Forget Rate Parity and Rate Integrity, let’s go to War!

Fantastic Rate Parity and Integrity Article from Patrick Landman over at Xotels Revenue Management.

Forget Rate Parity and Rate Integrity, let’s go to War!

Just about every industry expert and professional has been preaching for the last 6 months that dumping rates is not the solution to offset low demand during these challenging economic times. But to unload distressed inventory even Starwood Hotels & Resorts is cutting its prices up to 50% at approximately 600 properties worldwide.

We have been always in favor of a more long term coherent strategy and have always encouraged our clients to do the same thing. And when on the brink of giving up, we always send them the classic song, ‘Hold the Line’, by Toto to motivate them.

But does this still hold up, if a strong worldwide brand like Starwood is stepping away from what many of us have seemed to agree of being the best long term strategy. What if the large chains all start slashing their rates? What if 5 star hotels price themselves at a level where they compete with 3 and 4 star hotels? Can we throw Rate Integrity out of the window?

Rate Integrity, yes that’s a concept consumer’s value, knowing that they are buying a product of a certain value. Of course they are open to pay more or less for a room depending on the time, place and situation of acquisition. Yielding and fences are well accepted by consumers. But there is an acceptable bandwidth or psychological range.

The question many hoteliers ask us, will people accept to be paying €150 for their room, knowing or the room next door pays €75. The truth is they will never know. You will … Many hoteliers also ask us if the profile of the ‘cheaper’ guest will not disturb the more ‘expensive’ guest. We tend to see this as old school thinking, as in this day and age, you cannot tell the difference. Let’s face it, today I am wearing a suit for the first time since my wedding last year. I have been staying in and consulting for 4 and 5 star hotels going around in my ripped jeans. The world is changing …

So how does this game of Price Integrity and Rate Parity Work? From our experience we have found that hotels who have applied a more dynamic and flexible strategy are the ones achieving the best results. One cannot just work in a sense of ‘black and white’ and maintain rate strategies of another era. Nor can you throw all strategies and positioning out of the window. But realistically we are competing in a world that goes in all directions, so we have to be smart about it, not just radically discount across the board.

Ok great, well said… But what is a smart strategy? How could it work? Because in the end you still have to fill rooms. It is too easy to stand on the sidelines and say, discounting is not the solution. I hate those kinds of comments. A theory is not enough. It won’t get you there. You need to get creative, and be flexible. A Guerilla Warfare approach works best, as your competition will not be able to understand or follow …

