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Round Table – Discount discontent

01 May 2009 by
Round Table – Discount discontent

New research conducted by Caterer in association with entertainment providers Filmbank shows that while few hoteliers were promoting spa breaks or themed weekends, most were heavily cutting rates. Yet those value-added propositions they did run were extremely successful. So are hoteliers in the UK right now indulging in knee-jerk, panic price-cutting? We gathered together leading operators to discuss the issues. Emily Manson reports

Most hoteliers can agree on the fundamentals of what makes a good hotel - a comfy bed, a hospitable welcome, a clean room, half-decent washing facilities - but how best tosell those rooms in the worst recession in nearly a century is anyone's guess.

The divide between those who favour discounting and those who advocate adding value is growing as the economic crisis deepens. Caterer, in association with in-room entertainment provider Filmbank, arranged for leading hoteliers and industry experts to thrash out the issues.

View the live discussion on Caterersearch here or scroll down to watch >>

ADDING VALUE

Richard Ball, proprietor of Calcot Manor in the Cotswolds, kicked off the discussion by warning of the risks of devaluing a premium brand by casual discounting.

He recognised that supply and demand did have an effect on the marketplace and that hoteliers had to be reactive, but added: "While the aim is to just keep things ticking over until things recover, the key is to disguise the discounting as much as possible so as not to undervalue the brand. Our customers are looking for value, so we go in carefully with added value rather than discounts."

Bibury Court's new general manager, Rupert Elliott, added: "It's about focusing on doing ‘hospitality' right, especially for small hotels. When you walk in the door you need to get added value straight away from the welcome onwards."

Stuart Procter, general manager of London's Stafford hotel, agreed on the importance of adding value. "We are going out and working harder than ever at providing better value by bundling things together and looking at pushing harder in new markets," he said.

DISCOUNTING

But addressing the issue of blatant discounting, Procter urged that price cutting should not be viewed as an easy way out. "Certain hotel companies are taking it too quickly and just dumping rates," he added.

Those who lose their nerve and drastically cut prices will struggle to deliver on yield and consequently profitability, warned Procter: "Revenue per room is very important, but if occupancy drops, it drops. We know we'll make less money, but you have to have a long-term plan."

Konstanze Auernheimer, director of marketing at STR Global, agreed, warning that discounting should be used sparingly to get more people into the hotel, as it seldom generated more demand and just resulted in the same people staying but paying less.

"You then have the same cost base and a harder time making up the revenue. You're better to sell at higher rates and let occupancy fall," she explained. But she accepted that upscale and luxury markets had more room for manoeuvre, while the mid-range and budget markets were far more price-sensitive.

However, hotel consultant Melvin Gold was more blunt. "No matter how much hoteliers say to each other not to discount, there will always be someone who steps out of line and does it and we've seen that happen already. Anyone who says they are not discounting is missing one word - yet," he told the panel.

Having worked through four downturns, the difference Gold noticed this time was that some hoteliers were "jumping the gun" and cutting rates early.

He added: "Maintaining your offer is particularly important in these times, especially in the full service sector," explaining that the market was now under unprecedented competition from budget operators who were strongly pushing their case.

WHEN TO REDUCE RATES

Procter warned that big chains should stop dumping their distressed inventory so quickly and urged them to hold their nerve, especially in London, where there was still good demand- although he did add: "Certain chain hotelshave been overcharging for very average products for a very long time, so let them drop their rates."

David Orr, chief executive of City Inn hotels, also stressed the importance in such a daily changing businessof retaining human control of rate changes and making informed decisions personally rather than using automated systems. "It's important to have control of your rate and be able to assess it on an ongoing basis, so you are on top of the fluctuations. I wouldn't like to have an automated tracker system doing it for me."

Auernheimer agreed: "People panic when they see occupancy dropping, but it's not just about that; you need to look at revpar, too, and hold your nerve. If you've got a strategy in place, keep an eye on it but don't be too short-sighted."

Procter admitted: "We've got to be worried to a degree, as these are tough times and we need to be in touch with the business more than ever, but it doesn't mean we should ‘nickel and dime' stuff or panic."

