LONDON—When it comes to revenue management, there are a lot of factors for hoteliers to think about and many strategies those in charge can implement to get the best return. One potential tool in the revenue manager’s toolkit is the length-of-stay (LOS) discount—and a new study from OTA Insight, headquartered here, sheds some light on how this practice is implemented in hotels worldwide.
The Length-Of-Stay Strategy Report examined the rates of more than 50,000 hotels globally based on data derived from OTA Insight’s Rate Insight platform. OTA Insight compared three consecutive one-night prices at each property with the price for a length of stay for three nights, analyzing by every room type separately, taking two-person, cheapest flexible rates. Metrics analyzed included the number of hotels that apply LOS discounts, how often they utilize these discounts and how much the discount is.
The data revealed that a majority of hotels—63%—almost never apply any kind of LOS discount, a fact that Gino Engels, chief commercial officer, OTA Insight, found surprising. “With numerous data points from more than 50,000 hotels, our dataset was huge,” he said. “And these are large, international chains, using sophisticated tools to present up-to-date rate information to their guests, 30-plus days in advance. So, we can assume this is a statistically significant and robust analysis. This makes it all the more surprising that nearly two-thirds of hotels we looked at don’t apply length-of-stay discounting at all, at least not meaningfully.”
When asked what could be driving this trend, Engels noted, “Length-of-stay discounts need only be offered when demand is low enough to warrant it. So, because we looked at one specific month for the complete dataset, it’s possible that with some properties, demand was above the threshold for the whole period. But, it’s unlikely that this applied to most of the 63% of hotels that didn’t discount that month. So what explains it? Our analysis drew data from our Rate Insight tool, which looks only at publicly advertised rates. So we can assume that to increase occupancy during periods of lower demand, some of these hotels will have gone down other routes, such as direct-marketing offers and selling inventory to wholesalers, corporate sales and the like.”
Engels noted that OTA Insight would never second guess a hotel’s pricing strategy, and it’s hoteliers who know what makes their own properties tick. “We wouldn’t suggest discounting by length-of-stay is a must; it works really well for some and less well for others,” he said. “But from speaking to thousands of revenue and distribution managers over the years, we would say that, as a rule of thumb, it’s good to operate a mix of strategies, and their application should be as consistent as possible.”
Of the 37% that offered LOS discounts, some 71% did so for 10 or more days in the period analyzed. Other key takeaways include the following: Most hotels that apply a LOS discount will usually not apply one higher than 15%; the majority of chain hotels with LOS discounting strategies discount between 30-65% of the time; and the percentage of hotels that consistently discount on LOS (at least 10 LOS discounting dates) by region is 36% in North America; 29% in the Middle East; 36% in Asia; 36% in Australia and New Zealand; 15% in Europe; and 12% in LATAM. Additionally, while some hotel chains can be grouped together by similar average discount frequencies, the way hotels within each chain apply discounts can vary.
“We expected to see a variety of length-of-stay discounting strategies from one chain to the next; what we took away was a clearer understanding of that variety,” Engels said. “Of chains that do discount by LOS, three clustered just under the 40% mark in terms of how often they offered discounts; another three hovered around 50%; and a further two, 60%. But when we drilled into the data, we saw that behind some chains, in the same discounting frequency bracket, very different strategies underpinned the same discounting frequency. The similarities were only superficial. We were also able to measure significant differences between types of hotel within chains. So, for example, three- to five-star properties offered LOS discounts most often.
“From examining the data, it’s clear to see that there’s also a real lack of apparent consistency in the way some chains apply discounts—their data is spread widely rather than concentrated, suggesting a high level of variation in their own hotels,” he said. “We weren’t expecting this. Does it suggest a complex strategy that it’s hard to infer the details of just by looking at the data, or a simply a haphazard strategy that’s not very well defined or applied? Both conclusions would be surprising: the former, because that’d be hard to manage across multiple properties; the latter because we’d assumed when commissioning this work that we’d find more evidence of discounting and of clarity in specific strategies.”
When looking to use these results to drive profitability in their own hotels, Engels said, “The first thing I’d do if I managed my hotel or chain’s discounting would be to compare my strategy against those of the other chains in this report. Whatever their strategies, these are all highly successful chains, so they know what they’re doing. I’d be keen to benchmark myself against them. Quantitative analysis should be a big part of every revenue manager’s role.”
It’s important for revenue managers to see the whole picture. “Supply and demand governs so much, as do your competitors’ prices, which correlate with demand. If you have a view on these factors, you can decide which strategies—including length-of-stay discounting—to tap into when demand is low,” Engels said. “But getting that accurate view on the landscape first is all-important. You should also find a tool that facilitates apples-to-apples comparisons on competitors’ rates. This applies to things like room-type mapping and whether breakfast is included, as well as to length-of-stay discounting.” HB