Here an idea of a strategy that has worked very well for some of the hotels we manage;
•Rate Parity - yes, same rates, and same conditions on all public channels… but don’t let yourself be boxed in by this. It is a general strategy, not a law. And honestly we are not in rate parity for the consumer’s sake. We just know that as hotels we have to please our distributors, and without rate parity our job would become almost impossible. Flexibility and dynamism to deviate from time to time, is what builds success.
•Rate Integrity – Even though this is hard, during tough economic times. We do believe you should maintain some form of rate integrity. This does not mean you should not lower your rate. But you could be priced according to the market. You don’t have to go as low as others, neither do you have to maintain previous rates. Let’s face it, we all accept how the stock market works. The same will be accepted for hotels. Just don’t dump rates so low that you are hurting your image.
•Price Fencing - is how you can get around the whole challenge of Rate Integrity. Offer a slight discount off your BAR for 1 and 2 night stays. But be aggressive on bookings with a longer length of stay. Reservation for 3, 4, 5 nights and more can be offered steep discounts. Consider that the largest percentage of your regular guests will not see this. It is a very effective method.
•Lead Time Pricing - The Early Bird still works. Figure out your average booking window. Prior to your regular pick-up curve discount steeply. Competition is still asleep while you are building base steeling their guests.
•Opaque Pricing - Hidden discounts through non-branded offers. Use opaque channels like Priceline and Hotwire to unload distressed inventory. They provide wonderful reports showing you exactly what demand volume exists at each price point. It might not be what you really want, but you need it. And trust me opaque or hidden discounting works!
•Flexible Corporate and Consortia Pricing - Introduce them without asking the travel agency. Load your special offers minus let’s say 10% automatically. You will become much more attractive then the hotels that don’t. Especially to agencies that weren’t looking at your property before. Afraid that you are displacing current rates which are being booked by loyal corporate travel agencies. Do a query in your PMS on their IATA number and see how much they are booking your BAR and special offer rate tiers. It is a great way to introduce flexible rates to them and show the advantages. Just consider when you yield your rates; you don’t go above the contracted price in order not to upset them. It will open their mind and help you with the negotiations this fall.
•CRM Pricing - Offer leisure guests that have booked you though 3rd parties a 10% discount of your BAR, booking your hotel directly using a promo code. You eliminate agency fees of 10 to 25% and get them to book directly at a small discount.
•Corporate Guests and their Family - Offer corporate clients to book a double room with a free upgrade to a family room to accommodate their two children the next time they would like to come to your destination on holidays. Again apply a special promo code they have to insert in your online booking engine.
•Friend Rate - Send an after check-out thank you email offering a unique discount they can pass on to their friends. They email their friends a special offer which has to be booked within the next two to four weeks. You can even add a reward to it, that if they achieve a certain number of friend bookings, they will get a free stay. The promo code must thus be unique for the guest in this case. Make sure you put a Twitter and FaceBook posting button in the email as well. Imagine the viral spin-off of this.
•Add Value - Oh yes. We should not forget about this industry classic. Make a package at a slightly higher price than your room only rate and add additional services or features to the offering. Now important is we don’t try to sell the hotel again. Remember they won’t have dinner in your restaurant every night if they are visiting your destinations as tourist. They want to get out and experience the town. So for €5.00 per night include a bicycle. Or for €10 include a city wide museum ticket. Use your destination and create an offer that differentiates your hotel from the one next door. Or for €7.50 extra include and of the beaten track tour of your city. Think of things like a Upcoming Modern Art, Jazz or Gay History Tour. You can find more than enough local tour guides online that will be more than willing to work with you. Get creative, sell experience!
The above examples of price segmentation and price discrimination and guerilla tactics are very effective. You have to get creative and outsmart your competition. And if you segment, communicate and promote your offers and price strategy clearly well, you will not lose ‘price integrity’.

To avoid having to discount to deep to achieve occupancy, the name of the game is driving demand. The role of the revenue manager therefore has changed. Collaboration and working in sync with the marketing manager has become indispensible.

Rate Parity and Rate Integrity are not an objective. They are merely yield tools of your strategies. We must not lose sight of the real goal of any business, the bottom line. RevPAR is not something you can really rely on nowadays. Hoteliers should be really managing their property by GopPAR.

If you really want to win in these times, you should take it to the next level. Kill your competition. Invest in online marketing. And I mean invest. Let’s take an average scenario to define budget. A hotel of 100 rooms running at 75% occupancy at an ADR of €80, which gets 30% of its business through third party travel agencies and 15% FIT wholesaler production. Conservatively calculating the commission and net rate discounts we are talking of €180.000, at the least. Converting 10% of this business into direct sales would be acceptable at a price of €18.000 no?

We applied this approach with some hotels we manage last year. And surprise, this year their occupancy is outperforming last years. One of them generated with their website in 4 months time the same revenues as entire 2009 and another double his direct online sales. We are ignoring the direct sales through the reservation office, which is trending at a 20% spin off currently.

To win, you need to take risks, be different. Outsmart your market. Don’t just do what the rest does. Do it in stealth mode. Be a rebel, and outmaneuver your competition. And if it means going against some industry standards here and there, so be it …

Cheers!

Patrick Landman – Xotels

Why Marriott is succeeding

Great brief clip from the Economist about how Marriott is surviving even in these tougher economic times.

