NEW YORK— Hotels that rely on rate-cutting alone to build business may ultimately be tearing it down instead. That message was delivered Jan. 30 to members of the Hospitality Sales and Marketing Association International (HSMAI) at their Summit meeting held at the New York Marriott Marquis. Ray George, engagement (aka project) manager for Prophet Inc., a strategic professional services company based here that does brand building, told the audience “to compete on price is to compete on something that is difficult then to raise yourself out of, and away from that discounting spiral.” Post-September 11, many properties, particularly in fly-to destinations, have been forced to lower rates as a way of attracting business— an ongoing tactic that was greatly accelerated by the events. However, when only discounting is used to gain business— without value adds or great customer service— it’s no longer a point of difference, George contended. “What we’ve seen in other industries is discounting puts price as part of the decision criteria and expectation in the customer mindset,” George told HOTEL BUSINESS®, “instead of things like the quality of the service provided, the quality of the people and the product that’s delivered. And in order to convince consumers to pay that premium again, it becomes much more difficult…Discounting has become part of the norm.” He explained that discounting can create a more negative impact than positive results, citing four examples: * Consumers will shop the best deal, including last-minute buys on distribution channels such as Priceline.com; * It lends credibility to value/discount brands; * It erodes the existing customer base by offering discounts to potential new customers when loyal customers might have paid full rate; and * Alienates customers who are looking beyond price. There needs to be more than just price constriction in most cases, he noted. “Making price a key point of difference is not an effective way to build business.” On the other hand, successful alternatives to discounting can be implemented. The consultant suggested hotels maintain customer relevance in delivering services, demonstrating added value via customer service, leveraging an intense customer focus to drive incremental business, and building desired brand capabilities in advance of customer expectations. Strong brands that go beyond mere discounting also have significant financial impact, said George, noting “50% of customers will pay 20%-25% more for a brand they are loyal to.” Such brands are also built on solid business strategies, so it’s vital when competing “to develop and articulate a sustainable point of competitive difference,” said George.
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