Let me tell you a little story on discounts. From the point of view of a company, which, fair to say, got consumed by it. Part, its own. Part, the cut-throat business environment it was in.

In 2015, Stayzilla ran two experiments with discounts. In September that year, it offered discounts for two weeks on almost all the properties listed on the website. “Our booking went up by 80-90% and would have almost doubled had we not closed the programme before the two weeks got over,” says Yogendra Vasupal, co-founder of Stayzilla. “We realised that the majority of the bookings we got—about 60% of them—were made by the hoteliers themselves.”

“One three-room service apartment in Coimbatore made six bookings for the same check-in dates. Another small lodge, which hardly used to sell rooms made bookings worth Rs 4 lakh. When we checked, all those bookings were made from the same IP addresses.”

If you aren’t familiar, this is called round-tripping, or bogus bookings, wherein suppliers themselves buy rooms from OTAs (online travel aggregators) at discounted prices, resell them offline and make profits. “When you give a discount, you set up wrong incentives for the properties,” adds Vasupal. “Because nothing would stop them from buying those rooms themselves.” This isn’t talked about much but according to industry estimates, when an OTA offers a 25% discount on an average on a room night, 15-20% of the bookings end up being done by the hotels themselves. When the discounts go up to 35-40%, the round-tripping transactions go up more, to about 40-50%.

Round-tripping explained

Suppose a guest walks into a hotel, which is selling a room for Rs 2,000 a night. She asks for a discount, and the hotelier agrees to give her a room at Rs 1,900 a night. Now suppose, the hotel is selling the same room at Rs 1,500 a night on a leading OTA (OTAs usually negotiate hard with hotels for the best prices), and the OTA is offering Rs 500 as an additional discount. So the same room is available at Rs 1,000 a night. In the case of round-tripping, the hotelier takes Rs 1,900 from the guest and books a room through the OTA for Rs 1,000. The profit made from the guest is Rs 900. The OTA gives the hotel Rs 1,500 minus its commission. If the OTA charges 20% as commission, the hotel gets Rs 1,200. So on one room, the hotel makes Rs 2,100

The second time, Stayzilla ran a referral programme for five days in November 2015. A person could refer Stayzilla to another person, and if the latter made a booking, both would get cashbacks. “The referral programme picked up so fast, that the velocity became the problem,” says Vasupal. “Of our annual marketing budget of about Rs 1 crore, we spent 20% just in those five days.”

“Discount-based growth is like fire, you need to be extremely cautious while playing with it.

AUTHOR

Moulishree Srivastava

Moulishree has over five years of experience in journalism. In her previous assignment, she was a Principal Correspondent for Business Standard where she wrote on technology and telecom. Prior to Business Standard, she was at Mint, where she wrote on various subjects — tourism, hospitality, real estate, science, cyber security and technology. Moulishree graduated as an engineer in Information Technology from Chandigarh Engineering College. She worked as a software engineer briefly but then took a detour and got her journalism degree from IIJNM, Bangalore. She will be based in Bangalore and you can reach her at her [email protected]

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