Business and marketing strategies for the downturn

Today's Wall Street Journal has a section on business insights for the downturn written in collaboration with MIT Sloan Management Review. A page in the section is devoted to strategy used by organizations in emerging markets which are roiled by a volatile economy more frequently than what is encountered in western countries. While the ideas and suggestions are broad based many apply to the roller-coaster state of the hotel industry in the US.

For starters, the article notes what is encountered often in today's hotel revenue management situations – "when times are tough, customers focus on getting the best deal for their money. Often this means trading down". That is the bane of the upper end of the hotel market as consumers refrain from "splurging" and avoid the Ritzs of the world for seemingly banal vanilla hotel rooms. In contrast, in emerging markets, the Journal notes that companies get "customers to trade up to premium products – even though disposable income is much tighter". They do that by having incremental differences in prices between premium and basic goods thereby signaling higher value in the premium market. That means lower profits on the premium brand but a greater willingness to stay with it. For a hotel company with brands across market segments, that would mean smaller differences in pricing across brands but the ability to sustain occupancies in that segment.

The authors of the WSJ article next suggest that companies "increase product and service visibility". Noting that the downturn has "led to sharp cuts in marketing budgets, and more are inevitable" they note an age old truism applicable across industries: "keeping customers you already have is a lot easier – and less expensive – than trying to land new ones". Latin American companies apparently "allocate shrinking resources with an "unwavering focus on retaining customers. And it pays off".  This is brought about by, unsurprisingly, focusing on "point of purchase" as this is the only time when "the customer, the customer's wallet and your product are all in the same place". For hotels, closest analogous situation would be the interaction at the front desk when a guest checks-in. That reinforces the need to step up customer service training for that department as well as retooling loyalty retention programs to keep the guest coming back.

Thirdly, the authors suggest that companies "rethink what customers value". Merely rethinking marketing or pricing strategies will not suffice as "continuing economic fallout in Western economies may mean that customers simply can't afford certain products or services anymore". Emerging market economy companies emphasize "pay-as-you-go" strategies as a way of offering value to customers. The 80s concept of layaways in western economies is akin to that and, in fact, is making a comeback in the retail segment. Hotel companies too can pick up on it.

Lastly, the authors urge to look at the broader marketplace and monitor economic data to "figure out where the market is headed". That enables an easier switch in strategies thereby outflanking competitors. In the end the article underscores one theme – a need to remain optimistic. "Western managers assume they must address decreases in demand and
declines in revenue only through drastic cutbacks. Managers in emerging
markets realize that turbulent financial times can be a tremendous
opportunity to strengthen competitive position and financial
performance — with the right mix of strategy and innovations".

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.