Cornell Hospitality Report Vol. 10, No. 7, April 2010 Successful Tactics for Surviving an Economic Downturn : Results from an International Study by Sheryl E. Kimes, Ph.D.
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Cornell Hospitality ReportVol. 10, No. 7, April 2010
Successful Tactics for Surviving an Economic Downturn: Results from an International Study
by Sheryl E. Kimes, Ph.D.
Advisory Board
The Robert A. and Jan M. Beck Center at Cornell University
Cornell Hospitality Reports, Vol. 10, No. 7 (April 2010)
© 2010 Cornell University
Cornell Hospitality Report is produced for the benefit of the hospitality industry by The Center for Hospitality Research at Cornell University
Rohit Verma, Executive DirectorJennifer Macera, Associate DirectorGlenn Withiam, Director of Publications
Center for Hospitality ResearchCornell University School of Hotel Administration489 Statler HallIthaca, NY 14853
Phone: 607-255-9780Fax: 607-254-2922www.chr.cornell.edu
Back cover photo by permission of The Cornellian and Jeff Wang.
Ra’anan Ben-Zur, Chief Executive Officer, French Quarter Holdings, Inc.
Scott Berman, U.S. Advisory Leader, Hospitality and Leisure Consulting Group of PricewaterhouseCoopers
Raymond Bickson, Managing Director and Chief Executive Officer, Taj Group of Hotels, Resorts, and Palaces
Stephen C. Brandman, Co-Owner, Thompson Hotels, Inc.Raj Chandnani, Vice President, Director of Strategy, WATGBenjamin J. “Patrick” Denihan, Chief Executive Officer,
Denihan Hospitality GroupJoel M. Eisemann, Executive Vice President, Owner and
Franchise Services, Marriott International, Inc.Kurt Ekert, Chief Operating Officer, GTA by TravelportBrian Ferguson, Vice President, Supply Strategy and Analysis,
Expedia North AmericaChuck Floyd, Chief Operating Officer–North America,
HyattAnthony Gentile, Vice President–Systems & Control,
Schneider Electric/Square D CompanyGregg Gilman, Partner, Co-Chair, Employment Practices,
Davis & Gilbert LLPSusan Helstab, EVP Corporate Marketing,
Four Seasons Hotels and ResortsJeffrey A. Horwitz, Partner, Corporate Department,
Co-Head, Lodging and Gaming, ProskauerKevin J. Jacobs, Senior Vice President, Corporate Strategy &
Treasurer, Hilton WorldwideKenneth Kahn, President/Owner, LRP PublicationsPaul Kanavos, Founding Partner, Chairman, and CEO, FX Real
Estate and EntertainmentKirk Kinsell, President of Europe, Middle East, and Africa,
InterContinental Hotels GroupRadhika Kulkarni, Ph.D., VP of Advanced Analytics R&D,
SAS InstituteGerald Lawless, Executive Chairman, Jumeirah GroupMark V. Lomanno, President, Smith Travel ResearchSuzanne R. Mellen, Managing Director, HVSDavid Meltzer, Vice President of Global Business Development,
Sabre Hospitality SolutionsEric Niccolls, Vice President/GSM, Wine Division,
Southern Wine and Spirits of New YorkShane O’Flaherty, President and CEO, Forbes Travel GuideTom Parham, President and General Manager,
Philips Hospitality AmericasChris Proulx, CEO, eCornell & Executive EducationCarolyn D. Richmond, Partner and Co-Chair, Hospitality
Practice, Fox Rothschild LLPSteve Russell, Chief People Officer, Senior VP, Human
Resources, McDonald’s USAMichele Sarkisian, Senior Vice President, MaritzJanice L. Schnabel, Managing Director and Gaming Practice
Leader, Marsh’s Hospitality and Gaming PracticeTrip Schneck, President and Co-Founder, TIG Global LLCAdam Weissenberg, Vice Chairman, and U.S. Tourism,
Hospitality & Leisure Leader, Deloitte & Touche USA LLP
Senior PartnersHilton WorldwideMcDonald’s USA Philips Hospitality Southern Wine and Spirits of America STR Taj Hotels Resorts and Palaces TIG Global
Friends
Thank you to our generous Corporate Members
