It sounds self-evident to say that business managers are focusing on fee-related matters, but setting rates is just one of the issues that concerns them.By: Glenn Withiam*
Let's take a look at the results of two studies of business managers from around the world, conducted by Sheryl Kimes, a professor at the Cornell School of Hotel Management. The first analysis was done in 2008 and the second in 2009. Participants in both investigations included managers from the Americas, Asia, and Europe. The 2009 study involved 291 managers, both personally and online, while in 2008 186 managers responded.
When we compare the two studies, what can be highlighted are the effects of the setback that occurs in the fortunes of the hotel industry between 2008 and 2009, due to what is happening with the world economy. In the 2008 study, key issues involved human resources and technology, although managers were already looking toward economic problems. A year later, economic issues have swept away other issues.
Business managers were more concerned about price wars, tariff resistance, and the fact that price power has been transferred to customers, particularly groups. We cordially invite you to consult the results of the 2009 report on the website of the Cornell Center for Hotel Research: www.hotelschool.cornell.edu/research/chr/pubs/reports/abstract-15090.html
You already know those concerns, as they seem to have a global reach. Perhaps individual hotels or private markets are immune to economic contagion, but they are very few. Given the reality, Professor Kimes has compiled a set of revenue management techniques designed to defend her hotel rates as much as possible.
Compete with prices
Inevitably, hotels will have to compete with prices. When doing this, one method is to pay careful attention to your competitors and seek to retain your relative price positioning. One pricing strategy may be to create a set of focused promotions that are protected by price barriers and redesigned to separate guests, who are price conscious from those who are willing to pay higher rates.
Their price barriers are special rules that "qualify" a customer for a rate, but offer a different rate for a different customer. Rate barriers include service packages, time or type of reservation, duration of booking, and membership in a frequent guest program. Another technique is to bundle services into packages that disguise room rates or, if we take the other method, "unlink" room rates to demonstrate to guests the strength of their value proposition. In all pricing techniques, you should also evaluate which distribution channels are the most effective for your hotel.
Non-competitive techniques with pricing, including value addition, are potentially more interesting and valuable. Non-competitive techniques with prices include competition on the basis of quality, creating strategic partnerships, taking advantage of your loyalty program, developing additional revenue streams, and developing additional market segments.
Hotels operating in luxury or exclusivity segments are particularly well suited to compete on the basis of excellent quality, perhaps adding special features for selected guests. Those features could be flowers in the rooms or sending them a limousine to the airport (depending on the situation).
Another tactic is to create strategic alliances with selected distribution channels, particularly those that you have already considered to be the most effective. By offering a higher commission on certain channels, some guests may be referred to your hotel. The members of your loyalty program are key guests, because they have already indicated their preference for the hotel. You may offer promotions, such as a reduction in the number of points for a discounted room or other prizes. A more challenging tactic is to look for different market segments for your hotel. I'm pretty sure your competitors are already doing it.
Since the last recession, we've learned that a bigger problem with cutting tariffs is that it's hard to raise them when the economy improves. This is an important reason to avoid competing directly on room rates and looking for other strategies, particularly those that disguise your basic rates or do not focus on prices. We know that the world economy will improve, because some places are already experiencing a significant economic recovery. Although we must face the current bad time, it is important to look to the future and position the recovery of your property.
Glenn Withiam is director of publications at the Cornell Center for Hotel Research.
