Race to the bottom – discounting

Brandweek, a marketing magazine with an emphasis on the subject of branding has a recent article noting that a Dollars
& Consumer Sense 2009
study by Yankelovich  finds that
consumers often have a negative reaction when they see the price
slashed for their favorite product or service. No surprises there but history appears to be repeating itself as, in all downturns, hotel rates seem headed for a race to the bottom as mentioned in the following report in the Financial Times.

Titled somewhat inadequately as "Beleaguered hotel industry dreams of sunnier times ahead", the report notes how hotel "revenues are plummeting; hotel occupancy is spiralling downwards.
Research by Smith Travel, the hotels consultancy, shows occupancy
levels on the slide in Asia, like-for-like average daily rates more
than 20 per cent down in January in Europe, and revenues per available
room for that month dropping 16 per cent in the Americas and 30 per
cent in Europe". It goes on to say that "desperate hoteliers are slashing room rates, ignoring the lesson of
the last bout of heavy discounting, which came in the aftermath of the
September 11 terrorist attacks. It took years for hoteliers to restore
their pre-2001 prices. Average room rates in London are down to
about £100 ($140) a night". New York is not far behind as its "luxury and upscale hotels are in a frenzy of
price-cutting".

London and New York hoteliers seem not only to have not learnt from history but appear not to heed professional marketing advice as profferred by the President of Yankelovich Monitor who notes that "people are suspicious if you significantly discount your brand. If you make
significant changes in your value proposition it can confuse them.
You have to give them reasons to buy stuff as opposed to just
lowering prices as a knee jerk reaction to the economy".

The discounting frenzy as a result of sharply declining business is seemingly at odds with the business report summarizing this year's ITB in Berlin where the organizers claim that "six out of ten exhibitors were unaffected by the global recession and that business was up ten percent". The business optimism exuded by the exhibitors is of course based on a prognostication of the future while the rampant rate cutting in major cities is a knee-jerk reaction to immediate economic woes. Nevertheless, as prior rate cuts have shown, it is easier to drop rates while it is quite another matter to raise them. History has repeated itself despite industry consensus before the recession to hold rates. Then again as philosopher George Santayana noted "Those who cannot learn from history are doomed to repeat it".

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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