Solutions to the challenge of overly generous hotel cancellations are on the front burner. Better late than never — and, if done right, what a useful tool for shoring up your Revenue Strategy.
As my colleague Jason Freed put it last week, the way cancellations are trending will put pressure on the hotel industry to alter its approach to how it accommodates customers’ ability to give up a booking at the last minute. Your property can’t control consumer behavior, but it can control the incentives and charges with each booking to guard against the unpredictable.
Hoteliers have had to balance the “carrot” and the “stick” regarding cancellations for a long time. The former is a consumer-friendly option of the pre-paid discount for a nonrefundable room rate. The latter is a fee for cancelling the booking too close to the stay date, forcing the hotel to scramble to fill the room with a high-cost, last-minute distribution channel. I would argue that hotels need both, and they need to make the carrot yieldable and the stick considerable.
Wouldn’t meaningful cancellation fees displease customers? I believe the hotel industry just has to have some fortitude and understand that a little dissatisfaction from customers is OK. It will pass.
Hotels did themselves a disservice by not acclimating customers to this model a long time ago. It’s time to do so now. Of course there should be some conditions under which guests can cancel a reservation, but past a certain threshold close to the booking date, they should have to pay a fee similar to what airlines charge.
It’s hard to find another industry that’s as permissive of backing out of a purchase as the hotel business. Certainly airlines and rental car companies aren’t. Traditional retailers have an advantage in that their customers can return an item, but they also put several restrictions on that return to make it relatively difficult.
Manage cancellations via better yielding
The real opportunity for hotels is to offer more competitive room rates to guests who agree to make a nonrefundable, prepaid booking.
It’s not that complicated to make yielding prepaid discounts part of your Revenue Strategy, as long as you’re monitoring what it does to your conversions. You could set up an early-booking discount that’s non-transferrable and then flex it just like any other rate code. Just make sure you’re tracking what it does, through either pickup alerts and lost-business data like web shopping regrets and denials.
If you don’t see an increase in conversions at that lower rate, then too many potential guests are turned off by the lack of flexibility — or the remote chance that they have to eat the cost of the room if something unforeseen prevents them from traveling.
If that’s happening for a low-demand stay date, perhaps you could yield the discount a little higher to get that reservation on the books, or you could wait it out. If it’s for a compressed date, you can flex the offer down and let somebody book the room for closer to the full fare. If you have a sensible cancellation fee, you’re relatively protected if that guest voids the booking.
It’s more than rational to align the interests of the customer and the hotel. A reservation is a contract in which the hotel in essence says, “We held this inventory for you and made pricing decisions based on that hold — it’s worth something.”
The amount of that “something” is one more thing your property can control.
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