After a few long runs and a Sunday bike ride, I’ve read listened to…

Free by Chris Anderson

…which was literally free with my Audible account (and also available free on Google Books).

The whole concept of ‘free’ has something I’ve seen evolve online for years, and experimented with extensively during my time in the software industry. Chris’ research shed a lot of light on the subject, and got me thinking how this trend applies to hotel marketing. A few thoughts…

Any price puts up a barrier to adoption

Free and charging just 1 cent are completely different situations.

That goes two ways

If you’re trying to eliminate waste at an event, you could try charging something insignificant like $0.10 for snacks. That price has the economic impact of “0″ – but psychologically causes people will think twice. The very presence of any price stops people scooping up things they don’t need just because it’s free.

On the other hand, if you’re trying to spread a message, charging even an insignificant price will dramatically reduce the number of people you reach.

Give away something free to increase value elsewhere

The invitation-only TED conference recently started publishing video excerpts of talks from their events: for free. In just a few years, ticket prices have doubled, and attendance is up.

By distributing valuable information at no cost, they increased overall demand.

A practical implication of this could be to give every travel blogger a discounted stay at your hotel – regardless of their audience size. By obtaining a review from the “long tail of bloggers” you can reach niche audiences and build your web presence.

But…a hotel isn’t in the information business

Chris Anderson’s book is undoubtedly more applicable to businesses in the information and technology industries. The economics of giving away tangible products are much different than a digital product you can give away infinitely for free.

In hotel marketing, Free is best used to build fans

Publishing a lot of content and giving it away for free builds a base of fans that are likely to book a room or recommend you to their friends.

It’s what I call the concierge approach to hotel marketing.

Attention is the most precious commodity when everything is free

In a New York Times book review, Virginia Postrel explains:

“Unlike tangible commodities like T-shirts or plastics, most digital content doesn’t generate much new demand as its price falls toward zero. Even with no admission fee, videos, blog posts and online games soak up users’ time, and time has a hard limit. So as the supply of cheap content expands, it can’t simply fill ever-growing closets (or garbage dumps). Instead, the competition for time and attention becomes ever fiercer…”

The takeaway? Giving away content for free isn’t a sure-fire key to success. You need to be interesting.

The subtle difference between Free and free samples

Giving away samples is an old marketing tactic. The strategy of Free is more sustainable: the product itself is distributed at no cost, and revenue is collected through other sources.

Thought experiment: Could a hotel be free?

Throughout the book, Anderson shows examples of how innovative organizations are giving away everything from college courses (Stanford, MIT) to stock trades (Zecco) to flights (RyanAir) to cars (Better Place) to whole stores (SampleLab in Tokyo). In each of these cases, Free is a long-term sustainable model – not a marketing gimmick.

I know there are many practical issues with this, but could a hotel give away all its rooms for free…and still make a profit?

The real value in this thought experiment is that it provides ideas for building non-room revenues, which in turn give you flexibility to offer rock-solid value to your customers.

Exploring this concept a little deeper

• Priced to Sell by Malcolm Gladwell
• Malcolm is wrong by Seth Godin
• Free: It Works, It Cries, It Bites by Alex Iskold
• Read Free by Chris Anderson for free on Google Books

For some hoteliers, the first reaction they have when facing an economic slowdown is to slash prices.

But is this really a good strategy?

If you look at historical data, the answer is clear: you should never, ever reduce prices as a quick-fix remedy.

All studies carried out in the wake of the 9/11 attacks in New York City showed that price cuts damage the long-term health of your business.  One report by Cornell University, titled “Hotel Pricing in a Networked World,” shares this insight:

“It should come as no surprise that discounting has a chilling effect on revenues. The discounting concept is based on the core micro-economic principle that reducing your price means that additional consumers will enter the market and you will sell more rooms.  The hotel industry has never been able to apply this principle successfully, and the CHR study demonstrates why this is so.

New consumers do not enter the market in response to hotel discounting.  Instead, current customers simply get more for less and revenues fall.“

So what should be your pricing strategy?

Try this: Leave your prices where they are, but increase your perceived value.

Instead of discounting, focus on building your overall value package.  Sell the experience – work to position your hotel as a destination.

Explore social media networks, and look for recurring themes of what guests like about your hotel.  Improve and showcase your specialties.  Put them at the core of your marketing efforts.

But never fall for the price cutting trap.