Robert A. Gilbert, CHME, CHBA is the president and CEO of the Hospitality Sales & Marketing Association International
Every hotel manager needs to be cognisant of the economy they are in right now. In the three-star segment you really need to be aware of what’s happening at the price scale above, and at the price scale below you. Relative to your price – this intelligence is very important for a general manager to know exactly how to price themselves, and to know that they are doing the right thing in the present economic cycle.
It will be difficult to maintain your prices if the top end drops their prices – but it has been proven time and again in every research study conducted on the topic, in every part of the world, dropping your prices does not change demand, and general managers really need to know this: dropping your prices may shift a little bit of market share short-term but it always has a negative impact and it starts a downward spiral for the whole market. It is better to hold fast, power through that short-term turbulence and your bottom line will turn out better if you hold your rates.
You may see a dip in occupancy, but your bottom line will do better than if you were to drop your rates. This is very difficult for a lot of mid-scale properties to understand, particularly if they are owner operated – because that owner panics – but don’t drop your rates because it’s counterproductive to what will happen to your profit. In the long run, you’re better off taking an occupancy dip than to have your ADR drop.
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While the customer may be in control in this market, hoteliers must maintain control of distribution channels. The customers may be the ones doing all the shopping but if you’re not displayed properly in the right distribution channels, you are closed out of that particular segment or category of potential customers. In a down economic cycle you want to make sure you have all distribution channels wide open.
Be smart with your rates, inventory and availability that you give to your distribution channels. Your distribution channel management and revenue management strategy are absolutely critical. People think that all revenue is good revenue: that’s simply not true. You must look at the cost of those channels – for example the difference between a retail and wholesale rate, commission and transaction rate: what is the net rate you’re gaining per channel?
Total acquisition costs are different per channel – some mid-scale hotels are just naive to this and they open up their inventory to a channel that may cost them 30% or 40% of their revenue instead of one that cost 5%.
Performing well in any market – Top five tips:
1. Invest in knowledge. Business intelligence is widely available today – some is provided free via online courses, and some in local conferences. All will help you in your business practices, be sure to keep up-to-date on all the latest industry knowledge.
2. Read trade journals.This a simple method to gain understanding of emerging market trends – get out of your hotel and learn what’s happening regionally. Tourism authorities and private business trade journals provide great content tailored specifically to your region or market.
3. Attend conferences. Sharing market knowledge via conferences and exhibitions is very popular in bigger cities these days. They’re great learning environments and offer good networking opportunities too. Capitalising on these opportunities is key.
4. Maintain your rates. It has been proven in research studies that dropping your prices does not change demand, in fact it can be damaging in the long run. For the benefit of the budget and mid-market hotel sector in your area, maintain your rates during low periods.
5. Customer acquisition. Your bottom line will be your best indicator of success. In 2016 the cost of customer acquisition is going to be the hot topic; in the mid-market you’re more vulnerable and need to cautiously navigate and understand this area to make smart decisions.
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