Hello Ladies and Gentlemen,
Below is an interesting study from Cornell. It has, essentially, the same results as a study they conducted earlier showing that maintaining rates resulted in higher RevPAR performance levels.
Whilst this is obviously the case based on a very large sample, the challenge is that it does go counter to intuition. However, a critically important component, in my opinion, is to be very acutely aware of your immediate surroundings and the response that your comp set has chosen to take. That, coupled with knowing who your guest is, will always allow you to make a highly informed decision about the responses that work in your location.
· A corporate client, for the limited service segment, is likely to respond more favorably to the added service levels and familiarity you can offer rather than sacrifice that for a minor differential in rate. That means knowing them to deliver on this promise.
· A leisure client, in a similar segment, will likely be more swayed by a package that makes the experience more meaningful and memorable than a slight differential in rate (which is less apparent when bundled anyway).
Thank you.
Nagib.
Cornell Study Finds that Lower Hotel Prices Cost Hotels Money in Good Times and Bad
Contact: Glenn Withiam, 607.255.3025, grw4@cornell.edu
Ithaca, NY, June 24, 2009 – When close competitors cut their prices, the temptation for hotel operators is to follow with reductions of their own. While that strategy may increase occupancy, it reduces revenue per average room (RevPAR), when compared to a hotel’s competitive group. This is the key finding of a new study from Cornell’s Center for Hospitality Research, “Competitive Pricing in Uncertain Times,” by Cathy A. Enz, Linda Canina, and Mark Lomanno. The study is available at no charge from the center at http://www.hotelschool.cornell.edu/research/chr/pubs/reports/2009.html.
“Our goal was to compare the effects of pricing strategies among close competitors, first during a weak economy and then during boom times,” said Enz, who is the Louis G. Schaeneman, Jr. Professor of Innovation and Dynamic Management at the School of Hotel Administration. “Using the database provided by STR, we were able to analyze relative pricing, occupancy, and RevPAR in over 67,000 hotel observations, from 2001 through 2007.”
“Our findings were consistent, despite the economic situation,” explained Canina, an associate professor at Cornell. “Hotels that maintained average daily rates above those of their direct competitors experienced lower occupancies compared to those other hotels, but they recorded higher relative RevPARs. This was true in all market segments.”
Added Lomanno, who is president of STR: “Our overall results suggest that the best way to have better revenue performance than your competitors is to maintain higher average rates.” Lomanno pointed out that the researchers were careful to analyze only comparable hotels in each competitive group. Most hotels that charged relatively lower rates than their competitors had relatively higher occupancy, but that did not mean stronger RevPARs.
Thanks to the support of the Center for Hospitality Research partners listed below, all publications posted on the center’s website are available free of charge, atwww.chr.cornell.edu.
About The Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the center’s 77 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The center also publishes the award-winning hospitality journal, the Cornell Hospitality Quarterly. To learn more about the center and its projects, visit www.chr.cornell.edu.
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