How should hotels respond to the current coronavirus situation? Occupancies are down, mass gatherings have been canceled and tourist arrivals have dropped. I decided to go back and look at some of my previous research to get some tips on how to deal with this. Back in 2010, I did a study on tactics for surviving an economic downturn. Over 900 respondents from around the world participated and provided some very insightful comments that are as true today as they were 10 years ago.
Several lessons emerged. The foremost piece of advice was to be prepared and to have a plan (some people even suggested a standard operating procedure manual) on how to respond to a recession. As one respondent stated, “It is never too early to be prepared. You should always have a contingency plan that you can implement within minutes.”
When you develop your plan, keep your thoughts on the long-term and consider the impact that your plan will have on customer satisfaction, employee satisfaction and the long-term image of your hotel or chain. If you lose sight of the long-term, you may end up compromising customer and employee satisfaction and hurting long-term profitability and viability. As one respondent said, “Maintain the brand image, be insistent on the pricing strategy. Focus on your long-term goal and be patient.”
Several other lessons emerge from the research:
1. Don’t panic
Respondents talked about the need to stay calm and look for solutions. One respondent said it quite succinctly, “Do not panic. Do not compare downturn periods with previous good periods. Think more in terms of long term decisions.”
2. Be wary of broad scale discounting
Time and again, respondents discussed how it would take years to recover from the discounting that they engaged in during an economic downturn. As one respondent advised “Don’t drop rate – or let me state it this way “Don’t drop your public/retail rate” use the retail rate as the benchmark for discount rate programs and fence these discounts appropriately.” Another made a similar comment: “My advice would to be very careful about playing the rate reduction game. We had been very aggressive with increasing our corporate pricing and in the space of a few months, all that and more has been undone. We have literally undone 3 years of solid work in the space of the last 8 months. It will take us another 3 to 4 years at least to get that back.” If you must discount, do so in an intelligent way and consider creative packaging.
3. Don’t cut your marketing budget
Respondents discussed the need to keep current guests and to develop packages and promotions that both attracted current and potential guests. If you cut your marketing budget, this won’t be possible. As one respondent suggested, “When the bad times hit again, save the marketing dollars on new initiatives (e.g. acquire new customers or promoting new hotels) but focus the spending on the existing customer base.”
4. Consider marketing approaches
Respondents felt that the development of smaller, less price-sensitive market segments worked as well. As one respondent suggested, “explore new market segments and new ways of promotions. Try not to drop down rates for all market segments, there are some of them that are not so price sensitive. We have to identify these guests and work hard to attract them to our property.” Another popular and effective tactic was to develop other new revenue streams (such as food and beverage or spa) within the hotel. One respondent summarized this nicely, “We just have to diversify our business rather than relying too heavily on a particular business and geographic segment. At the same time, more emphasis has to be put on how to optimize revenue conversion from all revenue streams be it major or minor, which will ultimately help to improve bottom-line.”
5. Consider rate-obscuring practices
Remember that there is a difference between your ‘public’ rate and your ‘private’ rate. Focus in on how you can develop packages and bundles that add value to the consumer without costing the hotel too much. Consider the following suggestion: “My advice is maintain rate, continue to look for new markets (religious retreats, romantic weekend packages etc.), develop specials which focus on value added extras like spa treatments, be creative in your F&B promotions and watch for prolonged gaps in occupancy which might be filled with internet promotions or opaque distribution channels which won’t later effect your rate strategy so dramatically.” Think about what customers want and try to deliver it without ‘giving away the house’. Also, focus in on packages that are hard to imitate—anyone can offer an extra night for free, so try to develop packages that are unique to your hotel.
6. Maintain service levels
If you need to cut costs, do so in areas of the hotel that have the least impact on customer service and the hotel image. As one respondent said, “don’t reduce standards but add added value; guests are very sensitive to changes. Bad time is not forever and it could take a longer time to recover if you cut corners to save a buck!” If customer satisfaction and service quality are negatively affected, it will be more difficult to both maintain your current guests and attract new guests after the recession is over. Consider the following suggestion, “DO NOT MAKE COST CUTS ON QUALITY SERVICE. It is okay to bring prices down, but set yourself a limit which will not handicap you when you want to bring the ADR up again the following year. “
Keep these six lessons in mind as you plan and execute your strategy for getting through this. Don’t panic, think clearly and plan strategically. You’ll be fine!