Competing on Price: A Hotel’s Last Resort

We all know the difficult times some hotels are facing due to the slowdown in demand. In response, many properties are reacting with unilateral, dramatic price cuts as a stimulus to drive demand. I am not in favour of this practice, as it has terrible effects on destination pricing. There are significant examples of this in Spain. What is more, I very much doubt the effectiveness of such a practice as a stimulus to drive demand, although it may produce short-term results. The fact is that demand is what it is, and a hotel cannot create demand on its own; it can only claw market share away from other properties:

1. Properties in the same category: Leveraging assets such as location, facilities, service, online reputation, etc.
2. Properties in higher categories: With clear and appealing value propositions, a better location, better value for money, etc.

What is the need to compete with lower-category properties by reducing prices? Some will say that lower-category hotels do the same, but I believe this is a rather mediocre marketing tactic. This is why, just a few days ago, I wrote an article on stimulating demand through price. In it, I recommend analysing and considering the following before doing so:

• The consistency of our marketing and distribution strategy.
• The elasticity or inelasticity of demand.

I believe price is sacred, and that a hotel should only respond by lowering prices once it has exhausted all its resources for generating sales. Even then, if it has to do so, I believe there is an underlying problem:

• Control of the distribution landscape.
• Shortcomings in service levels and the condition of facilities.
• Poor online reputation, reflected in negative reviews.
• Poor forecasting with regard to revenue management policies.
• Inefficient sales management.
• etc.

Without doubt, I believe this is a topic worthy of debate.