Is 'Competition Hotel' deciding your ARR?
Updated: Mar 22
In the time where hotel revenue management often proves critical, we have unfortunately diverted from managing revenue strategically, to offering rates lower than competition hotels. This quick-fix often helps us to get that last-minute business all parked with us. But evidently it is only that- a quick fix-a short-term practice which almost never converts into sustainable long-term results. And fortunately, many hospitality management companies in India are gradually realizing it. Moreover, it mostly results into rate-dilution and lower valuation of the property, along with other similar adversities, which make it impossible for the property to recover in the market- leaving hotel owners and investors with no option but to relaunch the property.
These trends in the Indian hotel industry depict the famous fable of 'The Monkey and the Cats'. The two cats in the story are busy fighting for a bigger share of food and the monkey takes advantage by exploiting the cats' mistrust on each other. The moral being ' When you quarrel, someone else gains'
Think of two competition hotels as the cats- constantly fighting for a bigger share of occupancy (and sometimes revenue) by lowering their rates. As the cats are fighting, benefit goes to the Monkey- which could be any stakeholder of the industry, may it be another hotel or a travel agent or simply the guests. In the end, the hotels have either diluted their market rates or compensated the rates by additional services, which affect the overall profits. In totality, this is never a wise practice if you want the property to yield its maximum potential without further investment or capital expenditure. More often than not, hotels managed by the third party hotel management companies or any other hotel operations management companies make this mistake.
We need to realize that trends have changed over last few years with the advancing of technology. Nobody books a month prior for business travel due to excessive supply of hotel rooms available. Moreover, in this fast-moving world, nobody knows how their next week is looking forget to plan in advance a month. ProMiller, after an extensive study of business markets like Delhi, Mumbai, Bangalore, Kolkata, Ahmedabad, and few leisure destinations like Jodhpur, Goa, Andamans, etc has come to a realization that the lead time has decreased by leaps and bounds for both business and leisure travel. A trend that more and more hotel management consultants in India are realizing gradually.
What does Revenue Management mean to you? Do you find yourself checking what your competition is offering in terms of Tariff and adjust your own Tariff accordingly? If yes, it might be the time to reconsider this practice.
Hoteliers will have to get over the fear of being behind the curve and dropping the rates in the last 48 to 72 hours, just to fill the hotel up. Unfortunately, we drop the rates at this hour which in turn benefits the guests and we leave a lot of money on the table in our competition rates catfight. The problem in hand is such that if one hotel follows the right practice they will end up being empty, hence, the solution is to put hand in hand and competition hotel general managers maturely need to speak to each other to form a uniform code of conduct. Today, in most of the business locations corporate traveller is moving through an OTA since he got a better deal there. Why did we even go and contract if we had to simply put the lowest rate on OTA during our peak pickup lead time? Aren’t we diluting our corporate on our own and then whining that corporate have stopped to use us. Let's stop and analyze- it might be the other way around.
Are we collecting business cards from every OTA and sending them emailers post departure to book direct next time and get a 10% off the bar and few more inclusions?
Hotel business is a daily leasing business and being too rustic or too compromising in it will ensure you leave a lot of money on table.
Jim Collins in his book 'Good to Great' said good is the greatest enemy of great and that’s what we here believe has happened to most of the branded space hotels. They have just accepted their fate with a good performance, never striving for great and thus leaving a lot of money on the table. It is high time that as a fraternity, we come together and work as one entity to maintain the integrity of the industry. Instead of working in silos, which will eventually leave all of us in a decline. Healthy competition in the hotel industry should be on the basis of services offered rather than rates. After all, what sets a hotel business apart is a sense of hospitality that guest experiences- the element makes for long and sustainable guest loyalty and hence a sustainable hotel business. As per seasonality, it is reasonable for hotels to lower room tariffs but cutting tariffs just to attract last-minute occupancy is never appreciated. It, in turn, shows that the hotel team was not ready with a sturdy revenue management plan, thus leaving them to fight the fire at the last minute.
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