Discounting in the HotelIndustry: A New Approach

Faced with the need to discount room rates, lodging companies have tried different methods to segment high-rate customers from low-rate customers. For many hotel companies, the discounting mechanism is informal, encouraging prospective guests to haggle in an attempt to push down the rate. Moreover, casual discounting procedures allow high-rate customers to trade down-purchasing lodging at a price far lower than they would otherwise be willing to pay. By establishing discrete rate tiers, however, a hotel can maximize its revenue by offering different room products to different market segments. The key is to segment the markets and to keep them segmented. Marriott has attempted to do that by setting up "fenced rates"-discounts aimed primarily at leisure travelers that are tied to such restrictions as advance purchase, no itinerary change, and no refund. Such restrictions do not hamper leisure travelers, but business travelers find it difficult to overcome such hurdles. The initial response from consumers has been positive, and Marriott has garnered substantial incremental room nights from the program.