NB: This is a guest article by Jared Simon, chief operating officer and co-founder of HotelTonight.
By the end of 2012, venerable American retailer Nordstrom was operating more discount Nordstrom Racks than flagship department stores.
With its hard-earned reputation for customer service and high quality inventory, this might seem an odd strategy. However, Nordstrom recognized early on that customers aren’t robots; the same customer will have different needs and desires at different times.
By offering both the flagship as well as the Rack experience, Nordstrom has found that both businesses benefit.
As Rack President Geevy Thomas put it to the Seattle Times earlier this year:
"Many of our customers who'd like to try a new brand have the opportunity to do so at 40 to 60 percent off at the Rack.
"And when they get accustomed to certain brands, they want the newest, latest, greatest thing. That's when they go across to our full-line store and get it the day it comes out."
Figuring out how best to be wherever customers are with products they want at prices they will pay has always been one of the great challenges – and opportunities – for consumer-focused businesses.
With the travel industry’s increasingly intricate distribution infrastructure and the endless variety of available lodging products, perhaps no businesses experience this challenge more than hotels. And the growing prominence of mobile commerce has only exacerbated the issue for hoteliers.
When we first began working on HotelTonight in 2010, our goal was to create a simple way for hotels to take advantage of the opportunities presented by mobile commerce, while minimizing risks to and displacement of their other customer acquisition strategies.
While we now offer a mix of parity and discounted rates, we started with discounted rates and invented this as a way for hotels to match unsold inventory to guests who hadn't even necessarily been looking for a hotel.
We further targeted only those guests who had no loyalty to any particular brand or property.
We took pains to add innovative features to force this focus, like limiting our results to only a handful of hotels and rotating them every day to ensure the lineup would remain unpredictable, as well as delaying the daily sale until noon in each market.
These features served to limit our potential market, a trade-off we were willing to make in order to make the app that much more valuable to our hotel partners.
Imitation isn’t really the sincerest form of flattery
As our concept caught on with consumers and hotels throughout 2011, the big incumbent OTAs began to offer their own versions of last-second mobile offerings.
However, appealing to just a subset of the market is not a viable option for such large companies, so the big OTAs needed to substantially broaden the market. Instead of offering targeted discounts only to non-loyal customers using smartphones to book unexpected hotel stays, the OTA’s focused on targeting anyone with a smartphone.
They dropped the limited results and the unpredictable offers and began pressuring hotels to offer discounts every day on their mobile apps, without regard to who those discounts were reaching and their particular needs.
It wasn’t long before astute industry observers began noticing problems with that strategy.
Remarking on a hotel that published a same-day discount every day at 5pm, HeBS Digital’s Max Starkov argued that rather than attracting incremental guests, the strategy was just training the hotel’s existing guests to wait until the last second to book instead of booking ahead of time at the hotel’s regular rate.
Others have since posted similar warnings, and HotelTonight has gotten caught in the middle as "mobile" has increasingly been equated with "ubiquitous discount" by the big OTAs.
We agree - discounting on mobile is bad
We agree that offering same-day discounts each and every day on mobile devices is bad strategy and will only train customers to wait to book.
We would never advocate this strategy for any business, let alone a hotel, because it destroys the credibility of the hotel’s regular rate strategy and creates what is essentially a new BAR.
But even more importantly, it attracts exactly those customers the hotel doesn’t need to attract – loyal customers who already know where they want to stay and will wait to book at a discount.
By contrast, with HotelTonight’s more targeted rotational model, we have found that more than 60% of our guests did not plan on staying in a hotel before they picked up the app that day, and more than 90% had never stayed in the hotel they ultimately selected on HotelTonight.
These results prove that by utilizing a tailored approach with real restrictions, hotels can indeed take advantage of the impulsive nature of mobile users without negatively impacting their existing rate strategy.
There’s a reason Nordstrom is doubling down on outlet stores and the rest of the industry is following suit. The first outlet mall didn’t appear until 1974, but by 2000 there were more than 300 across the US.
While no one would think about reserving a section of a thriving department store to discount the hottest designer clothes every day, there is definite value in creating a discount store that requires a 45-minute drive, only carries last year’s styles, or employs other similar "fences".
By tweaking their existing in-store experience with subtle but meaningful restrictions to create the outlet experience, the most successful retailers have learned that they can attract an entirely new set of customers, many of whom may eventually graduate to the flagship store.
Embracing mobile
Because of the demographic and behavioral differences of its power users, the rise of mobile has offered hotels a unique new tool to attract incremental customers.
But savvy hoteliers know that that the oversimplified "mobile=discount" strategy hyped by the big OTAs comes with significant risks that almost certainly outweigh the benefits.
Fortunately, tailored apps that offer a more thoughtful, nuanced Nordstrom Rack model of seizing the mobile opportunity exist and offer a safe alternative for hotels.
There’s a whole generation of new customers waiting to discover your hotel – don’t miss the opportunity to showcase it!
NB: This is a guest article by Jared Simon, chief operating officer and co-founder of HotelTonight.
NB2:Watch mobile image via Shutterstock.