At a time when the hotel industry is grappling with increasingly complex distribution systems, a landmark study on hotel channel distribution released on Tuesday via a press conference at the American Lodging Investment Summit in Los Angeles bolsters the view that lowering rate at hotels will not stimulate enough demand to make up for the lost rate revenue.
The “Distribution Channel Analysis: a Guide for Hotels” study, conducted by Cindy Estis Green and Mark Lomanno in conjunction with the American Hotel & Lodging Association, STR and the Hospitality Sales and Marketing Association International Foundation with additional support from Asian American Hotel Owners Association, the IHG Owners Association and the Hospitality Asset Managers Association, concluded that demand for U.S. hotels is largely flat due to the maturity of the market, that hotels typically only win more customers at the expense of competitors and that lowering rate is generally an ineffective strategy to increase total revenue due to the transparency of rate online booking allows, creating a “race to the bottom.”
“Hotel demand in the U.S. market is “price inelastic” on an industry-wide basis for all hotel types … any claim that a channel vendor will create substantial new industry level demand is unrealistic,” the study’s executive summary reads. “Rates are so transparent and prominent in current and emerging digital venues, by the time the competitors match the lowered rate, the first hotel that lowered its rates loses any benefit in terms of a demand bump and the entire competitive set may have a harder time increasing rates commensurate with the increased cost of doing business.”
Looking ahead, the study predicts that third party gatekeepers on the meta-search, social and mobile fronts will become increasingly become customers’ point-of-entry for online room booking and that they may take a ‘soft brand’ approach and start to offer customer relationship management feature such as loyalty programs and quality metrics for customer evaluation.
The study recommends that hotels strategically use the burgeoning array of marketing and booking channels to find its optimal channel mix and focus on customer relationship management to encourage customers to book directly.
Click here for more information on the study on the AH&LA website.