Round table
Round table

Ball added: "The degree of worry directly correlates with how long-term a view you are financially able to take. We were a lot more worried during the last slowdown when we had very high borrowings, whereas now we can afford to take a longer-term view."

One factor that the panel agreed on was the implications of the recent weakening of the pound. Procter pointed out: "We are now a 35% better value proposition to US tourists without even dropping our rates. We need to keep pushing that message and keep true to what we do."

Gold also urged hoteliers to make sure they understood the currency ramifications. "London rates may be down by 7-9%, but if you look at it in terms of euros, it's 20% - or in dollars it's 30%. So you're already giving a massive discount to overseas markets. It means you have to know where you're customers are coming from, understand market segmentation and that will help you with pricing."

Orr agreed, adding: "The UK currency weakness is definitely a potential route to exploit - we must keep it in the forefront of our minds and avoid being battered down by all the negative national press."

OFFERS

Ball pointed out that the deciding factor for many guests when booking was not the actual price, but whether operators were seen to be offering value. "If that value relates to the drivers of people wanting to visit the hotel, then you don't have to try too hard," he explained.

Elliott added: "If you have a Michelin-starred restaurant, for instance, you really don't have to discount the food, as people are already coming for that. You need to identify what people are coming for and play to those strengths by adding value to those - likewise if you have a spa, it's a no- brainer."

Gold emphasised that value must provide something the guest wanted, but he also warned operators to be careful not to deprive themselves of other potential revenue streams and to target offers carefully and add value where possible. "I wouldn't expect the corporate market to be discounted but to have added value, such as Wi-Fi and breakfast included. But other sectors where operators need to increase occupancy and hold up traditional markets may need to be discounted."

Procter concluded: "There are lots of people doing lots of different tricks - there are a lot of sexy offers out there and not just from the London hotels. We need to start looking at the cruise lines as competition too, as they've really upped their game in the past few years and have some great packages. Having said that, we have great properties within the Shire Group and even when people try other properties, they always come back, so we need to hold our nerves and our rates."

THE PANEL

  • David Orr chief executive officer, City Inn hotels
  • Stuart Procter general manager, the Stafford hotel (part of Shire Hotels)
  • Melvin Gold independent hotel consultant, Melvin Gold Consulting
  • Richard Ball proprietor, Calcot Manor, Gloucestershire
  • Rupert Elliott general manager, Bibury Court, Gloucestershire
  • Konstanze Auernheimer director of marketing, STR Global
  • Majella Griffin general manager, Filmbank
  • Rachelle Peterson commercial sales director, Filmbank
  • James Aufenast managing editor, Caterer and Hotelkeeper (chair)

IN-ROOM ENTERTAINMENT

For those hoteliers who are looking to add value to their offers, in-room entertainment provider Filmbank suggests using movies as a draw. They cite the example of the Hilton group, which ran a hugely successful Sex in the City weekend package, showing the film shortly after its cinema release but before its premier on Sky, DVD and television.

The Sex and the City promotion ran in 13 venues - all bar one of the company's German hotels for a month, with press advertising used to promote the package. Filmbank supplied Hilton with Sex and the City keyrings to incentivise reception staff to promote the movie as guests checked in.

Hotels have access to artwork from Filmbank and can be as subtle or creative as they like in terms of advertising and branding to align with their own brand and target audience. Majella Griffin, general manager of Filmbank explained: "We are looking at films as a value-added proposition. Hotels can market the latest movies you can't see anywhere else and it provides a great opportunity to create a special evening or weekend promotion or premiere family packages. In terms of adding value, we feel movies can help add value by extending packages."

Rachelle Peterson, Filmbank's commercial sales director, added: "You want to keep the guest as long as possible and have them staying, eating and being entertained in your property. It's far better to add value for the guests by providing a film and reaping the benefits of them using the mini bar or having dinner - and doing something with brand associations and promotions can help that."

Filmbank, a joint venture by Warner Brothers and Sony Pictures, is a leading provider of in-room movies. With content direct from Hollywood, Filmbank offers a diverse range of cinema. With a range of movies that can be built into consumer packages, it is an ideal way for hotels to capitalise on generating revenue from in-room entertainment.

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