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Competing on Price: A Hotel’s Last Resort

Albert BarraAugust 13, 2018 · 2 min read
THE IDEA

Lowering rates to stimulate hotel demand can have negative long-term effects. Hotels should consider alternative marketing and distribution strategies to compete effectively, while recognising the crucial role of online reputation and commercial management in business performance.

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.
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