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To discount or not to discount?

Written by:
To discount or not to discount?
Written by:

Reception at the Malmaison Belfast hotel. The group’s chief executive, Robert Cook, told delegates at the Hotelier of the Year conference that rates at its hotels were flexible according to demand

The issue of whether or not to discount is becoming increasingly contentious as properties and groups struggle to compete in an ever more strained market.

Veteran hotelier George Goring summed up the problem in these terms: “The biggest sin is to overprice, and the second biggest sin is to underprice.” In other words, he told delegates at the recent Hotelier of the Year Conference at the Hyatt Churchill hotel in London, you’re caught between a rock and a hard place.

The issue was addressed head‑on at the conference. The newly crowned Hotelier of the Year, Andrew Mackenzie, was all for cutting rates. He said: “People can access rates more easily now, and make a decision online. It’s a luxury if you’re able to keep your rates. If you’re living hand-to-mouth as a business and you need cash, you need to drop your rates to fill the place.”

He added: “The Vineyard [at Stockcross] is an expensive operation to run and we will have rates that will scare the competition.”

Rupert Elliott, general manager at Stapleford Park in Leicestershire, was also candid about the need to price realistically. He said: “It’s pure common sense to react to the elasticity of demand, especially in the current climate.”

Michael Shepherd, general manager of the London Hilton on Park Lane, reckoned: “Seasonality has to happen. It’s normal, and you need to flex rates accordingly.”

However, several hoteliers insisted that holding on to rates was the best way forward.

Gordon Campbell Gray, founder and managing director of One Aldwych in London, said: “When people break ranks it makes you look expensive. You obviously can’t have a cartel, but it also makes it difficult to put rates back up.”

Both Pride of Britain Hotels chief executive Peter Hancock and Harry Murray, managing director of Lucknam Park hotel, near Bath, were proponents of adding value rather than slashing prices. Hancock said: “Added value can be delivered in the form of a package, but there’s no shame in flexing rates. It allows hoteliers to be in charge of their own destiny.”

Murray warned: “The best way to increase bookings is by added value.”

He continued: “You’ve still got fixed costs for staff and energy, so it’s a much better route to offer a complimentary spa treatment or bottle of Champagne in the room, as you’ve got all the people there anyway.

“You’ve also got to be careful not to attract the wrong type of customers to your business, which you may do if you drop your rate dramatically.”

But Malmaison and Hotel du Vin chief executive Robert Cook insisted that the situation was far from clear-cut. Initially, he announced: “The best way to ruin a brand is to drop the price aggressively.” However, he then admitted that his company always flexes rates according to demand. In fact, over the recent Christmas period, he had dropped the rate to £79 to avoid the traditional nose dive in occupancy.

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The consultant’s view

The reality is that the market dictates the situation, writes Melvin Gold, and what happens in real life is that occupancy falls as demand shrinks with the slowing of the economy. People must look for sources of business to bolster their occupancy, and often those are cheaper sources of business.

But it’s not just about price cutting, it’s also about yield management. The five-star market will take some business which is traditionally four-star, and that cascades down the markets. This explains why it tends to be the luxury market that’s hit first in an economic downturn.

Hoteliers may well preach that they don’t want to cut rates, but the real question is whether they cut prices to existing customers. They do need to hold their prices as best as they can for their traditional clientele.

However, it’s inevitable that they will get hit by lower occupancy levels, so they have to then look for non-traditional sources of income by fishing for other business, and that has the effect overall of boosting occupancy levels but reducing average room rates.

They should look at added-value options to hold price, such as including breakfast free of charge, and focus on increasing the overall revenue they get from clients during their stay.

It’s crucial in these times to provide good value for money to clients, but the key is not to be cheap – so don’t cut things that your client values and will notice, as that will just make your product look inferior.

You want to use word-of-mouth recommendations as much as possible, and by making obvious cutbacks you will only damage your reputation with the people who matter most – your customers.

Find out more

The Master Innholders’ annual hotel General Managers’ Conference takes place on Monday and Tuesday 19‑20 January at the Landmark hotel, London. Highlights will include:

  • Father and son Dennis and Grant Hearn discuss surviving the recession.
  • The announcement of the new St Julian’s Scholars.
  • Deloitte’s Nick van Marken and PKF’s Robert Barnard discuss weathering the storm.
  • John Spence advises on how to use corporate responsibility as a secret weapon.
  • Generation Y and guestroom technology are assessed by Ian Millar from L’Ecole Hôtelière de Lausanne and Alastair Forbes from Acentic.
  • American Express provides an insight into effective communications strategies.
  • Martin Couchman from the British Hospitality Association gives an update on government and hospitality issues.
  • Pride of Britain chief executive Peter Hancock talks about “past masters”.
  • Loose-tongued jeweller Gerald Ratner talks about coming back from the brink.

Want to come? Book your place now at www.masterinnholders.co.uk, call 020 7269 9697

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