Search
 

Rate Cuts Only Cut Into Hotel Revenues

Rampant discounting fails to increase profits...in good times and bad.

By Maria Wood | Updated on July 23, 2009

ITHACA, NY-Many a hotelier has preached against discounting room rates as a way to stimulate demand and boost revenues in an economic downturn. Now, there is a study that shows cutting rates is an ineffective strategy—whether the economy is robust or stagnant.

The Center for Hospitality Research at the Cornell University School of Hotel Administration recently released a report titled “Competitive Hotel Pricing in Uncertain Times.” The report’s authors are Cathy A. Enz, a full professor in strategy and the Lewis G. Schaeneman Jr. professor of innovation and dynamic management; Linda Canina, associate professor of finance and editor of Cornell Hospitality Quarterly, both at the Cornell University School of Hotel Administration; and Mark Lomanno, president of STR Global, a leading research firm that tracks hotel data worldwide.

A better understanding of average daily rate patterns in the hotel business led the trio to undertake the study. “Not much is known about pricing in the lodging industry,” Canina states. “One of common trends is that when things are bad hotels tend to discount. But there was nothing written about whether that is a good strategy or a bad one. Because if hotels discount and their profits don’t increase, what’s the point of discounting?”Previous studies tended to look at pricing at the macro level by aggregating data for supply and demand on an industry-wide basis. By doing so, the implication was that lowering ADRs would increase demand and therefore revenues.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2024 ALM Global, LLC. All Rights Reserved.