- Darsh Shah
Agoda's Twist
This month all hoteliers with ties to Agoda received an email which similar to this:
Though some may shrug it off as an insignificant change, when looking closely we believe that these changes bring strong gains for Agoda.
How so you ask…we break down everything you need to know below. Fair warning it involves a lot of Mathematics but we know numbers are a Revenue Directors best friend.
When you apply an additive method for percentages in terms of giving discounts, it always amounts to a greater amount of discount. Let us say you go to a clothing store having a coupon which says 20% off on store wide purchases and something written in parenthesis saying- Stackable (which means the coupon discount is stackable over other discounts). Now when you go into the store and see that the shirt you like has 30% off and you get overjoyed and start buying more discounted shirts. You would think that you are entitled to get a 50% discount (20% + 30%) on your shirts which costs a total of $100. You go to the billing and are surprised to see a charge of $56 instead of $50. It is at this point you realize that discounts were multiplicative i.e. one of the 2 discounts will be applied first and then the next one instead of just cutting 50% off right away. Hence, what the store did there was cut 20% off first which made your cost worth $80 and then a 30% discount is applied on that $80 which leads to $56.
With this new move, Agoda is going additive which will the favor of shoppers not hotels. Why you ask? Because Agoda is giving 50% off to the shopper instead of 44% off [100 – {(0.7*0.8) * 100}] that clothing store offered for its own (hoteliers) benefit.
What should revenue directors do, how should hotels handle such policy change?
I hope we were able to make our point on how Agoda and the shoppers are the winners here and hoteliers the losers with a change to additive discount policy.