Here’s why new competitors can’t do what Hotel Tonight does

HotelTonight, the app for booking a hotel stay on the go, has introduced new personalized price cuts, one called a “bonus rate” and the other called a “rate drop.”

Bonus rate: left; Rate drop: right

Rate drop: left; Bonus rate: right

The apps will analyze your phone’s location and offer you added discounts for hotels in specific other cities, a deal it’s calling a “bonus rate.”

For example, if you’re in San Francisco you may see that a same-day $145 room at a Los Angeles hotel is now discounted to $85. But if you’re in Munich, you’ll only see the original HotelTonight price. HotelTonight is trying to tempt people who might not otherwise travel or stay in a hotel to change their minds. “Some people value price and flexibility over the certainty of where they’re staying,” CEO Sam Shank told me. “At some point I hit my price point.”

Conversely, the app is also introducing a price cut known as a “rate drop” that can only be seen by people in close proximity to a specific hotel. Once again, the idea is to tempt people that might not otherwise spend the night in a place to change their mind. “People who weren’t thinking of booking a hotel in advance. Perhaps the other option was to stay with a friend or get a train home,” Shank said.

The hotels don’t want to cannibalize their business by slashing their rates on their websites on a day to day basis. Then they’d lose money from people who might have booked at the full price anyways. But by using cell phone location coordinates, the hotels can target new customers through HotelTonight that they might not otherwise snag, without losing their brand loyalists who would pay full price. “It’s about growing the market,” Shank said.

As anyone who uses HotelTonight already knows, the app offers the cheapest possible prices for same day booking. Hotels actually have to bid the lowest fee for their type of accommodation in order to be featured in the app. The companies most willing to do that are those with a lot of empty rooms they need to fill up.

This is a feature that HotelTonight’s bigger competitors, companies like Expedia and Priceline, have been able to imitate once they saw it worked. With bigger brand awareness, it’s a worthy foe for the comparably scrappy startup.

But the latest bonus rate and rate drop features aren’t going to be quite as easy for the travel giants to rip off. For them to work, they require up-to-the-minute information on a person’s location, down to specific mileage. As a result, customers have to be accustomed to checking hotel rates and booking rooms from their phone, a concept that HotelTonight’s clientele is obviously on board with, but Expedia’s legacy user base, maybe not so much.

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