The gradual revival of demand in the past few weeks is ushering in a new era of price war tactics in the Indian hotels sector.

Hotels are resorting to drastic rate cuts in their quest to attract guests and stay afloat during these trying times.

Price wars are not a new phenomenon in the sector and our experience says that this is not the best strategy as it often results in more pain than gain. Occupancy may improve in the short-term due to the slashing of rates, but it is always difficult to recover rate degradation once demand picks up, which can, in turn, negatively impact the sector’s growth and profitability in the longer-run.

The rate degradation will also lower the hotel’s positioning in the eyes of the customer and change the guest profile. Moreover, the hotel will need to invest additional funds in marketing & promotional schemes to differentiate itself from the competition and change the guest perception at a later stage.

A classic example of price wars going wrong can be seen in the Indian telecom sector. The ongoing price war has been detrimental to the key players in the sector and has even pushed a few operators out of the market.

While the pressure to stay afloat in these trying times is fully understandable and can often be a compelling driver of pricing decisions, it is prudent to keep in mind that a short-term approach to pricing will likely have a severe impact on the long-term financial health of the business.

Therefore, in the current scenario, all the players in the hotels sector should come together and align themselves to the common goal of reviving the growth in the sector. They should think ‘long-term’ by promoting value-added services, targeting new customer segments or markets, and implementing cost optimization strategies instead of indulging in price wars.

Brands can also play a crucial role in this by pushing the envelope on driving better revenue and rate management strategies.

Disclaimer: The views, thoughts, and opinions expressed here are solely those of the author and do not reflect the official position of HVS.

Mandeep S. Lamba, President – South Asia, oversees the HVS global hospitality practice for South Asia. He has spent over 30 years in the hospitality industry of which the last 19 have been in CEO positions. Having worked with leading International and domestic Hotel Companies such as IHG, Radisson & ITC Hotels, he also set up joint venture companies with Dawnay Day Group UK and Onyx Hospitality, Thailand to own and operate hotels in India giving him a broader exposure to the hospitality business.

An established industry leader, Mandeep has won several awards and recognitions in India and abroad for his accomplishments and contribution to the hospitality industry. He is a Certified Hospitality Administrator from the American Hotels Association (CHA), a member of the Royal Institute of Chartered Surveyors, UK (MRICS) and a member of the Tourism Council of CII (Northern India). His views are often solicited for television and print media as a spokesperson for the hospitality & tourism sector.

Prior to joining HVS in 2018, Mandeep was the Managing Director, Hotels & Hospitality Group for JLL. Contact Mandeep at +91 981 1306 161 or mlamba@hvs.com

Dipti Mohan, Senior Manager - Research with HVS South Asia, is a seasoned knowledge professional with extensive experience in research-based content creation. She has authored several ‘point of view’ documents such as thought leadership reports, expert opinion articles, white papers and research reports. Contact Dipti at dmohan@hvs.com

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