Getting Back on Top: Finding the Right Balance to Avoid a Race to the Bottom
By Gareth Gaston Senior Vice President Global eCommerce, Wyndham Hotel Group | November 17, 2013
When the economy faltered a few years back, the hotel industry, like many industries, suffered greatly. Hotel owners and developers could not secure the funding necessary to build new hotels or make capital improvements to attract guests – and because consumers were cutting back on travel and there was no longer the same demand for hotel rooms, there wasn't a driving need for new hotels and renovations. As a result, hotels saw budgets cut, staff reduced and fewer and fewer reservations and check ins. And the industry put itself further in an already deep hole by racing to the bottom – utilizing short-term price cutting and discounting strategies that lowered rate to try to get more guests through the door, only to find that the margin compression created by these activities made it difficult to dig out and return to normal rates and market position when the economy showed signs of recovery.
But our industry has come a long, long way. It's been on the upswing in recent years – 2013 has been a tremendous year, and 2014 is expected to yield even greater results and rates. People are traveling more and more: according to PFK, travel demand is projected to be up by over three percent over 2013 while supply will only be up around one percent. Rate has come back and continues to grow: occupancy rate, average daily rate and revenue per available room are all expected to increase over 2013.
These factors paint a promising picture, one that hoteliers should capitalize on to drive more business to their hotels in a race for the top. But amidst more consumer demand, there is now a proliferation of new opportunities that hoteliers need to navigate and manage strategically: for example, the emergence of more meta-search price comparison engines, deals websites and increasing advertising costs are just a few factors that require hoteliers to find more room and more money in their marketing plans to stick out from the crowd. It may be tempting to revert to lower pricing and promotion strategies to lure in more guests, but with rates coming back and demand outpacing supply, that only does the industry a disservice. So how can we, as an industry and as hoteliers, avoid a race to the bottom as we compete for business?
Hotel chains have recognized the risks associated with impending margin compression and have implemented plans to address the issue. However, the individual hoteliers – those who feel the greatest effect of compression and low rate – have sensed the affect building over time, but the pressure has now come to a point and the impact on their margins are coming to life. This is an important time for hoteliers to focus efforts on marketing to their customer base to drive more direct business to their hotels through balanced distribution strategies and marketing channels without resorting to cutting price or costs, as doing so invites lesser quality, poorer service and an increased reliance on online travel agencies (OTAs) and intermediaries. Such focus will drive more business at the highest possible rate while minimizing the lowest possible cost - as costs are rising for everyone in the industry and require careful management - and will put hoteliers back in the race to the top for healthier bottom lines.
Looking Online to Drive Direct Business
Historically, hoteliers have depended greatly on traditional online marketing tactics, such as search marketing, as well as third parties and intermediaries to bring in business. More and more, consumers are spending their time online and are relying on the internet to research and book travel via desktops, tablets and mobile devices. As such, it's critical for hoteliers to think in the same way and move some of their focus to online channels to raise awareness and drive bookings – for example, advertising channels for mobile and tablet are ever-changing and the rise of metasearch engines is creating different opportunities to market to customers. While this does require investment and analysis, it's critical for progress and success.