Revenue Management in an Economic Downturn

Source: Kimes SE. (2009). Hotel Revenue Management in an Economic Downturn: Results from an International Study. Cornell School of Hotel Administration, 1-13

Trying economic times bring about their own complications for the hospitality industry. In this article Sheryl Kimes discusses the results from a survey of hotels to determine the problems encountered by the hospitality industry during recessionary times, and also the remedies that may be employed to counteract the negative impacts. Conclusions were drawn from the 291 responses that were received by Kline.

The problems identified by Kline are 1) consumer rate resistance 2) contract re-negotiations 3) competition and 4) price wars.

Hotels are advised above all not to cut their rates across the board, because it will be very difficult to increase them again. It is much better to offer special pricing to very select customer segments; the segment should be as narrow as possible.

Strategies to counter the effects of the economic downturn are:
- Revealing one’s strategic intentions, i.e. publicising one’s strengths
- Competing on quality
- Creating strategic partnerships
- Leveraging one’s loyalty programmes
- Developing additional revenue sources
- Developing additional market segments
- Bundling of products, to conceal the fact that rates have been reduced
- Unbundling of products, i.e. base the rate on the core room rate only, and charge additional amounts for any additional services
- Increasing exposure through opaque channels, which bundle products, thereby disguising the rates
- Offering very selective rate cuts