US report warns of discounting ‘disaster'
Long-term discounting of hotel rooms could have "disastrous" results for an industry already hard hit by a drop in tourism, according to the latest research by the Cornell School of Hotel Administration's Center for Hospitality Research in the USA.
Dropping prices during slow times is a common trend for hotel operators, but this practice will fail to increase revenues or drive business, says the report.
The ongoing study found that an increasing number of consumers use the internet to find the best discount on a room and that hotels that continue to discount will not find they attract more customers to the market.
"The prevailing wisdom is that reducing room rates entices new consumers to enter the market and buy more rooms. This has never worked for the hotel industry and it won't work in this area. Existing consumers simply get more for less, and hotel revenues fall," said co-author, Cathy Enz.
Another concern is that once the rate is discounted and the market picks up, hotels will find it difficult to charge the full price again, because consumers will be used to reduced rates.
Many UK chains have introduced a number of promotions to avoid straight discounting.
"Since the days of foot-and-mouth we have been trying to focus on the domestic marketing campaign. We are trying to give a reason to travel, because just a hotel room isn't enough anymore," said a Hilton Group spokesman.
Hilton is offering deals such as £78 per person per night in two of its London hotels, at Kensington and Olympia, with theatre tickets thrown in. In its Hilton Bradford and Northampton hotels it is offering two nights for £99, including breakfast and dinner on the first night.
Among deals offered by Le M‚ridien Hotels & Resorts are upgraded rooms for corporate customers, free unlimited local phone calls and a 20% discount on its business centre services.
However, straight discounting is certainly prevalent among UK hotels. Online booking agency Lastminute.com has noticed a surge in discounted rooms since the start of the Iraq war.
"At the moment there are a lot of four-star hotels advertising a rate of £65 including breakfast in the UK," said a spokeswoman.
Lawrence Alexander, commercial director of Jarvis Hotels, said that "everyone" was discounting, including Jarvis, and while he agreed that it would not improve revenues, it was a proven method to gain market share.
"We all want someone else's business - and you can win or buy market share by dropping the price, and we are all doing exactly that. Promotions have a place, but they aren't going to bring more people into the market," he said.
By Christina Golding Source: Caterer & Hotelkeeper magazine, 24-30 April 2003
