Given the economic climate, it makes sense that hotels would slash rates in a desperate attempt to keep their properties full. After all, an empty room is of no value, right? The problem, of course, is the aforementioned statistics indicate occupancy continues to decline despite these price cutting efforts.
Given the economic climate, it makes sense that hotels would slash rates in a desperate attempt to keep their properties full. After all, an empty room is of no value, right? The problem, of course, is the aforementioned statistics indicate occupancy continues to decline despite these price cutting efforts. Furthermore, a 2006 study conducted by the Cornell Hotel School titled, ‘Why Discounting Doesn’t Work: The Dynamics of Rising Occupancy and Falling Revenue among Competitors’ previously made a strong case against discounting as a successful hotel business strategy.
Why doesn’t discounting work more effectively as a means to drive occupancy? The recent Maritz study gave an important clue. When affirming they’d stayed in a hotel within the past three months, survey respondents were asked whether hotel prices had increased, decreased, or stayed the same within the past year. One-third (34 percent) believed hotel prices increased, while another 53 percent said they ‘stayed the same.’ Nearly nine-out-of-ten didn’t even notice that hotel rates dropped significantly.
Of the remaining 13 percent who noticed the decrease in hotel rates, only 23 percent said the decreased rates made them more likely to stay at hotels. Doing the math, this means that discounting rates influences only three percent of hotel travelers, challenging hotels even further to determine how to add value and boost occupancy.
Many hotels have found more effective ways to add value, as opposed to cutting rates. They have devised clever promotional strategies to offer a free extra night, a spa package, free breakfast, dinner/show combinations, etc. to create the perception they are offering a deal without cutting their base rates. It is easier to trumpet these kinds of promotions, rather than a price decrease. Furthermore, creating a memorable guest experience is always critical to adding value to guests. Maritz has conducted proprietary studies that show how guest service ratings are directly related to value perceptions. If hotels do something to stand out, people will be more willing to spend money to stay there. However, if hotels are just another provider of rooms, they become commoditized and therefore, are relegated to competing on price.
Get the full story at hospitalitynet.org
