by Georges Panayotis
Experts generally agree: the keys to facing the challenges of this 21st century are agility, reactivity, creativity. It is primordial to be able to continuously adapt to changing market conditions, to implement original propositions and play with a certain flexibility of prices in order to win and keep clients. This naturally happens through the modern tools the digital universe offers but also through adapting rates to circumstances while maintaining sufficient margins.
And this is where things get trickier. The expenditures in a hotel’s operating account keep rising. Add increases in distribution costs, in taxes & pensions, the costs of implementing new safety regulations, charges to cover oneself against the risk tied to the variations of energy spending or currency exchange rates: overall, costs have exploded.
Hoteliers have been caught up by their need to remain visible on the Web, by accumulating channels, service providers and commissions. The original race has entered a nearly permanent sprint with the regular appearance of a new model, a new service, a new application. Even if their use is complimentary, there is always a hidden investment cost to adapt; or time spent implementing the tool. The new Apple Watch, preceded by all the company’s other connected objects, enters a new stage in the hotel reservation process where lead times are rapidly shrinking.
Hotel prices are under pressure. On the one hand, margins are under attack and on the other new collaborative economic models give the feeling that the hotels exaggerate their prices. Rivaling with alternative accommodations leads to sacrifices of margins that hamper other essential areas such as investment and the quality of service. An infernal vicious cycle is underway that paralyzes the flexibility of prices or leads to the degradation of the product. It is necessary to recognize that Revenue management has not made things easier. To optimize room revenues, customer loyalty has been devalorized and above all they have grown accustomed to seeking out the best prices. Any possible backlash felt now should come as no surprise since consumers do not feel like they are getting back what they lost during a period of strong demand.
The former industry ratios have made it possible for generations to guarantee the profitability of operations and customer satisfaction. The famous thousandth rule, which set a goal for the average daily rate to be one thousandth of the cost of the room, was broken by the rise in real estate asset costs, the gadgetization of hotel supplies and distribution costs. Going digital is evident. There is no point in bringing to trial hoteliers who missed the technological revolution. To each his specialty now. Global actors are ready to deliver the distribution of products which now need to focus on its unique selling points; differentiation and appeal are keys to success.
While there are no miracle solutions, there is already the need for better awareness of the customer demand for a good quality for price ratio. Customers are increasingly unfaithful and volatile, ready to change their habits out of necessity or to snap up an opportunity when an experience is not up to par with expectations. Arbitrages must bear on parasite costs, the ones that deprive hoteliers of the maneuvering margin needed to focus on their product, service and quality. Better to get out of the vicious circle at the top before getting out of the market for good.
