The Value of Discounting

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Joshua Meehan
Joshua Meehan
December 3, 2014
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UPDATED:
November 12, 2019

A study by The University of Minnesota took a look at how shoppers perceive discounts and value-added items when shopping. The study found that shoppers prefer to get more for their money than to receive a flat discount. But when presented with both options, they will often choose the discount. That sounds contradictory. The reason they want the flat discount is simple, they aren’t doing the math. When presented with multiple discounts and offers, shoppers will take the easy option, even if they aren’t saving as much. When only presented with the value Added option, the study shows that retailers’ sales were 73% higher over a flat discount. So how can hoteliers apply this to their revenue strategies?

People shop for their hotel accommodations the same way they shop for everything else. They are going to look for value in their purchase, and a discounted rate or promotional package will help get them to make a reservation. Applying the principles from the study, presenting a guest with multiple options, can lead to them taking the offer that seems to have the most significant savings even when it doesn’t. The savings between 30% off room nights and a stay two get one free are virtually the same on a three-night visit at $100 a night a 30% discount will net the hotel $210. The stay two get offer will net $200, so at $10 less, how does this benefit the hotel?

Having a straight discounted rate may be good at filling rooms, but there are a lot of other factors to consider. Discounts available for a single night will bring a higher turnover rate for the rooms and increase operating costs while lowering overall revenue. On top of the financial repercussions, the hotel’s reputation is on the line. Cheaper places can attract more disruptive guests and drive away those willing to pay for a higher quality experience. The longer the rates remain discounted, the further that divide will become. This will make it increasingly more painful and expensive to begin raising rates again. Offering guests value-added packages can not only protect a hotel’s reputation but can help build it. Based on the study, these offers will sell better than a lowered rate and attract guests who are willing to pay for the quality of the hotel.

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