An analysis of Tingo from the Hotel industry’s perspective:
Is TripAdvisor site Tingo a wake-up call for bad revenue management in hotels?
Hotels manage their rates in a far different manner than most hostels do, constantly raising and lowering them to match the demand for a given time period. So this article doesn’t really apply to most of us. Nevertheless, it’s important to keep an eye on how a site like Tingo could affect the travel industry.
We see it all the time: Travelers are planning trips months in advance thinking they will be rewarded with low rates for a hotel stay only to see standard rack rates.
And, their experience confirms once again online travel agencies’ brilliant marketing message — the last-minute booking will bring the best price.
This makes it extremely difficult to estimate your future occupancy or to make any kind of income forecasts, budgets, or staffing schedules because no one wants to book until the last minute.
In theory, how should hotel pricing work?
For our industry, as revenue management goes, the strategy is relatively simple. Develop what should be base business with group, wholesale, consortia, [all the business with low rates] in and around 90+ days out. Then follow it with incentive offers, early pre-pays, loyalty marketing and opaque package offers 30+ days out.
Only after, when you enter into your prime booking window (less than 30 days) do you begin to yield higher rates on your remaining inventory based on your “compressed” market demand.
To paraphrase: sell your rooms at low rates long in advance and increase your prices as your inventory disappears and the demand increases.
But what actually happens if there isn’t enough base business to build on and create the limited availability that justifies higher rates in your peak sales period? What happens if there isn’t enough demand in the last 30 days?
We lower our rates in the prime booking window, exactly at a time that we should have been raising them.
Despite the pricing theory outlined above, a lot of hotels implement a pricing strategy like this:
Hotels attempt to achieve multi-layered revenue expectations based on properties’ budgets. We load early all of the top rates and hold onto them past the early demand curve.
Essentially, they try to get a solid base of high-priced business to start out (to ensure that they will have enough revenue to cover the budget and make some profit) and then drop the rates to fill the few unsold rooms. This is exactly the strategy that OTAs are talking about.
If everyone booked through Tingo, then here’s what would happen in this situation. Instead of filling the last few rooms at a lower price and adding to the already substantial revenue from early bookings, the hotel would suddenly find itself at full capacity with everyone paying the lowest rate. That could constitute a major loss of revenue!
So basically, with Tingo the customer wins and the hotel loses, right? In that case, is there anything good about Tingo from the hotel’s perspective?
Is there a silver lining to this? To stretch the definition a little, I feel Tingo shines a bit of light on marginalized revenue management practices of bottom-dwelling’ properties and their rate practices.
You know the ones; just about every market has them. They mirror your rates, just below your market segment rates, and at the first sign of diminishing peak demand,they dive into the rate basement, effectively dragging the market segment along with them.
Now, you have Tingo to hurt everyone even more by “giving back” revenue from business you had already yielded off of.
I guess not.
If those “bottom-dwellers” drop the floor out of the prices to try to capture all of the business, they may just find themselves out of business when Tingo refunds the difference to all of their customers. The hard part is resisting the temptation to throw yourself down the same hole by dropping your prices to compete, effectively ruining your overall revenue as well.
There are several good points made in the comments too.
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