Rate Integrity at Times of Economic Crisis Part 1

Given today’s severe economic crisis, the concepts of rate parity and rate integrity feels like it came from another planet. Over the last few months though, hotel revenue management experts have been advising that dumping hotel rates is not the right strategy to create demand; this recommendation comes amid the worst recession in US history for several decades.

However, even an international brand like Starwood Hotels & Resorts is not immune to outside pressure. The company has cut its rates by as much as 50% to unload too much excess inventory. This cut affected its 600-something properties around the globe. It is important to note though, that cutting hotel rates must be the last option. Keeping a long-term mindset can benefit the hotel over the long run and increase hotel profits when the economy starts to recover. But here comes the question about hotel rate integrity:

How Will Rate Integrity Hold Up If Everyone Else Cuts Their Prices?

If 5-star hotels around your area starting lowering their rates to 3 to 4-star levels, what will happen to rate integrity? Everyone within the hospitality revenue management strategy will be pushed to do the same. In essence, rate integrity is the perceived consumer value. They know that they are buying an inventory that have a certain value and is set at the correct price.

Depending on the room amenities and season, they will pay a bit more or less; and they are willing to do so. Fencing and yielding are already accepted concepts but there is a strong acceptable psychological price range for consumers. If the value is set too low, they might start thinking that the hotel property has less-than-stellar amenities.

The question that many hotel revenue managers is itching to ask is, will their customers still pay $200 for their room if the hotel next door charges $100 or even below that rate? The truth is, the answer cannot be generalized. While many will instinctively say “no”, certain guests also have various factors to consider including their privacy, the service, and the number of people staying at the hotel. In general, hotel revenue management strategies that are quick to adapt to the changing environment are the ones that get most of the opportunities available in the marketplace.