When Cutting Rates Becomes Your Biggest Competitive Mistake

"The issue is not that discounting never works. In fact, there are situations where lowering rates is entirely appropriate. The real problem is that many hotels apply a pricing solution to a demand problem that has little—or nothing—to do with price."

When Cutting Rates Becomes Your Biggest Competitive Mistake

When demand weakens, most hotels react instinctively: lower the price and hope bookings return. On the surface, the logic seems difficult to argue with. A lower rate should attract more guests, increase occupancy, and generate much-needed cash flow. During periods of uncertainty, reducing the Best Available Rate (BAR) often feels like the fastest action management can take. Unfortunately, this is also where many hotels make a costly mistake.

The issue is not that discounting never works. In fact, there are situations where lowering rates is entirely appropriate. The real problem is that many hotels apply a pricing solution to a demand problem that has little—or nothing—to do with price. When the underlying cause of weak demand is structural rather than competitive, lowering public rates rarely changes customer behaviour. Instead, it often weakens future pricing power, compresses margins, and encourages competitors to respond in kind.

The immediate occupancy gain may look encouraging, but the long-term commercial cost can be significantly higher than expected.

he Diagnosis Matters More Than the Discount

Imagine a boutique hotel in Bangkok. Occupancy falls from 80% to 55% within two weeks. The weekly revenue meeting becomes tense. The General Manager wants more bookings. The owner is concerned about payroll. The sales team asks whether promotions should be launched immediately. Someone eventually suggests the obvious solution: "Let's just lower the BAR on Booking.com." It sounds sensible. Sometimes it is. But before changing price, the first question should never be "How much should we discount?"

The first question should be: "Why has demand declined in the first place?" That distinction changes everything. If demand has softened because competing hotels are undercutting your rates, pricing may indeed be part of the solution. However, if demand is constrained by external factors—such as reduced air capacity, geopolitical uncertainty, visa policy changes, currency movements, or shifts in traveller preferences—discounting your room rate may have little influence on a guest's decision to travel.

Lowering price does not create airline seats. It does not strengthen foreign currencies. It does not make a destination suddenly more attractive. Before adjusting price, revenue managers should first identify whether they are facing a pricing problem or a market demand problem. The two require very different strategies.

When the Problem Isn't Price

Let's assume the hotel decides to reduce its public BAR by 15%. Within a few days, bookings begin to improve. The revenue report looks healthier. The management team feels reassured that the strategy is working. But revenue management is rarely judged by what happens this week. It is judged by what happens over the next six months. Lowering rates often solves today's occupancy challenge while quietly creating tomorrow's pricing problem. Why? Because guests rarely evaluate your hotel in isolation. They compare.

They monitor prices over time. And they quickly develop an internal reference of what your hotel is "worth." Behavioural economists refer to this as reference pricing. Once customers become accustomed to a lower public price, that lower price gradually becomes their new expectation. The next time they search for accommodation, yesterday's discounted rate becomes today's benchmark.

A room that once felt fairly priced at THB 4,000 may suddenly appear expensive—not because the hotel has become worse, but because the customer has mentally recalibrated its value. This is one of the least visible, yet most damaging, consequences of excessive discounting. Unlike occupancy, which can recover relatively quickly, customer price expectations often take much longer to rebuild.

Demand Problems Cannot Always Be Solved With Pricing

Revenue managers often face two very different situations that produce the same symptom: fewer bookings. The first is a competitive pricing problem. Perhaps a new hotel has entered the market with aggressive opening offers. Perhaps nearby competitors have launched temporary promotions. In these situations, price may indeed influence customer choice. The second is a market demand problem.

Imagine international arrivals decline because of reduced flight capacity, changes in visa regulations, geopolitical uncertainty, or a weakening source market economy. In this scenario, travellers are not rejecting your hotel because it is overpriced. Many have simply decided not to travel at all. Reducing your room rate cannot create airline capacity. It cannot strengthen a foreign currency. It cannot reverse geopolitical events. Most importantly, it cannot create travellers who are no longer in the market.

This distinction is critical because the appropriate commercial response is completely different. When the issue is pricing, revenue strategy may focus on rate positioning, distribution, or targeted offers. When the issue is market demand, the discussion should shift toward source markets, segmentation, channel mix, marketing partnerships, and protecting long-term pricing integrity. Both situations reduce occupancy. Only one is primarily solved by lowering price. Great. Let's continue in the same style.

