When close competitors in the hospitality industry cut their prices, the temptation for hotel operators is to follow with reductions of their own.
While that strategy pays off in increased occupancy, it usually reduces revenue per available room, or RevPAR, among all hotels in a market area.
That’s the latest finding from the Cornell Center for Hospitality Research.
The authors of “Competitive Pricing in Uncertain Times” said their findings were consistent, despite the current economic situation, said Linda Canina, an associate professor at Cornell.
“Hotels that maintained average daily rates above those of their direct competitors experienced lower occupancies compared to those other hotels, but they recorded higher relative RevPARs,” she said. “This was true in all market segments.”
Cornell’s results also “suggest that the best way to have better revenue performance than your competitors is to maintain higher average rates,” according to study co-author Mark Lomanno. He said that hotels that undercut others on rate had relatively higher occupancy, but that did not mean stronger RevPARs.
While the study’s findings might sound counter-intuitive, Sharon Seidler, interim general manager for the city’s Renaissance Hotel, said she agreed.
“We’re finding that because not quoting rates until 2010 and beyond, we’re not faced with discounting,” she said. “Our rates are a little bit higher than some in the Pikes Peak region – except of course for government business which we offer at the approved per diem rate. We’re able to hold our prices and aren’t undercutting other hotels because we don’t need to – we’re not at that point.”
Seidler said the 300-room hotel, still under construction, will offer pre-opening specials and is focused more on getting the hotel, spa and conference center completed on time to accommodate its first guests next April.
“In our business, you have to do a lot of fact-finding before automatically discounting to lower rate,” Seidler said. “Other issues may be more important to a group, such as finding a specific type of space or hotel location.”
Responding to the Cornell Center for Hospitality research results, she admitted that “it’s hard to have both — high occupancy and being able to charge great rates.
“You do some sacrificing (of rates), but much of the time, any discounting is offset by higher food and beverage or audio-visual usage,” Seidler said. “If a group of bankers plans to meet and their spouses are using the spa during the day, that’s great revenue for the hotel.”