09 Aug The danger of low room rates
It is an age of austerity and hoteliers will be the first to admit that times are hard. Competition has changed within the industry; where once people looked for the best quality experience and best value for money, consumerism and the appearance of daily deal sites has resulted in the consumer wondering just how cheaply they can get things for, what once was an age of pay what’s on the price-tag is now an age of haggling.
So where does this leave hotels in the current climate, and more importantly, do you realise the impact that your rate strategy is having on your guests, and most importantly, your staff?
With a change in consumer thought occurring across almost every industry, it seems that many hotels are taking a knee-jerk reaction to the change in spending habits. Once upon a time, hotels used to provide a service, and what you paid was commensurate with the level of service you received. But now gone are the days where you would not get your bag carried if you were paying less than £100 for a room and a new era has been ushered in.
This is the age of ‘everything for nothing’; where the consumer expects to have everything included or provided free of charge and hotels seem to have simply relented. I know of hotels that are so fearful of competition, that they not only massively undercut nearby hotels, but also massively over-provide for the price. I have seen hotels doing dinner bed and breakfast for £30 per person – that’s less than most people pay for a decent three course meal in a named restaurant, but they are getting a full evening meal, a bed for the night and a full breakfast in the morning.
The other downside, is that because a room rate is sacrificed, your costs have to be as well. Lower room rates means lower income, particularly if your room rates are massively lower than a competitor. I have seen hotels undercutting competitors by over 50% which is just unnecessary; 25% would serve the same purpose and would result in more revenue for probably the same level of bookings.
But one always overlooked aspect of reducing room rates is the impact it has on your staff. Now let’s take the example of ‘Jane’ (name changed for anonymity); she works for a well known branded hotel in the south of England. The hotel she works for is a luxury, full-service hotel that caters to a wide range of people, from travelling business people to celebrities.
Recently her hotel has begun to reduce rates to try and increase trade, but Jane says “no-one has thought about how this impacts on me, or any of the other staff. We have to work ten times harder, with no extra pay, often working longer shifts to try and get everything done.”
Is this an indicator of how drastic reductions in room rates are causing staff to become unhappy? Jane continued “We used to charge in excess of £1000 for our top suites, now we are lucky to charge £250 for it”. Does this reflect just how desperately a hotel wants to get ‘bums in beds’? After all many hotels follow the philosophy of getting people in cheap, then relying on incidental spend, however in many cases the cost of incidentals is too high for anyone to actually make a purchase within a hotel (I have seen the cheapest glass of wine on a bar menu at £8, and it wasn’t even London – as a consumer I could pop to the bar across the road for half the price!).
But the need to generate revenue is not Jane’s main concern. Her’s is her personal integrity, reputation and career as she explains “the reduction in cost for the rooms makes me feel cheap. I do not feel like I am working for a high-end luxury resort any more. We used to rely on reputation and repeat bookings but now all anyone seems to talk about is money. I have not had a pay rise in 6 years, yet my hours have increased. The hotel never used to have competitors, but now our rate strategy is comparing us to local 3 star hotels and even some budget hotels. Why are we competing and reducing our rate to match a budget hotel when we are something different?”
Some may say that Jane is just moaning, and everyone has hit hard times, but surely she has a point in there? If you are matching prices with lower graded accommodation, are you then removing an differentiation that you had to them? You may offer more for the same price, but you will make less profit; remember everything you offer costs money, so as you reduce rates, you need to reduce costs…and so the cycle begins?
Jane finished by saying “I do not feel proud to work for the hotel any more. I used to rave about how great it was and how much value for money it was. We just did an offer on a daily deal site and we got hit hard by that. We had hundreds of complaints because we ended up sold out on certain dates and some of the people we had in we’re extremely rude and demanding, and had no respect for the hotel or it’s staff. It was a week of hell, but there are more to come yet! I feel like I have been downgraded as a member of staff, and begin to feel embarrassed putting it on my CV that I work here, what once was a beautiful and grand hotel that had an exceptional reputation, has been turned in to little more than a budget hotel, but with all the trimmings of a high end luxury resort”
Does this reflect how all hotel staff are feeling, or is Jane just one person who differs in opinion to everyone else. I for one have to partly agree with Jane, if you cheapen your product, your staff will feel cheaper too! The sad thing is, that many hotels will not even know how much it costs to maintain a room on a daily basis and will drop their room rate so much that they do not actually turn a profit; I am an old school hotelier and firmly believe that sacrificing your room rate is a huge mistake, it leads to your brand being cheapened in people’s view, and leads to people expecting the world to be provided to them for a pittance. Charge what your hotel is worth, not what you competitors think theirs is worth! Remember, your competitor may be running at a loss with that drastically low rate!
I for one never realised that the rate strategy of a hotel could affect more than the revenue aspect of a hotel; what has occurred is that rate amounts have become more than a figure on a spreadsheet; they affect the perception of your brand by your guests and staff. The cheaper your rate, the cheaper your brand…. Are we headed towards an industry where very hotel is the same, or is this the only way to survive in today’s market. If it is the only way to survive, are your staff willing sacrifices, or did you not even think about them when you halved your room rate?
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