In today’s ultra-competitive hotel universe, the art and the science of revenue management plays an enormously important role. We analyze data, we debate strategies, we execute tactics, all in the interest of maximizing our revenue performance on a daily basis. However, less prominent in strategic revenue management conversations is the effect of these pricing decisions on our customer mix.
Simply stated, the price that we sell has a direct correlation to the customer that buys us. Seems to obvious? Here’s how it matters and is worthy of more consideration; when a market is so competitive that a few dollars (or less !) separate the prices of multiple properties, the customer is left in a position to decide where to stay based on reasons other than price. This applies to all customers, whether they be luxury, upper-upscale, midscale, or economy. In markets where hotels are fighting it out for every available room night, an opportunity exists for customers that might not otherwise select a higher level property to actually do this. In many markets in 2017, any RevPAR growth at all is coming from occupancy rather than from rate, which results in a ‘buyer’s market’ in terms of price.
In this case, opportunities abound for customers that are used to a more economy or mid-scale hotel experience to “buy up” to an upscale or higher level property. While this seems easy enough to grasp, what is less obvious is the fact that those same customers that previously resided in economy properties and have now “upgraded” to upscale hotels may not necessarily ‘behave’ the same way. Economy and mid-scale customers, for example, may be completely used to spending zero incremental dollars in their hotel, because they opt for local dining options, or because they are used to bringing locally-purchased food back to the hotel with them. Upscale and higher level hotels may take issue with this; for example, those same coolers that are perfectly acceptable and commonplace at a particular economy hotel may be viewed with a sense of mortification at a different, higher-end hotel.
What does it mean? As we work so hard to teach our children, “all actions have consequences.” It’s vital that we understand that our pricing actions may bring about consequences that we did not anticipate, and that we do not necessarily appreciate. An upscale or higher-level property that lowers its rates in the interest of capturing revenue can quickly raise that rate when demand and circumstances improve. However, that same property must recognize the fact that the customer may not be quick to forget the lower price and the change in clientele, and may use this information in their future buying decisions. It’s up to us to never forget our positioning, branding, and legitimate place in the market.
Short-term deals to capture revenue do not necessarily equate to long-term value for owners.