In response to my first blog, which touched upon discounting, I received a comment that reflects a common concern within the industry:
“I hear what you are saying Greg, however, the practice of holding rates is nice in theory but difficult to control when the market competitors are low balling customers. This is particularly true in high volume group business regions such as Orlando and Las Vegas.”
I agree that it is very difficult to hold prices in the face of declining demand. As the commenter points out, holding prices when your competitors are dropping theirs poses huge hurdles. But I am not on a high horse judging anyone’s decisions that are particular to their circumstances of yield management.
I have been an owner in a full-service hotel and have owned and operated a standalone restaurant (unfortunately), a couple of recreational facilities and even a consulting practice for which I have lowered prices at times in an attempt to capture demand. But in the case of my restaurant, for example, I lowered prices because I was not confident that our food, service and ambiance were enough to prevent customers from choosing another restaurant. Price, I felt, was my main differentiation, and I may or may not have been correct.
But in my consulting practice, I was confident that my product and service was superior to my competition. As a result, I was far less apt to lower price. Do you know what I found? Demand usually continued.
The hotel industry must realize that demand is aptly named. Customers looking for hotel accommodations “demand” a place to stay. Very few guests are “contemplating” a stay in a hotel, perhaps considering sleeping in their rental car or on a park bench as an alternative. If all they demand is a clean room, shower and TV, they will gravitate toward the economy and budget hotels; if they demand a larger room with free breakfast and loyalty points, they might choose a focused-service or extended-stay property; and if they demand convention space, onsite restaurants and a spa, they are obviously going to choose an upscale or luxury property.
Now I grant that during a downturn, there are fewer people who can afford the amenities they may have previously demanded. As wallets and markets shrink, people will (and should) inevitably trade down in product class, which means less demand in the luxury tier and more demand for the economy brands. That is the natural and healthy order of things. Even for the luxury properties that lost the demand, catering to guests who do still have the money (and there are plenty that do considering the 20-million-plus luxury stays in 2009), lower demand at higher rates can be almost as profitable in the short run and certainly more profitable in the long run when premium pricing returns to the market.
So again I ask for all hoteliers to pray with me: “Grant me the serenity to accept what (demand) I cannot change; the courage to change what (rates) I can; and the wisdom to know the difference.”