Market Demand: Should You Lower Hotel Rates?

Anyone involved in revenue management can reveal that the reveal that the hotel demand pattern nowadays is completely different than they were previously. Now, the question remains, will this trend continue or will it revert back to its previous pattern? This is a very important concern because it determines whether hotel revenue managers should “hang on” until the times get better or if they should think out-of-the-box and implement innovative measures that will ensure their survival in the future.

From all indications, the impact of business and leisure travel on hotel sales has been significant. Companies around the world are cost-cutting by reducing spending including corporate travel. Instead of cutting back on travel completely though, they are choosing shorter trips and less-expensive hotels. Meanwhile, leisure travelers have also changed their attitude. Many are opting for travel packages to save money. In addition, around 84 percent of all American travelers are trying to cut cost by staying fewer nights or taking more day trips.

It is apparent that the current trend has become the “new normal” today and in the future. This is because even if the economy picks up, old habits will be difficult to break. People who are used to spending less are most likely to set aside the same amount for their travels in the future. Also, as business and leisure travelers realize that there are a lot of deals (due to price cuts) out there, they will demand the same pricing level next time.

So is there a positive aspect in all this? Innovative hotel revenue managers will certainly answer yes. The current condition gives them a chance to increase RevPAR, improve electronic hotel sales, and boost profitability all at the same time. It is true that the knee-jerk reaction for most will be to lower hotel rates to maximize profits. Yet, the true essence of yield management doesn’t work that way.

Do not lower hotel rates too drastically. You may be thinking that “it is easy for you to say” but over the long-term, you will see that this is a good strategy in revenue management. The profitability of hotels lie on its perceived value compared to the competition. If your value proposition is low-rates, then you will not be able to increase hotel revenue as much as you can. Balancing hotel rate and its value is the task that good hoteliers should complete.