Selling last minute hotel rooms at deep discounts looks like a great idea. You have sold the perishable room inventory at a discounted price that is above your cost price, instead of letting the room stay unsold.
However, selling the unsold rooms at a deep discounts online opens a can of worms:
Cannibalizing existing customer base
Your existing customers can see the lower price. They will increasingly wait for the last minute to book your hotel room at a lower price. In the long term, you will cannibalizing your existing customer base. They will expect and book at the last minute to avail discounts. Besides, some savvier customers will actually be checking your hotel price between the date of booking and date of check-in. Subject to your cancellation rules, you may experience cancellations. Guests may find that cancelling the old booking and booking the same room last minute may be a better deal. So while you have successfully pushed up the Occupancy, your long term ARR has gone for a toss.
Damage the brand with the new lower market price
You have successfully damaged your hotel brand, by pushing your hotel rate to the new discounted price. While you intended this to be the exceptional price to earn from unsold rooms, customers will now expect this to be the new market price. You will have to now work very hard on your hotel branding efforts to push this market price up again, commensurate with your hotel’s quality and service.
Rate Parity
Oops, you are now selling on your website or via a last minute seller at Price 1X, and on some OTAs at price 2X. Your corporate clients or loyalty card holders are booking you at price 2X.
Uncertainty due to selling last minute hotel rooms
The moment you push a bulk of your bookings last minute by your own myopic deep discounting strategy, you have the bulk of your bookings coming in last minute. This will not give you enough lead time to take corrective action, re-marketing to a customer base, or whatever other strategy you have to fill rooms.
