Don't Be Fooled By 'The New Normal'.
By Madigan Pratt
Thursday, 26th August 2010
You've seen it on TV, you've read about it in newspapers – Americans have taken a complete 180 degree turn from the days of conspicuous consumption; the media calls this 'The New Normal.'

So what exactly is "The New Normal?" Here's how Deloitte and Harrison Group summed it up in a recent consumer research study called, "Americans The 2010 American Pantry Study – The new rules of the shopping game."

Today's consumers are, in a word, resourceful. Their shopping is, in a word, precise. They are using tactical tools and capabilities they have to perform better in the marketplace: coupons, loyalty cards, meal planning, shopping lists, delayed gratification, lowered standards (although not as often as one might think), brand switching, channel switching, store switching, cooking more, eating out less, buying fewer prepared meals, clarifying want versus need, reassessing convenience, larger packages, smaller packages, and more.

They feel their personal economic challenges have been challenges well met – their confidence has risen as a result. In short, cutting back has made them feel smart, not deprived, and they have no intention of returning to old habits even when the economy returns.

One of the more interesting findings in the study is that 55% of those cutting back suffered no decline in income, but simply felt they "should be" cutting back.

What Should A Small Luxury Hotel Do?

Don't be fooled by all this talk about "The New Normal" – especially if you are a small luxury hotel. People are still buying high quality goods and services with a high level of perceived value. Need proof?

According to Bloomberg:
  • Unemployment is at 10%. That means 9 out of 10 people are working.
  • Apple (expensive/quality computers) saw net income jump 94% in the last quarter.
  • Starbucks (expensive/quality coffee) saw a 61% increase in net operating income.
  • Mercedes-Benz (expensive/quality cars) is having a record sales year; deliveries of new vehicles in the U.S. rose 25 percent in the first six months of 2010.
  • Even Mall of America in Bloomington, Minnesota saw sales increase 9%.
Ran Kivetz, a professor of marketing at Columbia Business School, has done research on consumer psychology and reports, "Consumers were quick to reduce spending when the recession arrived. Then the recession lasted longer than expected, and the new abnormal set in. The economy started to improve. Then it appeared to worsen. There is only so long we can suppress our need to spend."

People are saying, "‘There is still risk. I gotta cut back.  But this is not a typical one-year recession. Life has to have some normalcy. I have to have some luxuries."

Wells Fargo Equity Research:

Wells Fargo issues a weekly lodging analysis called "Room Service." In its most recent report covering the week ending August 14, 2010 it reports:
  • Higher end hotels reported stronger RevPAR and ADR growth than their lower end peers.
  • The 3rd Quarter RevPAR change for Luxury Hotels is estimated to be +13.2% – significantly higher than Upper Upscale (+8.6%) and Upscale hotels (+8.1%).
2010 Portrait of American Travelers

Ypartnership in its recently released 2010 Portrait Of American Travelers reports  the U.S. leisure travel market has finally stabilized. The report goes on to say:

Among affluent households (those with an annual income greater than $125,000), fully 20 percent plan to take more leisure trips in the year ahead, while only 9 percent plan to take fewer, for a net (positive) difference of 11 percent.

Vacation travel has historically been viewed as one of life's necessities – especially for affluent travelers. This is good news for hotels, but especially good news for small luxury hotels that provide a quality experience along with good value.

Small luxury hotels should concentrate on enhancing the "perceived value" of their particular experience rather than marketing primarily on price. People are looking for the best value they can get for their money – not necessarily the cheapest price. This is not new – only more acute as a result of the recession.

So don't be fooled by all this media hype about "The New Normal." Don't throw out a perfectly good marketing plan if you have one – just fine tune it. The New Normal is the same as The Old Normal – you have to provide good product at a fair price (good value for the money).

It's time to be creative, understand what motivates your guests and develop a marketing program designed to deliver a high level of perceived value. That will make your reservations phone line ring.

What do you think?

Safe Travels – Madigan Pratt

PS – Hospitality Marketing Blog has just entered its third year of publication. Thanks for reading and sharing your thoughts on topical hotel marketing issues.

Madigan Pratt is Managing Director of Madigan Pratt & Associates, Inc., an innovative CRM company dedicated to acquiring and retaining profitable customers for luxury hotels. Prior to founding MP&A in New York two decades ago he held senior management positions overseeing marketing communications for several Fortune 500 companies.

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