Question

please explain "Pros and Cons of price discounts for hospitality industry"

Answer 1

Pros and Cons of Discount Pricing in Hospitality Industry

The hospitality industry includes a variety of businesses operating within the service industry like hotels, restaurants, food and drink services, lodging services, theme parks, event planning services, cruise, airline and other segments of the tourism industry. The hotel and hospitality industry can be dynamic to some extent, and the managers should be able to overcome the fluctuations (in terms of demand and supply) through appropriate pricing strategies. Problems like low occupancy levels in hotels and others can be solved through discount pricing, to some extent. However, discount pricing has both pros(advantages) and cons (disadvantages) for hospitality businesses. Some of the pros of discount pricing for the hospitality business are:

Driving sales

Discount pricing may drive sales, however, it may also be accompanied by a loss of revenue. Hence the strategy may work well for the seasons when occupancy or consumption rates are low. Also, a recent study found that fenced discounts (where customers were required to undergo certain restrictions) created a greater behavioral and emotional response from the high-involvement customers. The strategy works well for retention, word-of-mouth, and gratitude. Other low-involvement customers preferred fixed discounts that do not have any restrictions. Hoteliers and hospitality businesses can decide what discount strategy they should be using for particular services and products.

Attracting new clientele

Discount pricing is a good way to increase popularity and to reach certain segments of the population that are tight on budgets. The pricing will enable new consumers to come and visit the hospitality businesses, and free advertising avenues including referrals may further provide for an increase in revenue.

Building relations and loyalty

Discount pricing will improve the relationship with existing customers and may also make them more loyal, especially in cases when the discounts are for a select group of customers (for instance club or hotel members or joiners of a business package and deal). Also, discounts bring new people to a hospitality business and the business may impress them through its products and services, thereby creating better future opportunities for itself. Discount packages that are strategically bundled with other offers like memberships may provide for a greater number of repeat customers.

Introducing new services/products

Discount pricing may also accompany the launch of new services and products. Here the pricing will not only provide promotional benefits but will also ensure that the firm is also gaining profits while advertising its new offerings.

Cons of discount pricing include:

a. Loss of revenues when discounts are sustained over the long term (say 2 or 3 months). There should be a good balance in the increase in sales and loss of revenues so that the business remains profitable over the longer time periods.

b. Change in perception. Some clients and customers may view discounts as a compromise to the quality or value of services.

c. A negative change in clientele. For instance, a business may lose the higher-income group customers and gain those from lesser income-levels. Also, customers may find a pattern in discounts and wait for the times or seasons when the discount offer is provided. This may lead to a drop in sales in one season, while greater than required occupancy levels in others. A hospitality business may only serve a limited number of customers at a time.