How to Not Lose Money using OTA Discounts!

If you want to see a small-hotel owner get frustrated very quickly, a sure-fire way of getting them into that state is to ask them about their experiences with Online Travel Agency ( Booking.com and Expedia.com – OTAs for short) discounts.

On the one hand, they want their property to stand out on Booking or Expedia. On the other, they’ve usually got into some kind of mess with multiple discounts operating at the same time, creating a price they didn’t want.

This is not really a surprise. If you think about the goals of the OTAs; they want to encourage people to habitually visit their website to book through them. For this, they want the client to associate their website with the most choice and cheapest prices, and these discounts help to achieve this.

If the discounts were not confusing and were simple to offer on all platforms at the same time, it would defeat the object. Then every channel would be offering the same discount. The more confusing it is and the more hidden the result (e.g. login-only rates like Genius) the better it is for the OTA. For this reason, there is no ideal solution to this problem. Getting the maximum benefit from the discounts will mean giving away control to the OTA.

We have been fortunate enough to be able to discuss this subject with Matea Prpic from myhotelshop, whose knowledge on everything digital for hotels is phenomenal.

Benefits and Disadvantages of OTA discounts

There are three main benefits from offering discounts on OTAs:
1. Your lower prices attract more guests
2. The psychological effect on the client of seeing a discount makes them slightly more likely to choose you
3. Your ranking on the OTA increases

The three main risks are:
1. That you sell your rooms too cheaply
2. You mess up your rate parity causing you problems elsewhere,
3. You offer your rooms cheaper on the OTA than your own website, meaning that you have to pay commission and offer a cheaper price just to get someone who would have booked on your website anyway.

Using and Feeling Confident with OTA Discounts

How you negotiate the risks is a choice that you will need to make as a hotelier and it depends on

a) your reliance on that particular OTA

b) how much of an impact these discounts have on your booking numbers and

c) how much time and energy you want to spend on it.

At RoomPriceGenie we usually advise our clients to avoid these discounts, or use only the specific ones that you have control over. If we look at the benefits again we can discuss why.

The first benefit of discounts is that your lower prices attract more guests. When you use software like RoomPriceGenie we have already calculated the best price to get maximum revenue. By putting discounts in addition to this, you are making a decision that may get you more reservations but will likely lose you money. For benefit 1, we would always recommend sticking with our suggestions.

What of the second benefit? There is undoubtedly a psychological effect of seeing the words “last-minute discount” or similar on a price. It makes you feel as if you are getting a good deal. If you do want to take advantage of this as a seller, then we recommend that the best way to do this is to apply an automatic increase in the price that you send to booking that counteracts the discount, In other words, the price you send is the one you originally wanted to send, but you get them saying that it is a discount. This is worth the time, if you have it, but does lead to coordination issues. You will need to set up an adjustment on RoomPriceGenie to counteract the discount – e.g. for a 20% discount, you will need to increase the price you send by 25% to achieve the same end-price (here you can Download a spreadsheet to calculate the adjustment you would need to make). You will also need to make sure that all of your channels are offering the same discount. Expedia, Airbnb, etc. should all be the same so you don’t have rate parity issues. And most importantly your own booking engine needs to have the discount so that people who go to your website always get at least as good a deal as if they are on an OTA.
Easily controllable and non-overlapping discounts like ‘Early Bird’ and ‘Last Minute’ discounts lend themselves well to this scenario. You can set up lead-time dependent adjustments in RoomPriceGenie (ask us if they are not enabled for you) to exactly counteract them. The ‘Last Minute’ booking.com discount currently also has the benefit of pushing your ranking higher on mobile searches.

What about the third benefit? An improvement in your ranking. This is clearly a great help. Your likelihood of being booked drops precipitously if you are on page 2. I know of some very small properties that rely on giving Genius and Genius Dynamic discounts to get enough visibility. This is a decision that you will need to make but we would recommend not making these discounts too large. One alternative option is to increase the commission you pay, which will also increase your ranking. It is possible now to even specify which days you want to increase commission on, so you can target it on days that you would not be getting full and need more exposure.

Certainly, Matea would advise against using discounts like ‘mobile-only’ which stack on top of other discounts (meaning you end up selling too cheaply without realizing), are visible to the meta-sites (meaning you break rate-parity), and really have no logical reason for being offered. Genius country rates are another one to avoid for similar reasons.

Key Takeaways

So to summarise, our general advice would be:
Easiest Strategy: Don’t use OTA discounts; get your pricing right with good dynamic-pricing software like RoomPriceGenie and don’t worry.

Optimal Strategy if you want to put the time in: Use controllable OTA discounts which you replicate across all OTAs and your own website. Use RoomPriceGenie to counteract these discounts with commensurate increases. Consider using increased commission on quiet days to increase ranking on the OTAs.

At this point, we would like to express big thanks to Matea Prpic from myhotelshop, who has helped greatly with this article. Myhotelshop helps hotels to avoid reliance on OTAs by increasing direct bookings. Using a combination of online marketing, voucher codes, Google Hotels and other methods, on some of her hotels achieve 80% direct bookings. We hope to be able to pass on more of her expertise on this blog in the future. 

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