Pricing Myths shattered by the Pandemic
Covid-19 has busted hotel pricing myths even as we are in the worst performing year for hotels in a century. This pandemic is nothing like 9-11 or the 2008 global financial crisis – Nor even India’s demonetization or GST implementation!
As a result, corporate travel, leisure (inbound, outbound, domestic), heritage, adventure, MICE, religious, spiritual events are all smitten. Also, the same holds for upcoming high-value niche tourism products. Culinary, Wellness, Sea & River Cruises, Glamping, Rafting, Sports, Wildlife, Agritourism, and many more are all affected.
The harsh reality of Covid-19 has busted a few hotel pricing myths:
“Our brand image will take a beating if we offer lower rates.”
We (the industry) are now on a survival mode. Your guest will not necessarily perceive lower rates to equate with a lower quality. Consequently, market perception during such extreme times will not necessarily define rates. Aspiring travellers are looking for a deal right now and hence being cautious with their money. This is even more relevant for independent and boutique hotels that have spent millions building a brand and a following. Therefore, give guests a chance to experience your product for the first time or as returning guests. Besides, their money will help your cash flow. That is how global recovery starts… one room at a time!
“Sub-optimal rates will adversely affect the quality of our guests.”
Millions have lost their jobs in 2020, thanks to the pandemic. Since mid-March, the impact on organised and unorganised tourism has been severe. The result is a very high unemployment rate in the industry. These are numbers not seen since the Great Depression (1929-33). There is a very good chance the same people who paid a high rate at your hotel pre-pandemic are now under or unemployed. So, are the same people now undesirable because they are financially stressed and clawing their way back up? Why would you not want to get them back at a lower rate for now? After all, they are the same demographic, but with a reduced propensity to spend.
“Lower rates will lead to a decline in product quality.”
In today’s times, this is a misnomer. Without yielding on quality, hotels are now learning to trim costs more effectively. Hence, there is no need to sacrifice quality to match the drop in ARR.
“If we lower rates now, it will take years to rebuild our ARR.”
In light of the current life-changing pandemic, this does not apply. The world economy has come apart this year. Also, people are still severely travel-restricted. As hoteliers, we must reflect this in our dynamic pricing. Concentrate on occupancy over ARR from the RevPAR perspective for the nonce and therein fill your rooms. You may subsequently pull up your rates when the pent-up demand returns. The same applies to RFP rates – hence a proactive approach to negotiated rates during tough times is the need of the hour.
Based on market conditions, airlines have always relied on massively varying rates. So why shouldn’t hotels do it too?
About the author
Ramiah Daniels has over two decades of operational expertise in the hospitality industry, including significant tenures with 5-star luxury brands, chiefly Oberoi Hotels, Leela Palaces & Resorts and Lalit Hotels.
A graduate in economics and an alumnus of the Oberoi Centre for Learning & Development, he has attended professional development programs with Cornell University and IIM-A.
His nurturing and creative management approach has won him much loyalty and respect from teams he has led in the past and this has further fuelled his desire to mentor outstanding hoteliers with professionalism, passion & integrity for their jobs.