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Open markets and competition create the best value for consumers.
This idea is a spin off of a previous post that was quite popular. In landlords will love/hate this, I pitched an idea for an open market, reverse auction where property owners could list apartments, and tenants could bid for their desired price. This works because landlords make negative dollars each month an apartment sits empty.
Similarly, hotels make zero dollars for each room that is empty on any given night. It is to every hotels advantage to be sold out, this is common sense. I am going to propose a web business solution that could be pitched to hotels, and creates a customer focused system for booking.
Breakeven: In order for this to work I am going to assume a hotel chain knows what it costs to fill a room for one night. They are going to take all variable costs into account from utilities, to those little packets of coffee that you are going to stuff in your suitcase for a rainy day. Let’s assume that it costs a hotel $35 each night to pay the maid, do the laundry, pay your excessive water bill, etc. We will not factor in fixed costs like property tax, front desk staff, etc because they have to pay for this anyways.
Okay, so it costs $35 to take a room that would have been empty and put someone in it for the night. Theoretically, it would be to the hotels advantage to sell that room for $36 and profit $1 that they would have otherwise not made. Right?
Do you see where this is going? The idea would be for another reverse auction. A hotel in Indianapolis could be 50% full on a weekday. What if they let people bid on last minute reservations for a discounted rate and could be 75% full. I will give you an example. . .
Example: The Westin in Indianapolis is $159 each night. Their breakeven is $35 like I said. I am a budget conscious consumer going to the city and I am going to stay at a Holiday Inn for $100. But then. . . I find out that the Westin is only 50% full on the day that I am visiting. What if I offer them $100 to give me a room for the night? It is to their advantage to take the offer.
Real World Example/Tip: I do this when I travel. I know that hotels would rather be full so I negotiate single room deals with them. For my honeymoon, I upgraded to a suite for less than the price of a normal stay. The suite was going to be empty anyways. It doesn’t cost them extra to put me in a nicer room. Also, I have found it is best if I give them a budget. “I only have $100 to spend on this hotel stay” see if they take it or make a counter offer.
The Business: Create an online reverse auction system for hotels. Sell them the service. If a hotel could fill 10 more rooms a week at a discounted rate of $100 they would make $650. ($100-$35=$65 per room multiply by 10 = $650) or $2600 a month. Sell them a subscription for the service at 20% or $260 per month. Another option would be to skim from the customer. I bid on and get accepted to fill a $159 room for $100. I pay an additional $5 to do this. Total cost for me is $105 but I still save $44 on my room.
Other sites like orbitz, and expedia have similar models, but they do not allow the customer and the hotel to directly interact. This is what makes my idea unique. Each hotel would directly choose the customer and each customer would directly choose the hotel.
I will be honest. . . I hated to give this idea away because I know that there is big opportunity here. This is how you are going to book your hotel room in the future. The person who develops and markets this correctly will make money.
Programmers, contact me if you want to start a project with me.
#big
Yes, hotels want their vacancy to be as low as possible, but also not always completely filled weeks in advance with budget travelers because last minute travelers are less price sensitive.
And, priceline.com comes to mind with this model. A user will bid or name their own price for a particular room and hotels will have an option to accept their offer, or make a best offer to the user.