Integrity Price During the Economic Downturn

By.  Ahmed Mahmoud 16th Mar 2010

Tough times require creative solutions not just business as usual!  Not only are hotels being buffeted by the economy but also by the new competitive hotels have come online and/or are coming online in the near future. Make no mistake; there will be winners and losers in this environment — some hotels that will prosper and those that will capitulate!

With all the bad economic news in the media lately, and with most industry experts expecting RevPar to drop by as much as 5%-10% here in 2009, needless to mentioned the occupancy there are few if any hotels that are projecting a good financial performance this year.  Yet in the real world  it’s a great time to remember that as with life in general, success in the hotel industry is an “I’ll See It When I Believe It” opportunity, not the opposite!

Overall economic and political conditions in our areas, countries , regions and all over the world   are among the most influential factors to be considered upon establishing our pricing   . In the past, during times of crisis and reduced travel – such as the 1991 Persian Gulf War and the September 11, 2001 terrorist attacks, recently as well the economic recession 2008  – panic-stricken hoteliers responded by an overall reduction in room rates. Such reactions were understandable; but ultimately, did not attract a significant increase in hotel guests. Rather than reacting in this fashion, it is better from a profit-and-loss perspective to be strategic.
In this regard most of the hotels will start to reduce and maybe cutting there  pricing aiming to generate demands , This is particularly true when the economy turns south, and management  need to get further inside the numbers, searching for anything that might give them an edge on the competition.  
But this is not the case, as you might gain some occupancy but you will Lose RevPar and of course it will be to Your Competition, think one more time you will captured some market share but you will never gain in RevPar. Conversely, those hotels with higher rates relative to their competitive set had lower occupancy and higher RevPar. Now, if you are satisfied with higher occupancy and mediocre RevPar, there is no reason to read-on. You may go back to reading your P&L statement while scratching your head wondering why the added occupancy did not improve your bottom-line, and remember your occupancy and your ADR does not go to your bank , only the RevPar is going to the bank.

So before you think to reduce your rates so badly , few suggestions  to be considered for maintaining effective pricing for your hotel:
Examine economic indicators affecting your business, and Be aware of the overall state of the economy – such as a recession, depression, and inflation. In addition, examine specific changes taking place at your property. Indicators include and not limited to

  • * The number of reservations, phone calls and online bookings you are receiving each day .
  • * Changes in stay patterns at your hotel from regular guests.
  • * A softening of travel from corporations those send guests to your property
  • * New competitors in your market that offer a preferred location and/or special rates
  • * Rate of denials from potential guests.
  • * Monitor the  Online Presence and make some strengthen
  • * Refer back to your marketing plan and see why people need to travel to your area
  • * During the daily activity, Monitor Changes to your Market Segment.

Analyze economic indicators and how they impact your guests’ travel patterns. 
During cyclical shifts in the economy, only certain kinds of guests may change the way they travel. Maybe just your weekend occupancy has fallen. Perhaps your meetings business is lagging. Or, your summer travel is down because of a competitor down the street who is offering a free continental breakfast that you are not providing.

Once you have reviewed the economic factors above, it is time to take the appropriate, targeted steps to maximize your business. Typically, there is no need to reduce your rates across the board.  Instead, offer a value-added component to your guests, which will be a great deal less costly than cutting room rates. If a competitor has just promoted a continental breakfast or guests have indicated that their meal costs are too high, add your own continental breakfast. This may only cost $4 to $12 a room, depending upon how extensive the breakfast is for your guests. If your guest base is largely transient and this portion of your business is lacking, consider offering free Internet access.  If online bookings have fallen, consider changing how much inventory you provide to third party intermediaries.  Or, update your website to make it more  user-friendly.

By keeping your rates stable and concentrating more on a value-added component for your hotel, guests will feel that they are getting more value for their money. If hoteliers drop rates too much and too quickly, it can be more difficult to increase rates during more robust economic cycles.  Guests anticipate (and understand) that you will raise rates to keep in line with the cost of living, however, too much of a rate increase can result in a loss business. 
By using the principles of revenue management, it could carry you through the current stagnant economy. Don’t give in to the desperation of dropping your rates and crossing your fingers; generating business is hard work.

Stop chasing unrealistic revenue goals with price discounts. ‘Chasing declining revenue with price discounts just makes the problem worse-you end up with less revenue and no profit .Smart prices look for ways to eliminate discounts, especially on high value products and services–even in a downturn!’

Just keep in mind, the right price, is the price the consumer is willing to pay, while providing a profit to the retailer.
And this will take you back to the Revenue Management pivot, Selling the right product to the right customer at the right time to the right customer through the right distribution channels.

About  Ahmed Mahmoud

Ahmed Mahmoud has more than a decade of experience in the hospitality industry and business administration, Ahmed began his career early by holding a variety of management positions with such top hotel chains as Accor Hotels, Hyatt International and Starwood hotels. With decades of revenue management experience Ahmed founded the very dedicated site for revenue management news, articles,

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