PartnersDavis & Gilbert LLP Deloitte & Touche USA LLPDenihan Hospitality GroupeCornell & Executive EducationExpedia, Inc. Forbes Travel GuideFour Seasons Hotels and Resorts Fox Rothschild LLP French Quarter Holdings, Inc. FX Real Estate and Entertainment, Inc.HVS Hyatt InterContinental Hotels Group Jumeirah GroupLRP PublicationsMarriott International, Inc.Marsh’s Hospitality Practice MaritzPricewaterhouseCoopersProskauer Sabre Hospitality SolutionsSAS Schneider Electric Thayer Lodging Group Thompson HotelsTravelportWATG
4
ABOUT THE AUTHOR
Successful Tactics for
Downturn:
Sheryl E. Kimes, Ph.D., is Singapore Tourism Board Distinguished Professor of Asian Hospitality Management at the Cornell University School of Hotel Administration, where she has also served as interim dean ([email protected]). In teaching restaurant revenue management, yield management, and food and beverage management, she has been named the school’s graduate teacher of the year three times. Her research interests include revenue management and forecasting in the restaurant, hotel, and golf industries. She has published over fifty articles in leading journals such as Interfaces, Journal of Operations Management, Journal of Service Research, Decision Sciences, and Cornell Hospitality Quarterly. She has served as a consultant to many hospitality enterprises around the world, including Chevy’s FreshMex Restaurants, Walt Disney World Resorts, Ruby’s Diners, Starwood Asia-Pacific, and Troon Golf. She appreciates the assistance of Eye for Travel, a corporate friend of the Center for Hospitality Research, in conducting the survey described in this report.
Results from an International Study
5
EXECUTIVE SUMMARY
6
D.1
2
Results from an International Study
CORNELL HOSPITALITY REPORT
http://www.rockcheetah.com/blog/hotel/us-‐hotel-‐industry-‐recession-‐enters-‐new-‐rate-‐erosion-‐phase/, http://www.occu-‐pancymarketing.com/white-‐papers/marketing_recession.html
travel.nytimes.com/2009/05/26/business/26hotel.html, http://travel-‐industry.uptake.com/blog/2009/05/26/owners-‐brand-‐hotel-‐opera-‐tors/
7
Methodology.
Cor-nell Hospitality Report
5
Demographic pro!le.
5 Ibid
4
Cornell Hospitality Report
Cornell Hospitality Report
“ Cornell Hospitality Report
4 Cornell Hospitality Report
ResultsHotel performance.
EXHIBIT 1Hotel performance by world region
EXHIBIT 2Strategies and tactics studied
Category Tactic Description
Discounting Lower Rates
Rate-Obscuring
Value-added Packages Included other things (e.g., F&B, spa, parking) in addition to the room for one price
Extra Night Free
Used opaque distribution channels such as Priceline.com for selling rooms
Included free breakfast with the room rate
Prepaid F&B
Packages with Air and Car
Marketing
New Market Segments Developed new market segments that had not been approached before
Pay per Click Used pay per click advertising (e.g., AdWords with Google.com)
Developed other revenue streams (e.g., F&B, spa) within the hotel
Cost-CuttingReduced Hours Reduced the operating hours for certain facilities
Closed Facilities Either shut down part of the hotel or scheduled renovations
Use.
Performance.
Cost-cutting tactics.
Use.
E"ectiveness.
Future use.
Future use.
Use in 2010.
EXHIBIT 3Strategies and tactics used
80%
70%
60%
50%
40%
30%
20%
10%
0
Perc
enta
ge o
f res
pond
ents
Strategies used
Strategies recommended for next recession
7
6
5
4
3
2
1
Like
lihoo
d of
Use
Strategy performance
Strategies to be used in 2010
7
6
5
4
3
2
1
Rela
tive
Perf
orm
ance
Perc
enta
ge w
ho w
ill u
se
Cost cutting Discounting Marketing Rate obscuring
Cost cutting Discounting Marketing Rate obscuring
Cost cutting Discounting Marketing Rate obscuring
Cost cutting Discounting Marketing Rate obscuring
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0
EXHIBIT 4Marketing tactics
Use in 2010.
Marketing tactics.
Use.
Performance.
Future use.
