DISCOUNTING WITH AN EDGE!

DISCOUNTING WITH AN EDGE!

In my years of experience as a hospitality marketer, involved in the marketing of hospitality goods such as foods, drinks etc and services such as contract management, hotels & resorts accommodation, restaurant, service packages etc, I had had opportunities to interact with different clienteles having diverse purchasing power, and satisfying various hospitality needs. These clienteles are marvellous in their bargains for discounts, rebates, complimentary accommodation/meals etc in ensuring they get the best out of the business discussions.

In the current business era where the hospitality business is faced with increased in labour demands, high energy cost and most importantly the global economic recession and meeting with the renovation/maintenance/upgrading expectations of its facilities in other to stay in business, the average customers seems not happy in any deal except discount is inclusive. While we shall be discussing various customers and discounting strategies to excel with each category of customers, it is believed that you will keep to the discounts commandments discussed below in getting the best out of every business scenarios and end the deal in a win-win situation i.e. a situation both the customer and your firm ends the discussion on perceived best business deal.

Discount is defined in literally term as a reduction in prices by the seller to a buyer usually in a form of special incentives. This should not be confused with price skimming, penetration pricing, promotional pricing or price discrimination; as these terms seems similar but different in their applications.

Do note that the discussions here are based on the best "Marketing Practices" and not "Selling Practice" in which every scenario sees the customer as the "King" and the major reason for being in business.

Before deciding on the rate or amount or percentages to "let go" on your hotel or restaurant rates as discounts, remember these rules, referred to here as the "Seven Commandments of Discounting":

i. Thou shalt not offer discount because everyone else does;
ii. Thou should be creative with your discounting;
iii. Thou should use discounts to clear stocks or generate extra business;
iv. Thou should put time limit on the deal;
v. Thou should make sure the ultimate customer gets the deal;
vi. Thou should discount only to survive in a mature market; and
vii. Thou should stop discounting as soon as you can.

i. Thou shalt not offer discount because everyone else does: This is often the greatest mistake hospitality business owners and marketers do. They believe that once a customer says Hotel ABC has offered him a 20% discount; the best bet is to increase the offer to 25% discount or more. This is "business suicide" as you will observe that firms who does this end up declaring little or no profit with highest business activities. The best strategy to tackle such discount sensitive customers is to deviate a bit from the discount discussion and remind the customer of your Unique Selling Points (USP) i.e. the things that make your products / services better than the competitors. Offer to give other alternative incentives to discounts such as welcome cocktail and upgrading of rooms (if higher rooms categories will be vacant during the period). Should you observe that the customer has budget restrictions, endeavour to enquire about the budget and work along your offerings to achieve same. With this, empathy displayed will override the discount proposed.

ii. Thou should be creative with your discounting: One thing that amuses the customers in our kind of business is creativity. By being creative with your discounts, you tend to get the customer off balance and he thinks he has gotten the best deal. For instance, if a residential clientele is requesting for at least 20% discount on his accommodation of $200/night, consider offering the accommodation on "Bed & Breakfast" instead if you observed the cost of breakfast is below $100. An additional 5% discount on room will be an offer to resist.

iii. Thou should use discounts to clear stocks or generate extra business: This should be the principal objective of any business discount policy. Considering such words as "we may not be able to do more than 5% discount on the 30 rooms for 2 nights, should you increase to 50 rooms per night or extend to 3 nights, we may consider between 10-15% discount for you". Every customer wants the best deal, and should the client has the time and resources, he will want to either increase or extend his stay. This always works when you observe that the client has not concluded on the number of participants for the function or date of the event is flexible. The use of discounts during off peak period should be a function of the customers' needs in terms of volume of business.

iv. Thou should put time limit on the deal: To make your discount effective in generating the income and cash flow desired, endeavour to put time limits on whatever discounts being offered to the customers. Seasonal discounts may be employed during off-peaks to generate business; cash discounts may be applied for prompt payment or settlement of outstanding etc.

v. Thou should make sure the ultimate customer gets the deal: The ultimate customer is the person using your products, enjoying your service or facilities. It is he who will be in the best position to recommend your products cum services to others or otherwise. The situation where the company representative intends taking the discounts meant for the company at the expense of his firm should be discouraged. The company should be able to get what it deserved to generate repeat business while the representative can be taken care of depending on the roles he played in the Decision Making Unit (DMU) prior to the selection of your facility for the event (handling this type of scenario will be discussed in future editions).

vi. Thou should discount only to survive in a mature market: A market is mature when it has reached a state of equilibrium. A market is considered to be in a state of equilibrium when there is an absence of significant growth, or lack of innovation. I once documented it that "most indigenous hotels and hospitality firms in Nigeria quickly achieve maturity on the Hospitality PLC (Product Life Cycle) due to their inability to innovate and elongate their growth stage on the Hospitality PLC". Hospitality firms who find themselves in this market (i.e. mature market) may employ discount indiscriminately as a temporary measure to survive competition even though the company will be marked by declining profits. The only thing the company in this situation may do is to use discounts to play the "race-to-the-bottom" game in order to grab a "slice of the pie", which often translates to more saturation before decline sets-in. No one has propounded management solutions on how using discounts in this market will drive competition to the ground, the "golden rule" is for hospitality businesses to keep innovating and understand their stage on the Hospitality PLC in determining their discount policies and strategies.

vii. Thou should stop discounting as soon as you can: It is suicidal and does not make meaningful business sense to discount during peak periods. Discounts should be stopped during this period. Also, your inability to stop discounting timely will not enable you to monitor the effectiveness of your previous discounting in determining its effectiveness in resulting into repeat cum return patronage/customers.

In simple business sense, whenever you discount, you have just reduce your business net profit by the value of the discounts given. In as much as discounts is part of our business life and that of the customers, we should endeavour to utilise them judiciously and consider it alongside such marketing tools as product innovation, customer service improvements among others.

Price war via discounts alone cannot be an effective competitive tool for any hospitality firm in a relative saturated market, consumers might construe a very high discount to be a function of low quality of product/service or a no-discount policy to be relative to excessive greed or avarice; the keyword is to understand your position on the Hospitality PLC and strategise accordingly.

BABALOLA WASIU ADEYEMO PhD
(PhD, MBA, HND, Diploma in Marketing, Cert in Corporate Strategic Mgt)