One thing you'll notice is that I'm no longer writing to "teach" the reader. I'm writing to guide their thinking. That's a subtle but important difference. People trust articles that help them reach the conclusion, rather than articles that immediately tell them they're wrong.

🇬🇧 THRev Version 2 (Continued)

Why Copying Your Competitor Can Become a Strategic Mistake

When uncertainty increases, hotels naturally begin watching each other more closely. A nearby competitor lowers its rates. Another launches a flash sale. A third joins multiple OTA promotions at the same time. Within days, the entire market appears to be moving in one direction. For many revenue managers, matching those prices feels like the safest decision. After all, if everyone else is reducing rates, surely they know something you don't.

This is where many pricing decisions stop being analytical and start becoming emotional. The assumption is simple: "If our competitors are discounting, we should too." The problem is that hotels rarely have access to the information behind those decisions. A competitor may be discounting because they have a large group cancellation. Another may be trying to stimulate demand after a renovation. A newly opened property may be sacrificing short-term revenue to generate reviews and visibility.

Some hotels may even be following a pricing strategy that is ineffective—but others continue to copy it anyway. Looking only at the price without understanding the business context is like reading the final score of a football match without watching the game. You know the outcome. You don't know the reason.

Not Every Competitor Is Solving the Same Problem

Imagine two hotels located only a few hundred metres apart. From a guest's perspective, they appear almost identical. Both have similar room counts. Both target international leisure travellers. Both are listed on the same OTAs. Then one hotel reduces its BAR by 20%. Should the other immediately follow? Not necessarily. The first hotel may have lost a major corporate contract and needs to replace thousands of room nights.

The second hotel may already be pacing ahead of forecast and has no reason to stimulate additional demand. Although both hotels operate in the same market, they are responding to completely different commercial situations. Price alone tells only a very small part of the story. Good revenue management is not about reacting to competitor prices. It is about understanding why those prices changed—and whether the same reasoning applies to your own business.

Competing on Price Is Easy. Recovering From It Is Not.

Lowering rates is one of the fastest commercial decisions a hotel can make. Recovering those rates is usually much slower. Once lower public prices become visible across multiple distribution channels, guests begin comparing against those new benchmarks. OTA algorithms, metasearch platforms and even repeat guests remember historical pricing. The market gradually adapts. Increasing prices later often becomes more difficult than reducing them in the first place.

For that reason, experienced revenue managers usually ask a different question before reacting to competitors. Instead of asking: "Should we match their rate?" They ask: "What problem are they trying to solve—and do we have the same problem?" Those two questions often lead to very different decisions.

The Difference Between Protecting Rate and Protecting Revenue

One of the most common misconceptions in hotel revenue management is that maintaining your room rate means refusing to discount under any circumstances. That is not what experienced revenue managers do. Protecting rate and protecting revenue are related, but they are not the same objective. Imagine two hotels with identical occupancy. Hotel A sells every room at THB 4,000. Hotel B sells every room at THB 3,200. Without additional context, Hotel A appears to be performing better. But now consider another layer.

Hotel A acquired most of its bookings through high-commission OTA promotions. Hotel B generated a larger share of business through direct bookings and repeat guests. Which hotel is actually producing more profit? The answer is no longer obvious. Revenue management is not simply about achieving the highest public rate. It is about maximising the commercial value of every room sold after considering distribution costs, customer behaviour, future demand, and long-term pricing power.

That is why experienced revenue managers rarely evaluate price in isolation. They evaluate net commercial contribution.

A Lower Price Is Not Always a Better Deal

Discounting often creates the illusion of progress because bookings arrive more quickly. However, not every additional booking improves the business. Suppose a hotel reduces its BAR by 20%. Occupancy increases from 68% to 82%. At first glance, the strategy appears successful. But several questions remain unanswered. Did ADR decline more than occupancy improved? Did commission costs increase because more bookings shifted to OTAs? Did guests who would have paid full price receive unnecessary discounts?

Did the hotel simply sell the same rooms for less money? Without answering these questions, judging success based only on occupancy can be misleading. Revenue management measures commercial performance—not booking volume alone.

Revenue Management Is About Trade-offs

Every pricing decision creates an opportunity cost. Selling a room today may prevent selling that same room tomorrow at a higher value. Offering a discount to one segment may reduce revenue from another segment that was willing to pay more. Opening every promotion simultaneously may increase occupancy while reducing profitability. This is why revenue management is often described as a discipline of optimisation rather than maximisation. The objective is not to maximise occupancy. Nor is it to maximise ADR.