Conditions for Hotel Industry "RESET" May be Coming into Alignment

Great article from Hotel-Online headlines today. Reminds me of "Tipping Point" by Malcolm Gladwell, at what point will the Hotel Industry hit it's "tipping point" and get back on track.

http://www.hotel-online.com/News/PR2009_3rd/Jul09_ButlerReset.html

By Jim Butler, July 14, 2009

My friend Steve Van at Prism Hotels has a great Hotel Default Blog. His most recent article ("The Sky is Really Falling") sparked some perspective on whether the hotel industry is finally reaching a critical RESET point. Here are the latest thoughts.

Is the "RESET" at hand?

The hotel industry will not get better until we have a complete RESET, but maybe the conditions for that may finally moving into place. Here are the latest indicators:

1. The last optimist died. On July 7, 2009 Smith Travel Research threw in the towel on their formerly "optimistic" forecast and have adopted a "bleak picture" forecast for 2009, and continuing deterioration in 2010 for all three industry benchmarks (occupancy, average daily rate and revenue per available room).
2. Lenders are recognizing that hotel loan defaults are imminent. We are starting to see lenders recognize that even though a mortgage has been extended, or is performing "today." it will not perform next month or very soon. They are preparing to deal with the assets now and finding some borrowers are sanguine, but others are not. It is better to act sooner.

3. Owners aren't going to make up the shortfalls much longer. The report today that the Ilikai hotel has closed is just a high profile indicator of more closures coming. Delinquencies and foreclosures are skyrocketing, and hotels are going dark because neither the owner nor the lender will advance money to meet shortfalls to pay payroll, utilities and operating expenses.

Blessing in disguise?
Unfortunately, the hotel industry won't start to get better until well after the economy bottoms and starts to make significant and sustained improvement. With the capitulation of Smith Travel's optimism yesterday, most industry experts don't see significant improvement for hotels until sometime in 2011. And things will get much worse before they get better. But at least a realistic view of immediate prospects sets the stage for the massive RESET that must take place before the hotel industry improves -- a RESET in leverage, values and expectations. Ouch!

Still traveling for business, but carefully.

A great article from a couple of AP Writers with some updates on Business Travel in the shaky economy. Another example of the Hotel Industry imploding onto itself and how competing brands continue to bring lower RevPAR's across the board.

Still traveling for business, but carefully
http://www.chron.com/disp/story.mpl/ap/business/6525716.html
By KRISTEN A. LEE and HARRY R. WEBER AP Business Writers © 2009 The Associated Press
July 12, 2009, 12:40PM


NEW YORK — Airfare wars and room-rate promotions are usually aimed at vacationers, but airlines and hotels are resorting to similar tactics to regain their traditional cash cow — the business traveler.
Corporate travelers, who pay higher airfares when they sit in the front cabins of planes or book close to the date of travel, are flying coach more often — or not traveling at all during the recession. And their employers are booking fewer banquet halls and blocks of rooms, leaving many hotels pining for the sizable and reliable revenue that business meetings used to generate.
Partly as a result, several major airlines are expected to post losses for the April-June quarter when they report their earnings starting this week. And hotel revenue — which fell sharply in the first quarter from a year earlier — is not expected to show much improvement in the second quarter, either. Marriott International Inc.'s results are due Thursday.


