindrance to success; it’s a pathway to sustainable, long-term success. By avoiding the dark side of revenue management and embracing ethical practices, you can build a reputation for trustworthiness and integrity in the hotel industry.

Plus, you just might sleep better at night.

Read more articles from Topline Revenue

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