Price isn’t the only factor to consider in low-demand periods

LONDON—The ebbs and flows of the hotel industry are well documented. Cyclical by nature, all hotels face peak, off-peak and shoulder seasons. So what’s a hotel to do when demand is low and high occupancy is a struggle? Turn to the data that revenue management technology provides and insights that local experts at your hotel have.

Gino Engels, CCO and co-founder of OTA Insight, a cloud-based revenue management solution for hotels and resorts, noted that too often, hotels resort too quickly to dropping their prices. “Pricing is only one lever to pull,” he explained. “One of the main things we try to educate the hotels about and help them with is making sure they get a better understanding of what the demand is in their region or city—how many people are going to be there, how busy it’s going to be, and based on that, you can use pricing to differentiate yourself or to try to be in line with the competitors.”

Gino Engels
OTA Insight

Engels didn’t discount the importance of pricing. “That’s why we provide hotels with real-time data on how competitive they are,” he said. “If you’re a hotel in Midtown or Downtown New York, you want to make sure you can compare price and drive them to your property. Pricing is still a very important decision criteria.”

But while pricing is important, so is taking stock of the bigger picture—like whether there are corporate events going on in the area—and then increasing visibility. Then, hotels need to make sure they’re on the right channels. “It’s really increasing that visibility because a lot more shopping is being done in a digital way; we really advise hotels to use those new channels, like different online travel agencies, different meta searches to really use that as a new demand driver,” Engels said. “You can actually attract a new kind of customer that never would have thought about staying in your hotel. But now, because you have a very strong position, a strong review score, a traveler in Asia-Pacific can actually find your hotel in New York whereas previously you didn’t have that demand driver.”

But, he cautioned, hotels shouldn’t just be dumping prices on these OTAs and meta-search sites. “[If you’re] dumping pricing significantly, trying to offload inventory on channels where people are looking for deals, it’s not always the right thing to do because you will maybe get people into your hotel who have bought your deal who is not the guest you would usually want in your hotel. As a result, those guests are going to review your property with not the greatest scores because it’s not the right audience for your hotel,” he said. “So from a longer-term perspective, hotels need to make sure they focus on specific channels more in advance, so they can build a base for a longer period of time.”

And while the economic outlook is still good for the time being, this will be even more important when the cycle inevitably hits its low. “One of the biggest lessons hotels have had from the previous downturn is to try to protect the value of your property,” Engels said. “Even in a downturn, people will still need to travel and businesses will still need to travel, and you don’t want to make them used to that new price. The difficulty in that is everyone follows their competition so if somebody starts reducing price, hotels will be tempted to follow the first mover in dropping price, but studies have shown once you do that short-term price drop to get through this difficult period, it’s very difficult to change price perception and price a hotel that was a year ago at $100 up to $150 or $200. It’s almost impossible to do.” HB

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