Business travelers tend to generate a higher percentage of overall industry revenue than the percentage of total travelers they represent. Of the $641 billion spent by U.S residents in 2007 on domestic travel and tourism, roughly 33 percent came from business travelers, according to the U.S. Travel Association. But the number of domestic business trips accounted for less than 25 percent of that year's 2 billion total domestic trips.
Boston-based aviation consultant Mark Kiefer of CRA International said the economy is keeping a lid on business travel this year.
"We have a case of certain sectors that were consumers of a lot of business travel, like banking and so forth," Kiefer said. "The other issue we are grappling with are expectations. There is a lot of uncertainty about when the economy will turn around and by how much."
Travel companies are using a range of strategies to lure business travelers. Hotels are offering bonus room nights, free snacks and drinks, and more flexibility on booking and cancellation policies. Airlines have been offering heavily discounted upgrades and business-oriented fare sales.
Discounts have helped lure some vacationers back onto the road. Deutsche Bank analyst Chris Woronka noted that, while U.S. revenue per available room, a key gauge of the hotel industry's performance, was still down by a double-digit percentage since late June, it has shown a marked improvement because summer leisure demand has picked up.
But in a recent survey of 285 senior finance executives around the world, 87 percent said their companies plan to spend less on business travel this year. The American Express/CFO Research Global Business & Spending Monitor found 44 percent of the executives expect their companies' travel to decline more than 10 percent.
The survey did find that most companies will continue to spend on travel that could generate revenue. Frank Schnur, of American Express' business travel group, predicts that clients will continue to expect a financial return on their investments in travel, even after the economic recovery.
For now, many companies are cutting back. Drew Ramsey, a 33-year-old information security manager in Phoenix who is a Southwest Airlines frequent flier, says his company has essentially shut down business travel.
"Any business travel has to be a necessity; otherwise people are being asked to use videoconferencing or teleconferences," Ramsey said.
Traffic in high-end airline seats fell 22 percent in April, compared with the same month a year earlier, according to the International Air Transport Association. Meanwhile, the number of travelers on coach tickets rose 0.3 percent.
With a shrinking pot of corporate travel dollars, airlines like Southwest are trying new strategies to get business travelers on board. Ramsey said Southwest offered to fast-track him to "A-List" status. That provides a year of reserved-boarding privileges to passengers who belong to the airline's frequent-flier program and take a certain number of flights within a given period.
Airlines also are giving business travelers things like Wi-Fi, satellite radio, advance seat assignments and priority boarding to lure them in.
In the hotel industry, all kinds of chains that rely on business travelers are feeling the pain. Extended Stay Hotels LLC — which caters to business travelers who need longer-term lodging at lower rates — has filed for Chapter 11 bankruptcy protection, citing a heavy debtload and a sharp drop in business travel.
Starwood Hotels & Resorts Inc. is offering a 4 percent discount to business meeting planners who book an event for 10 or more room-nights at some of its brands, including the W, Westin and Sheraton chains. They also get a free snack break from PepsiCo Inc., through Aug. 31, and a hefty bonus of loyalty program points they can use for personal travel.
Hotels are not as agile because they typically negotiate corporate rates months or years in advance. So the rate cuts they're offering now could have a long term impact on revenue.
Continental Airlines CEO Larry Kellner said at a June investor conference that his airline is working its "business (traveler) side very hard because ... we could also see a recovery much more quicker if we could get the business traffic back on the airplanes."

Despite Economy Downturn, Hoteliers Are Being Resilient

Great Great article from IndiaWest here.

