Strategic Pricing in European Hotels: 2006–2009

Strategic Pricing in European Hotels: 2006–2009

“Executive Summary:

This paper examines the pricing, demand (occupancy), and revenue (RevPAR) dynamics for European hotels for the period 2006 through 2009. The results of this four-year study reveal that in both good times (2006–2007) and bad (2008–2009) hotels that offer average daily rates above those of their direct competitors have lower comparative occupancies but higher relative RevPARs. Based on 8,026 hotel observations, this pattern of demand and revenue behavior was consistent for hotels of various sizes and type of hotel management (i.e., chain-affiliated or independent), and held true in most market segments across all geographic regions of Europe. Occupancy and RevPAR volatility was greater in eastern and southern European hotels (compared to those in the north and west of Europe) and in the economy segment (as compared to higher level hotels). The results suggest that higher relative revenue performance is accomplished by hotels that offer higher rates than their competitors. It also suggests that key strategic factors such as hotel size and chain affiliation do not alter the pattern of findings. The results support the view that lodging demand may be inelastic in local European markets, a finding consistent with previous work in the U.S. and Asian markets. The results of this study appear to confirm the view that RevPAR is not stimulated by dropping competitive prices, and that hotel size and chain affiliation do not in meaningful ways alter the patterns found for the percentage difference in occupancy and RevPAR.”

Successful Tactics for Surviving an Economic Downturn: Results from an International Study

Successful Tactics for Surviving an Economic Downturn: Results from an International Study

“Executive Summary:

A survey of 980 hotels around the world, conducted from December 2009 through February 2010, found that discounting was the number-one tactic used to offset the effects of the Great Recession of 2008–2009. At the same time, most respondents who cut their prices agreed that discounting was not particularly successful in maintaining revenue levels. Discounting is one of four categories of tactics applied to offset the effects of the drop in corporate and leisure travel. The other three categories, in descending order, were marketing initiatives, obscuring room rates, and cutting costs. Hotels that sought to attract new market segments reported reasonably strong success. Those that used rate-obscuring tactics typically assembled value-added packages, offered a free night with purchase, or made heavier use of opaque distribution channels. About one-quarter of respondents reported cutting costs, usually by closing facilities, taking the opportunity for renovation, or reducing operating hours. Asked for their recommendations for the next recession, the respondents said that they would avoid discounting and focus instead on market initiatives. For 2010, in addition to marketing programs, the respondents said that they planned to use rate-obscuring approaches, with an emphasis on value-added packages.”