Cornell Study Finds Discounting Did Little to Offset Revenue Loss

Best practices recommendation: Focus on hotel marketing plans and rate-obscuring tactics

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. April 23, 2010

ITHACA, NY - April 22, 2010 - Hotels worldwide faced a difficult decision regarding which hotel marketing tactics to apply when travel levels plummeted in 2009. They could try to drive room-nights by matching competitors' discounted rates, or they could hold rates steady and watch occupancy drop. A newhotel management study from the Cornell Center for Hospitality Research found that many hoteliers admitted engaging in price wars but they wished they had held firm on rates while using other tactics. The study, “Successful Tactics for Surviving an Economic Downturn: Results from an International Study,” by Sheryl E. Kimes, is available at no charge.

Kimes, the Singapore Tourism Board Distinguished Professor of Asian Hospitality Management at the Cornell School of Hotel Administration, surveyed 980 hotel managers worldwide early in 2010 to determine what tactics they used in response to the Great Recession, and how well those tactics worked. The tactics used were, in descending order: discounting, marketing initiatives, obscuring room rates, and cost cutting.

“Discounting was the most commonly applied tactic, although the managers often blamed their competitors for starting a price war. They rated marketing initiatives as the most effective set of tactics,” said Kimes. “These hotel operators reported that in the next downturn, they'll focus more on marketing and less on price cuts. They also will be using rate-obscuring programs in 2010. Regardless of the tactics, the respondents urged all hotel operators to have a recession plan in place.”

Most hotel marketing plans suggested that the best way to combat the recession was to develop new market segments, which the hoteliers rated as reasonably effective. About four of ten hotels attempted rate-obscuring tactics, most notably value-added packages and offering a free night with purchase. Kimes noted that hotels in the Americas were less likely to offer free nights and more likely to focus on adding value or using opaque distribution channels. One-quarter of respondents had used such cost-cutting tactics as closing facilities (sometimes for renovation) or reducing operating hours.

Asked for their comments on recession-busting tactics, hotel managers warned against broad-scale discounting. Instead, they focused on rate-obscuring packages. Respondents also recommended maintaining marketing programs and service levels.

Thanks to the support of the CHR partners listed below, all publications posted on the center's website are available free of charge, at www.chr.cornell.edu.

About The Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the center's 79 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The center also publishes the award-winning hospitality journal, the Cornell Hospitality Quarterly. To learn more about the center and its projects, visit www.chr.cornell.edu.

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