The economic downturn created pressure to maintain market share, and many hotels reduced rate in an attempt to attract additional customers.

Published: 30 Apr 2010

The economic downturn created pressure to maintain market share, and many hotels reduced rate in an attempt to attract additional customers.

In its 2010 survey, released in association with EyeforTravel, Cornell Nanyang Institute of Hospitality Management says the effectiveness of tactics that revenue management professionals used to survive the economic downturn showed that while discounting was the most frequent strategy used, marketing approaches were considered to be the most effective. The goal of RM is still the same, to maximise revenue. All that has changed is that there is less demand than before. Revenue managers should concentrate on the fundamentals and remember that RM is about selling the right room, at the right price.

According to Sherri Kimes, Singapore Tourism Board Distinguished Professor of Asian Hospitality Management, Cornell-Nanyang Institute of Hospitality, the lessons from this study are as follows:

Kimes, who conducted an online survey of hotel revenue management (RM) professionals in December 2009 and January 2010, spoke to EyeforTravel’s Ritesh Gupta about how the industry has fared in the past year or so. Excerpts:

How do you think RM professionals have handled critical issues - customer rate resistance, contract renegotiations, competition or price wars – over the past year or so?

Sherri Kimes: I would say that the results were mixed. The survey respondents said that their biggest regret was that they discounted too soon and too much and that if they had it to do over again, they would not have done this. That being said, hotels came up with a variety of creative packages to help obscure the room rate, worked hard with groups/corporate accounts to keep their business and did use some interesting marketing approaches to help build demand.

Hotels are often negotiating for group and contract business multiple years in advance. Last year, RM professionals acknowledged that they might be willing to accept significantly reduced group rates during the downturn in exchange for occupancy, but they also need to be very careful that they are not lowering the rate expectations for dates beyond the foreseeable future. How do you assess the situation today?

Sherri Kimes: I think hotels will be living with the negotiated discounts they made for a few years. Some hotels played smart and while they gave the better deals last year in an attempt to hold on to the business, they put qualifications on those deals and have been able to start growing their rate back this year.

When key competitors resort to guerrilla pricing for unqualified business, revenue managers are sometimes forced to do the same to retain a respectable market share. This does not generate any additional market demand, and simply drives down the revenues for all. To what extent has been the market adversely impacted through such tactics?

Sherri Kimes: Rather than just offering discounts, the smart revenue managers used creative packaging and marketing approaches to help bring in demand while at the same time not cutting back on customer service.

In down economies RM does everything to stimulate incremental demand, ensure all channels are maximised, all segments are priced effectively, and all systems are set up appropriately to capture whatever demand there is to capture. Looking back, what do you think has been the most critical aspect of some the decisions RM professionals have taken?

Sherri Kimes: That’s a hard one. I think the most important thing that successful hotels have done is to really focus in on the marketing side of things. They have tried to develop new market segments, tried to develop additional revenue streams and have focused in on providing value to their existing customers. In addition, respondents in some parts of the world used opaque channels more (and for the most part liked them!) and started using more pay per click advertising.

A senior RM executive last year told me – consumer's reaction to price strategy changes can vary so much depending on the price sensitivity, demand situation and market segment that the only way to answer that question is to track consumer behaviour changes in relation to demand and include the result of this analysis in the next pricing discussion. What's your viewpoint regarding the same?

Sherri Kimes: I completely agree. This comes back to understanding your customers and taking more of a marketing approach.

It is said that brand loyalty certainly diminishes during a recession. Guests are searching for value, and brand loyalty has always been somewhat disingenuous. Are we at risk of new loyalties being formed with the lowest priced brands only?

Sherri Kimes: Brand loyalty doesn't need to go down provided a hotel focuses in on providing the best possible customer service to their existing base.

Respondents emphasised the need to not cut costs in areas that affected the guest because of the long-term effect it could have on satisfaction and loyalty.

During a recession, there probably aren’t lots of new customers--the emphasis is on maintaining the loyalty of your existing guests so that they come back to you in the future once the recession is over. I don’t think there’s much of a risk of customers forming loyalties with the lowest price brands because if customers are looking for a cheaper rate, they can always find a hotel that will offer it.