Image Source: Tourism Australia

The scourge of discounting: At all costs, avoid the race to the bottom

We all think about the cost of an item before we buy it, but we don’t buy it just because of what it costs. The same applies to travel. To attract bookings, you’re competing with other tourism businesses in your region and in other destinations. It is easy to cut your rates to attract bookings but this is the refuge for those that don’t have anything more meaningful to offer.

With every business or new owner that comes into your market, it gets more difficult to attract guests for the right price. The tourism market is hyper competitive.

We’ve all faced a new hotel or activity opening up just down the road. They’re hungry for business and begin by discounting their rates below yours to lure guests, at your expense. In any competitive environment, a race to the bottom on price may seem inevitable, but it isn’t.

If you are marketing primarily on price, you’re positioning yourself as a commodity rather than a ‘value’ provider. It is a conscious choice.

In my view a race to the bottom of the market is the one race you don’t want to win!

There is a better option.

You can either create more value for your customers or simply cut your rates. By cutting rates you’ll do just enough to keep going, but invariably it will take more and more effort and keep delivering less margin, less profit.

The alternative is to do the hard work of earning attention, earning a reputation, and telling a story that moves your business out of the ‘commodity’ category and into the space defined by inspiration and excitement.

Unless you’re super vigilant and energised, the seemingly easy path of cutting rates will distract you from the vital, but harder, work of creating a ‘value proposition. Ask yourself this question: how do I win? By increasing value or lowering costs?

How do you strategically combat price discounting? Here are some options.

Knowledge is priceless – find and use data

Your first response to competitor discounting is research. Monitor their rates and your own bookings to identify if the competitor’s discounts are having any effect on your business and whether you need to make a change and if so, what change you need to make.

This is a manual time-heavy task, and if you only do this, you’ll always be reactive rather than proactive and strategic. A better way is to get hold of overall market data, which can be acquired from tourism bodies, destinations or visitor centres etc. This will give a more accurate picture of how other travel businesses in your region are responding as well.

Compete on value, not price.

Do not sit back and compete directly just on price. You’ll regret it.

Establish your competitive difference through the analysing your business, products and proposition and what’s around you to understand opportunities you have to ‘position’ yourself as offering greater perceived value, in your potential guest’s mind. This is a far stronger and assertive approach than just matching or bettering your competitor’s price.

You will need to invest time and effort into targeting specific customers where you have a better chance of winning. Then couple that effort with evocative descriptive communication and then ‘over delivery of your competitive difference.

If you don’t emphasise your property’s value, you are vulnerable. Because you are actively helping customers to price-shop, so it’s crucial to create, communicate and deliver actual value and enhanced aspirational experiences that others, who take the easy road, can’t and won’t.

Hold your nerve and hold your ground.

If you are impacted by competitor’s discounting, the one thing you shouldn’t do is immediately reduce your own rates to try to attract guests just on price. It may deliver a brief spike in booking volume, but the resulting price war spiral, with ever reducing low-price benchmarks which will quickly wipe out any short-term benefits and sink your long-term profit. You’ll find it very hard to re-instate higher rates from this downward ‘death spiral’.

The message is DON’T PANIC. Allow your competitor to take the cheaper guests; they will restrict themselves to the price driven segment of the market, allowing you to attract higher value guests. What you need to do is capture bookings through the tactical use of value based. For example;

Incentivise higher value bookings.

Maybe lead with a reduced mid-week rate but bundle that into an extended fixed product/duration package with a discount for longer higher ‘value’ bookings. For example, in accommodation, reduce the nightly rate if the customer books 3 or more nights. This way, you increase occupancy across more nights and the total revenue for the stay is then greater than a shorter stay at your original rate.

Create packages for specific target markets.

There are riches in niches. That is, find or create products that will excite smaller ‘niche’ targets. For example, target couples, or families, consider creating a romantic break or experience.  Include in your package price ‘experiential’ add-ons like photos, champagne, chocolates, flowers or dinner or post tour sunset picnic.  This enhances the guest’s experience and they don’t have to organise each element of their ‘getaway’ themselves.

To target adventurous experiential travellers, create a package that works in conjunction with other tourism options in your region, tours, attractions, or other activities if you are accommodation or vice versa.  You could offer packages that include a massage after a long hike/cycle or packed lunches/picnic baskets for guests that are going to be active all day.

Leverage events in your area.

There will be events that attract people to your area, and you can use your knowledge and access to these to create compelling packages that encourage guests to book your products. The idea is to create an offer that complements the ‘special’ things that your business has to offer aligned with what is going on in your area.

If you want, you can even remove your regular pricing or, for example extend minimum night stays to stop customers booking ‘standard’ products during those dates, so that you maximise revenue those dates periods.

It’s marketing 101.

Attracting a purely price-conscious guest is easy, but it’s not a strategy, and it’s not sustainable. Whereas focussing your energy on attracting consumers with value and turning them into loyal guests by defining your experiential point of difference and delivering terrific value for a higher price is both profitable and sustainable.