Who is Really Suppressing Hotel Room Rates?
Laurence Bernstein
Thursday, 31st March 2011
A common concern among hotel companies is that OTAs are causing hotel rates to stagnate, or decline. Through a combination of principle (transparency) and policies (limitations and rules as to what rates hotels can list, etc.) it might appear that OTAs are forcing hotels to sell rooms at lower rates than is necessary. Opaque sites add to this dynamic.

On first blush it certainly looks as though OTAs are the guilty party. But, are they really? Or is, as they say, there more to the story than meets the eye?

A recent, simplistic exercise we undertook suggests that hotels and hotel brands make it difficult for market forces to drive rates up.

According to the basic principles of marketing, there are four "Ps" product, promotion, place (which for hotels really refers to distribution where customers can buy the product) and price. But somehow, in the rush to build the most boutiquey boutique, most luxurious luxury, most convenient convenient and most no‐frills no‐frills, these principles seem to have been forgotten.

Specifically, "price" as a component of the marketing mix has wandered off like a lost sheep, gently meandering at will with no specific purpose in mind, and unaware of the harm it's causing to the flock left behind (okay, lousy metaphor, but you probably get the point).

Hotel guests are and would‐be guests are constantly being exposed to pricing absurdities that confirm over and over again that there is no intrinsic value to a hotel stay prices are random, unrelated and mean nothing. Therefore, price shopping is the only logical way of choosing hotels.

On a recent trip to Mexico, staying in a hotel with an occupancy of around 10%, we asked to stay an extra two nights. The Expedia rate for the extra nights was approximately $320/night. The hotel quoted $450 per night. When we pointed out that we could save $200/night by walking across the lobby to the business centre computer and booking through Expedia they said (and I am not making this up) that they would who is really suppressing hotel room rates?

Here's what we found:

What's wrong with this picture?

Mostly, the picture is one of unorganized market chaos. None of the three properties shows any sign of strategy or thought, with the possible exception of Hotel A, but that totally falls apart when we learn the rates are, in fact, negotiable (it might appear to the naive eye that they are trying to undercut the Brand Website).

In all cases the pricing conspires to keep customers away from Brand sites. In two cases guests are penalized by as much as 20% for booking 4 nights at once rather than in blocks of two nights (if it were only one case, this could be seen as an anomaly, but as it is in two cases it is clearly either carelessness, conspiracy or larceny). And so on.

To be honest, we were surprised that the Hotels.ca and Expedia prices were the same in all cases a consistency that is not necessarily evident across the board. Other than that, what we are witnessing is pure carelessness somebody isn't thinking this stuff through and as a result money is being left on the table, rates are being suppressed not by falling demand, but by careless management guests are getting great deals, but rather than feeling rewarded, they walk away from the booking exercise feeling vaguely slimed.

It seems that hotels have become so focused on the technical aspects of pricing, that the human aspect has gone away. When people shop for hotels it is the same as any other shopping experience, and the way to turn shoppers into buyers is by wooing them.

Hotel marketers should think of all the booking channels as shops (travel agencies on the high street, perhaps), and try to envision how people would like to be treated in these shops. Bear in mind that not only will this impact whether or not the customer buys your room, but also how the customer feels about the entire experience: booking the hotel is as much part of the brand experience as sleeping in the superior bed or using the automated check‐out machine.

Laurence Bernstein is the founder and managing partner of Protean Strategies/The Bay Charles Consulting Group Limited. He has been a leading proponent of the "new order of differentiation" and has written and lectured on the subject of experiential branding and intrinsic/extrinsic research methodologies in Canada, the US and China. Laurence has held senior positions in major global agencies Saatchi and Saatchi, TBWA, Young and Rubicam. In addition he has worked on the client side with Westin Hotels and was the EVP of the Canadian Restaurant Association.

Laurence attended the University of the Witwatersrand in Johannesburg and Cornell University in Ithaca , New York

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