As the dust settles and the lodging industry starts moving into recovery this year, now is the perfect time for hoteliers to revisit their discounting strategies to start gaining more value for their properties and stop giving money away when they don't have to.

For the past eight months to a year, the industry has been scraping and scrabbling to survive under sub-par economic conditions. We've turned on the discounting fire hose and sprayed out incentives to keep our properties full and the lights humming.

But as economic indicators point to increasing demand, smart hotel managers and pricing decision-makers need to step back, take a breath and turn that faucet to the off position.

Sure, no matter how well the economy bounces back you'll still need to include discounting as an important component of your pricing strategies. Discounting is not going to go away. Even when the economy is going strong, you're still going to have weak days of the week, low-demand periods of the year and in certain crowded markets, you'll face a lot of ongoing competition.

However, we're past full-on panic mode and as we put the chaos behind us, it is time to get back to instilling some discipline around how we do our discounting. This means beginning to keep a closer look out for bad habits you haven't had the bandwidth to eradicate during the downturn, tapering off dependence on certain low-profit marketing crutches and applying a higher level of restraint in how you're applying discounting practices on a day-to-day basis. In order to do this, the industry needs to turn to the following three principles to get started.

1. Segment Your Prices
Make sure your discounts are sufficiently fenced and targeted so that you only offer discounts to people to whom you want to offer discounts.

In general, the industry needs to get back to doing segmentation that drives value for the customer. Segmenting should be done in such a way that it provides customers with benefits they value, while rigorously enforcing the restrictions that come along with those perks. Advanced booking and advanced purchases are a prime example of this. Many customers are willing to book a week or more in advance if they get a discount. And they might be willing to pay in advance as well for a bigger discount. Finally, they might even be willing to pay in advance and forgo any chance of a refund for an even bigger discount. In these cases, the customer is actually getting something in return for the restrictions they're accepting. It's a win-win for the customer and the hotel.

That is, until the hotel begins to loosen the enforcement of said restrictions. That's when the real money starts flying out the door. Hotels skittish about keeping the customers flowing inbound have gotten very loose about cancellation policies and the like—it is time we go back to enforcing them.

One example of where lax segmentation enforcement has cost the industry billions is in group segmentation. Standard discounting for group memberships such as AAA and AARP have become so prevalent within the industry that front-line personnel are giving these prices away to customers as a matter of course, with no verification of membership. You need to ask yourself, 'How is my front-line enforcement on this? Do we need to do any kind of retraining around that?' On a case-by-case basis, 10-percent discounts may not seem like much, but if they're applied on nearly every walk-in customer willing to pay full price, your annual bottom line will suffer unnecessarily.

2. Do the Math
Understand and estimate dilution and stimulation every time you discount. Even a rough guess is better than nothing.

This is an especially important consideration for a lot of hotels that are on a pure franchise model that don't have a big headquarters staff to help them with backend analysis. In all likelihood, these organizations have gotten sloppy about offering too many discounts without actually sitting down and thinking through the financial strengths and weaknesses of the decision.

This kind of guestimating doesn't necessarily need to be done through a complex software program or run by an expensive consultant. Even if you're doing a back-of-envelope analysis, it still helps to consider how many additional bookings you'd need to get for the discount to reap a positive revenue impact for your organizations.

My instinct is that right now a lot of money is just being given away because we aren't asking ourselves the right questions before deciding on a set of discounts.

For example, if you're a branded hotel and you have a property out by the highway and there are no other branded properties within two miles of your hotel, you might want to think about whether dropping your price to compete with other hotels really will stimulate any bookings at your property. It could be that everyone going through town is really just going to choose you over the ma-and-pa places anyway. So discounting is really just getting you the same bookings you would have attained anyway, only now you're earning less money for them.

It is essential that you're sure that your discount will stimulate enough new business to offset the drop in price. If it doesn't, then don't discount.

3. Keep All the Money
Unless you absolutely positively have to, don't pay big commissions to channel partners for unloading distressed inventory. Be creative and find a way to reach customers directly or bring them to a direct online portal without intermediaries.

I recently had a customer tell me: "We loved Priceline in 2001 when we couldn't get rid of our hotel rooms. But now we can't get rid of Priceline." The industry has really painted itself into a corner with these discounting channels and it is going to take a lot of hard work to work our way out of it.

In order to free yourself from the channel crutch, you're going to have to be more regimented about how you do your discounting and figure out how to use your own e-mail lists and your own data to find ways to carefully and creatively offer the right segments discounts that will really drive more bookings.

The goal is to offer more targeted discounts directly to guests so that your hotel can keep all of the money rather than paying someone a 25-percent commission on an already discounted room.
At the moment, we're already pushing a rock up a hill to get people directly to our hotel sites—after the better part of a decade of online discount site dominance, consumers are trained to go directly to these channels when they're looking to book a room.

In order to reverse the trend you've got to make your site compelling and you need to make sure that when you offer a discount, it is available on your site. Use your lists to their full advantage, and make sure your offers are targeted carefully enough that you're truly stimulating demand rather than giving away price drops to folks who would buy anyway.

Finally, if you're a franchisee you need to endeavor to ensure that the headquarters people at your chain are talking the same language. Make sure they understand how much damage these online channels are doing and prod them to help push the brand, because the number one way you'll be able to keep all the money is traffic driven directly to your company's website.

All three of these foundational principles are simple. It takes emotional discipline, laser-focused strategic vision and a real belief in your brand to have the courage to get started.

Good discipline around basic discounting practices doesn’t require a big investment. But once these practices are in place, investments in sophisticated pricing and revenue management software will bring even bigger payoffs. So get started!

Bill Kotrba is the senior director of industry strategy for JDA’s Pricing and Revenue Management Group.