Desperate Times Call for Desperate Measures…or Do They?

The Great Recession placed tremendous pressure on hotels and hotel marketing professionals to maximize profitability.

The best strategy – control costs and maximize revenue. I’ll let the bean counters take care of controlling costs – just don’t touch that marketing budget.

I’d prefer to focus on maximizing revenue which, for small luxury hotels, requires getting the greatest number of guest rooms booked at the highest possible rate.

When times get tough (desperate maybe) there is a widespread hospitality industry knee-jerk reaction that kicks rate out the window.  “Heads in Beds!” becomes the operating mantra for most while those who yell “Hold Rate!” get trampled in the stampede toward deep discounts.

There’s ample evidence showing rate doesn’t necessarily stimulate demand in a recession – or at least not enough to compensate for the discounts. People who would have stayed at a hotel anyway (and pay a higher rate) are the real beneficiaries – not the hotel. And once one hotel in a destination drops rate or deeply discounts, all the lemmings follow.

The last thing any hotel should do is get in a price war with a property that doesn’t care what it sells its rooms for.

Snazzy marketing schemes and internet based companies entice hotels to “dump rooms” at 50% – 60% off rack. And hotel marketing pros leap at the opportunity to sell rooms for 40 cents on the dollar. Could they really be that desperate? This doesn’t help achieve maximum profitability – in fact it runs counter to it.

In a recent article entitled, “Love-hate relationship: occupancy, rate” by Stephen R. Hennis, Director, STR Analytics he reports that 80% of hotels in the US experienced declines in average room rate in 2009. With all the deals floating around in the marketplace for the past two years I would have guessed the figure would have been even higher.

It’s a great article and I recommend it highly to anyone involved in hotel marketing. The research shows that hotels with the steepest discounts suffered the least amount of occupancy erosion. Sounds good.  However, “The more properties dropped rates, the worse their RevPAR index change was, indicating that the upside in occupancy performance did not compensate for the sacrifice in rate.”

Amazing as it may seem, hotels that actually increased ADR saw the best improvement in RevPAR indices.

While we have been living through some pretty desperate times, it was not a time for desperate measures.

There are many better ways to market a hotel in a recession than by deeply discounting rates. That will be the subject for the next article.

What do you think? Safe travels – Madigan Pratt