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The simple economic principle that can help you get a better deal at hotels

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Everyone likes a good bargain. And when it comes to booking a hotel, understanding a single basic principle can help you find one. The key is the idea of high fixed costs and low variable costs. What that means is that building a hotel is very expensive, (fixed cost) but cleaning a hotel room is cheap (variable costs). This creates some dilemmas for hotel operators in terms of pricing strategy: Set the nightly room fee low enough that your hotel sells out, for example, and you're almost certainly leaving some profits on the table.

But raise rates in order to maximize profits, and you're leaving some rooms empty. Yet with the variable cost of leasing out an extra room so low, it doesn't really make sense to leave the room empty. What you want to do is sell most of your rooms at one high price, and then sell the leftover rooms at another lower price. Conversely you, the customer, want to do exactly the opposite and book yourself the cheap leftover rooms. How do you pull that off? Well there are three basic tricks, in order of severity:

  • Search as widely as possible
  • Check and check again
  • Shop blind

Need more detail? Read on.

Metasearching

One way to find a hotel near your destination is to look on the map for one, and then visit that hotel's website. Or you could log on to your favorite chain's website and start searching. Those are great ways to find hotels if you're finicky or attached to a particular brand. And signaling that you are picky is a great way to get yourself slotted into the expensive rooms bucket.

But if you want a good deal, you need to do the opposite of that. Use a meta-search engine like Kayak or Trivago that searches across multiple travel search engines.

Not only does this maximize your odds of finding a great rate, it indicates that you are the person who is looking to be stingy. Hotels with extra rooms to unload want to unload them specifically to stingy people, so as to preserve their power to charge higher rates to the less-thrifty. Act like a stingy person, and you'll get a stingy person's offer.

Check and check again

You usually make travel plans in advance, right? Well good for you. But just because you've already booked your room doesn't mean the rest of the world has ground to a halt. Keep checking back to see if the passage of time has freed up rooms at a better rate.

There's no way to predict the optimal time to book a room for a great price. What you need to realize, however, is that for any given trip, there is some optimal time and the odds that the particular time you happened to pick was the optimal time are very low. Keep checking! If a better rate presents itself, book it and then cancel your old reservation.

Of course this doesn't work if you book yourself a prepaid room, or one that comes with hefty cancellation fees. (Normally giving up that flexibility gets you a discount.) The point is that either way, you want to make flexibility work for you. Either book a flexible room and then keep checking, or else score a discount by abandoning flexibility. But under no circumstances should you book a flexible rate and then just forget about it unless emergency strikes. Search, search, search, and search again.

Shop blind

The most formalized method of price discrimination hotels use these days is listing rooms on sites like Hotwire or Priceline. The trick is that with these sites you need to commit to booking a room without being told which hotel you're booking at. You just get information about the neighborhood, the general fanciness level of the hotel, and what amenities it offers. But the name and exact address are secret.

What kind of a person would agree to book a hotel blindly?

Well, a person who really wants a bargain. And that's the name of the whole hotel game — the bargains go to the people who are credibly committed to bargain shopping. A hotel can release some cheap rooms to blind shopping while simultaneously listing them at a higher prices through more conventional channels.