Lowest ADR Does Not Always Win the Bid
By Michael Hudson Senior Vice President Hotel Analytics Division, Groups 360 | September 11, 2016
Most progress in human thought occurs by challenging common assumptions; sometimes at great personal peril. Galileo Galilei was placed under house arrest for the last eight years of his life for championing the heliocentric view of our solar system described by Copernicus. It was heresy to suggest that the Earth and the rest of the planets revolved around the sun. Germ Theory of Disease was ridiculed by the leading medical minds of the time. It was not until 300 years after the concept was introduced that it finally trumped the Miasma or "Bad Air" theory of sickness transmission.
Want a more recent example? The establishment scientists and doctors throughout the 20th century were absolutely certain that they knew that peptic ulcers were caused by stress; they scoffed at Dr. Barry Marshall's theory that they were actually caused by the H. Pylori bacteria. In 1986, after years of trying to convince the experts, Dr. Marshall proved that bacteria caused these peptic ulcers when he drank a petri dish full of H. Pylori and then cured himself of the subsequent ulcers with antibiotics. He won the Nobel Prize for Medicine in 2005 for his discovery (and persistence against the prevailing knowledge of experts).
The point is this…even when you are absolutely certain of a self-evident belief to be true, keep an open mind that it may not be as true as you think.
So, here is a heretical statement to the common wisdom that is prevalent in our industry today;
For Hotels Bidding on Group Event RFPs, the Lowest Rate Does Not Always Win the Bid.
In fact, the data suggests that nearly 60% of the time, the winning bid was not only higher than the median of its competing bids but also significantly higher. On average, the winning bid was more than 35% higher than its competing bids. So these results create the question, "if more than half the time, the lowest bid doesn't win, then why is the prevailing wisdom to drop the ADR to gain the business?"
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