Despite Economy Downturn, Hoteliers Are Being Resilient
By MICHEL W. POTTS
http://www.indiawest.com/readmore.aspx?id=1290&sid=6
July 02, 2009 06:14:00 PM
GARDEN GROVE, Calif. — How the troubled economy has affected hoteliers and what they can do about it was the main topic of discussion June 18 at the annual conference of the Southern California Hotel and Lodging Association co-hosted by the Asian American Hotel Owners Association at the Crowne Plaza hotel here.During the luncheon industry leaders panel discussion, La Quinta chief development officer Rajiv Trivedi noted that “this is a different type of recession that we have experienced in a long time” with the kind of decline that has left the hotel industry in California and Florida the hardest hit. In the last six weeks, however, “from what we see in our brand, the decline has stopped,” he added. “If we compare to 2001, the leisure market started coming back first, and if we have good summer months with the leisure market, I believe we’ll see some better results for our industry starting next year.”Fred Schwartz, president of AAHOA, was more specific. Hoteliers have been enjoying 60 percent occupancy in their hotels for the last 17 out of 20 years. A recent PKF Hospitality Research said that “the 50s are the new 60s, meaning that we’re not going to see 60 percent occupancy probably until 2013,” he told India-West.According to the industry study, the larger, full service hotels, such as the Four Seasons, the Fairmonts, Ritz-Carltons, the Westins and the Sheratons, have been the hardest hit, with some of them being forced into foreclosure.Bhupen Amin, the COO of Lotus Hotels and the current CH&LA chairman until the end of the year, frankly admitted that his properties have experienced a 20 to 25 percent decline since the beginning of the recession. “We’re tightening our belts, we’re working with staff to minimize hours, trying to keep our overhead down and trying to run as efficiently as possible, but it’s tough,” he told India-West. However, according to Schwartz, “there is a silver lining in that there is a lot of pent-up demand, people want to travel, and we hope that what the pundits are saying, that the recession is bottoming out, is true and the travel industry will start to return again and pick up from the poor situation it is now.”AAHOA members “are extremely savvy operators and they have been through downturns before, but this is taking every bit of skill level to manage the downturn and we’re hoping that we’re seeing the bottom of the recession and that travel will regain again,” he added.Trivedi cautioned the hotel operators not to have a “bunker mentality” until the recession has passed. “The Carnegies and the Rockefellers were created only because they were smart enough to take a risk at the time that they took it,” he said.“So look for markets. Look at the other parts of the country where the economy is not going as bad and price value is sustained, where you can build your hotel at 20 to 25 percent less of its value,” Trivedi advised the hoteliers. He also advised them to “extract resources” from their franchisor and “make sure they are providing assistance to retain or gain market share in your area.”There is a light at the end of the tunnel, he told the franchisees. “Have a positive vision,” he urged. “Work with your team and spread the positive vision one person at a time. Focus on what you can do to get better market share and focus on preparing yourself when the upswing comes.”

Lose-Lose for Hotels

Hawaii hotels report occupancy dropping

May was fourth straight month of record lows for resorts across the state

A Great little article from Robbie Dingeman a Staff Writer over at the Honoluluadvertiser

Despite Deep Discounts on Room Rates, Hawai'i Hotel Occupancy -During May 2009 the Worst Since at Least 1987.

Ok so here's another situation of how the Hotel industry is imploding in upon itself, which could be aided by economics class 101.

This example comes to us from the formerly happy little islands of Hawaii, where high rates and high demand kept us coming and kept RevPAR's high.

"It was "a very tough month," said Joseph Toy, president of Hospitality Advisors.

Hotels cut rates an average of nearly 13 percent to attract more visitors but still saw a 6.5 percentage point decline in occupancy from a year ago.

May was the fourth straight month of record lows for occupancy in Hawai'i's hotels. Toy said the steep decline does not bode well for the rest of the summer and the rest of 2009.

"We're really hitting new lows here with the industry," Toy said. "Right now we're still seeing some strong drops. It shows that we have not hit bottom yet."

Average daily room rates fell sharply by 12.8 percent to end the month at $165.78. The combined decrease drove statewide revenue per available room -- a key measure of profitability -- to $102.67, down by 21.1 percent compared to the same period last year."

While common excuses are being placed on a lot of Meeting business being down, and the general overall state of the economy, what I think is constantly being downplayed is the lack of any Rate Integrity from the hotels.

When area Hotels all start racing in the "Discount to the Bottom" wars, the consumer wins, but at costs which are usually insurmountable for Hotels to see a return. Not only is there the smaller pie from which customers are coming, but we are seeing less ADR on that smaller pie as well. Ultimately killing overall RevPAR's.

While some optimistic reports are seeing turn-arounds in RevPAR for early 2010 and even some say Q4 2009, I'm saying that these lasting effects from the Discounting Wars will effect Hotels for at least up to 5-10 years as a new precedent of Value has been set at these hotels which are now offering heavily discounted rates.

Targeted discounts can be a great way to encourage business, but permanent discounts are no longer just a discount, they quickly become the perceived rate and value of your Hotel. Always remember, your Reputation of Value will last with you much longer than your rates do.