The objective is to optimise long-term commercial performance by balancing occupancy, average rate, profitability, customer mix, and future pricing flexibility. The best decision is rarely the one that maximises a single KPI. It is the one that produces the strongest overall business outcome.

A Better Question Than "Should We Cut Rates?"

Once a hotel recognises that weak demand does not automatically justify lower prices, a more useful question begins to emerge. Not: "Should we reduce the BAR?" But: "What commercial objective are we trying to achieve?" Those are very different questions. Every pricing decision should have a clearly defined purpose. Are you trying to stimulate demand during a genuinely weak period? Increase market share from a specific source market? Recover occupancy after a group cancellation? Improve cash flow?

Drive direct bookings? Protect market positioning? Each objective requires a different commercial response. Reducing public rates is only one of many available tools—and often not the most effective one.

Price Should Usually Be Your Last Lever, Not Your First

Experienced revenue managers rarely begin by asking how much they should discount. Instead, they examine every commercial lever that can influence demand before changing public pricing. For example: Can demand be shifted from OTA to direct channels? Can marketing campaigns focus on source markets that are still travelling? Can existing guests be encouraged to extend their stay? Can value be added instead of reducing room rates? Can promotions remain private through member rates rather than public BAR reductions?

Can length-of-stay controls improve overall revenue? These actions preserve pricing integrity while still stimulating demand. Discounting should remain an option. It simply should not become the default response to every slowdown.

Not Every Discount Needs To Be Public

One of the biggest mistakes hotels make is assuming that the only way to stimulate demand is by lowering the public BAR. In reality, modern distribution systems allow hotels to target very specific customer groups without changing the price seen by everyone else. A hotel might offer:

• Mobile-only promotions.
• Loyalty member rates.
• Country-specific offers.
• Closed user group promotions.
• Corporate negotiated rates.
• Package pricing that adds value without reducing BAR.

These strategies allow hotels to address specific demand segments while protecting public pricing for guests who are already willing to pay full rate. The goal is not to avoid discounting. The goal is to discount intelligently.

Revenue Management Is About Better Decisions, Not Higher Prices

Revenue management has never been about charging the highest possible rate. Nor is it about refusing to discount. Its purpose is to help hotels make better commercial decisions with the information available at the time. Sometimes that decision will be to increase prices. Sometimes it will be to reduce them. Sometimes it will be to leave prices exactly where they are. The challenge is that pricing decisions often feel urgent.

When bookings slow down, changing the BAR is one of the few actions that produces an immediate and visible result. Doing nothing feels uncomfortable. Changing price feels productive. But action and progress are not always the same thing. The most valuable revenue managers are not those who react the fastest. They are the ones who correctly identify the problem before choosing the solution. Because in revenue management, asking the wrong question often leads to the wrong answer.

Before You Change Your Price, Ask These Five Questions

Before adjusting your public BAR, pause and consider:

1. Has demand changed, or has competition changed?

If demand itself has weakened, price may not be the primary issue.

2. What evidence tells us that price is the problem?

Assumptions are expensive. Data is cheaper.

3. Are there commercial tools available before changing public rates?

Targeted promotions, source-market campaigns, loyalty offers, packages, and distribution strategies may achieve the same objective while protecting long-term pricing.

4. What are we giving up by reducing price today?

Every discount has an opportunity cost. Understanding that trade-off is part of good revenue management.

5. If we lower today's rate, what is our plan to rebuild it?

Lowering price is easy. Restoring price credibility usually takes much longer. If there is no answer to that question, the decision deserves another conversation.

Final Thoughts

The strongest hotels are rarely those that react the fastest. They are the ones that understand their business deeply enough to distinguish between noise and signal. When markets become uncertain, protecting your future pricing power is often just as important as protecting today's occupancy. Revenue management is not the discipline of finding the lowest price. It is the discipline of making the best commercial decision. Every time.

About THRev

At THRev, we believe revenue management should be practical, transparent, and grounded in evidence—not myths or intuition. Our goal is not to tell hotels what price to charge. Our goal is to help hotel teams understand why a decision makes sense, when it should be applied, and what trade-offs it creates. Because better decisions build stronger hotels.