Hoteliers are under constant pressure to maximise occupancy and profit in the face of strong or waning demand.
It goes without saying that the ability to price rooms and services correctly is key to a hotel’s profitability. However, while pricing decisions can seem straightforward on the surface, they are actually very complex and not without significant risks.
Currently in Asia, hoteliers are faced with a number of business challenges associated with softer booking conditions. According to STR Global ‘In year-over-year measurements, the Asia/Pacific region’s occupancy fell 1.1 percent to 67.5 percent,’ and in the case of India, occupancy fell by 2.8%*.
While some hoteliers facing lower occupancy rates may be inclined to offer short term discounts to bring in guests, it is important to remember that aggressive discounting to help stimulate demand can have serious long term consequences.
Consumer behaviour research has shown customers establish a reference price for a good or service based on previous experience, and use this reference price to evaluate whether a future price they’re offered is reasonable or fair. The more and longer hotel room rates are discounted, the more likely that the discounted rate will become the reference price and the more difficult it will be for hotels to recover their value in the minds of the consumer.
The worst thing a hotel can do in times of strong competition is offer a short term discount to gain an edge over a competitor and then reduce services (to help accommodate for the price reduction) that differentiate its property from competitors.
In order to fight commoditisation brought about by an excessive focus on price, hotels must maintain service levels and a strong brand focus. Every customer that comes through a hotel’s door needs to understand what makes the property different and special, and what makes its brand unique, whether they are a loyal customer or came in because of a discount.
If a hotelier is unable to convince customers that their product is worth more than their competitors’ through “soft” factors beyond price (assuming that hard factors such as location are equivalent), then they’ve become a commodity. Price then replaces the brand, service standards, and physical property as the key driver of purchase decisions.