80%
70%
60%
50%
40%
30%
20%
10%
0
Perc
enta
ge o
f res
pond
ents
Marketing tactics used
Marketing tactics recommended for next recession7
6
5
4
3
2
1
Like
lihoo
d of
Use
Marketing tactics performance
Marketing tactics to be used in 2010
7
6
5
4
3
2
1
Rela
tive
Perf
orm
ance
Perc
enta
ge w
ho w
ill u
se
Developed new market segments Used pay per click Developed other revenues
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0 Developed new market segments Used pay per click Developed other revenues
Developed new market segments Used pay per click Developed other revenues
Developed new market segments Used pay per click Developed other revenues
Developed new market segments Used pay per click Developed other revenues
Developed new market segments Used pay per click Developed other revenues
Use in 2010.
Rate-obscuring tactics.
Use.
Performance.
Future use.
EXHIBIT 5Rate-obscuring tactics
Rate-obscuring tactics used Performance of rate-obscuring tactics
Rate-obscuring tactics recommended for next recession Rate-obscuring tactics to be used in 2010
Air and Car Breakfast Extra night Opaque Prepaid F&B Two for one Value added
Air and Car Breakfast Extra night Opaque Prepaid F&B Two for one Value added Air and Car Breakfast Extra night Opaque Prepaid F&B Two for one Value added
Air and Car Breakfast Extra night Opaque Prepaid F&B Two for one Value added
7
6
5
4
3
2
1
7
6
5
4
3
2
1
80%
70%
60%
50%
40%
30%
20%
10%
0
Perc
enta
ge o
f res
pond
ents
Rela
tive
Perf
orm
ance
Like
lihoo
d of
Use
Perc
enta
ge w
ho w
ill u
se
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0
Use in 2010.
It is never too early to be prepared. You should always have a contingency plan that you can imple-ment within minutes
Maintain the brand image, be insistent on the pricing strategy. Focus on your long-term goal and be patient
(1) Don’t panic!
Do not panic. Do not compare downturn periods with previous good periods. !ink in terms of long-term decisions
(2) Be wary of broad-scale discounting
Don’t drop rate—or let me state it this way: Don’t drop your public or retail rate. Use the retail rate as the benchmark for discount rate programs and fence these discounts appropri-ately My advice would to be careful about playing the rate reduction game. In 2007 and 2008 we were aggressive with increasing our corporate pricing and in the space of a few months, all that and more has been undone. We have literally undone 3 years of solid
work in the space of the last 8 months. It will take us another 3 to 4 years at least to get that back
(3) Don’t cut your marketing budget
When the bad times hit again, save the marketing dollars on new initiatives (e.g., acquire new customers or promoting new hotels), but focus the spending on the existing customer base.”
(4) Consider marketing approaches
Explore new market seg-ments and new ways of promotions. Try not to drop rates for all market segments; some of them are not so price sensitive. We have to identify these guests and work hard to attract them to our property.”
nicely: “We just have to diversify our business rather than rely too heavily on a particular business and geographic segment. At the same time, more emphasis has to be put on how to opti-mize revenue conversion from all revenue streams be it major or minor, which will ultimately help to improve bottom line.”
Capitalizing on e-channels. We have re-launched our website, re-structured our URLs for better ranking, and organic search in the search engines
(5) Consider rate-obscuring practices
The foremost piece of advice from this survey was to be
prepared with a plan on how to respond to a recession—
possibly with a standard operating procedure manual.
My advice is maintain rate, continue to look for new markets (e.g., religious retreats, romantic weekend packages), develop specials which focus on value-added extras like spa treatments, be creative in your F&B promotions, and watch for pro-longed gaps in occupancy which might be "lled with internet promotions or opaque distribution channels which won’t later e#ect your rate strategy so dramatically.”
Don’t drop rate drastically, and use opaque dis-tribution systems when you are forced to do so.”
Opaque channel customers are not desirable. !ey don’t want to pay the premium an upper-upscale or luxury charges on services (e.g., parking, F&B), but expect the moon in return. In the long run, it doesn’t cover your costs and o$en can drive down your GSI.”
(6) Maintain service levels
Don’t reduce standards but do add value; guests are very sensitive to changes. Bad times are not forever, and it could take a longer time to recover if you cut corners to save a buck!
Do not make cost cuts on quality service. It is okay to bring prices down, but set yourself a limit which will not handicap you when you want to bring the ADR up again the following year. “
Conclusion
Lessons from this Study
(1) Don’t panic. Instead be strategic.
(2) Beware of broadscale discounting.
(3) Maintain marketing efforts. (4) Focus on market-based
initiatives.
(5) Consider rate-obscuring practicies.
(6) Maintain service levels.
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