QUARTERLY CLASSIC

HOTEL RATE FENCES

Discounting in the
Hotel Industry
A New Approach
Here’s the case made ten years ago for an approach to discounting that provides a rational method of price segmentation. The hotel industry is just now getting it.
BY

RICHARD D. HANKS, ROBERT G. CROSS, AND R. PAUL NOLAND

T

hree busy executives approach a hotel’s front desk, check in, receive their room keys, and head for the elevator. On the way up to their rooms, the topic of room rates comes up. As it turns out, Roy is paying $20 more than Jeanne, while Jennifer is paying $18 more than Roy. Yet all three are staying in essentially the same type of room.
Those of you familiar with yield management already have figured out that this hotel’s yield-management system is in top working order. These three guests—all staying on the same night in similar rooms—have received different rates. You might be thinking that those rates are based on their differing needs and willingness to pay. You might also conclude that some logical factor differentiates those guests, something like flexibility in arrival dates or differences in when they booked their reservations.

94 Cornell Hotel and Restaurant Administration Quarterly

Your conclusions would be wrong. These three guests booked their reservations on the same day, through the same source. What differentiates these guests has nothing to do with supply and demand, their needs, or their willingness to pay.
The difference is only their ability to “work the system,” their willingness to negotiate with the hotel’s staff, and their ability to complain.
The hotel industry’s discounting philosophy has uncharitably been described in various industry trade publications as being similar to negotiations in a flea market or on a used-car lot. That comparison may be harsh, but it’s not far off the
© 2002,