Dealing with the Downturn
A verdict comes in on how hotels handled the demand conditions caused by the recession
By Jennifer Rodrigues, TravelInk’d
The Cornell Center for Hospitality Research issued a report last week that indicated that though discounting was the most prevalent tactic used to offset the demand-killing effects of the recession, hotels were unlikely to repeat this strategy. Given their choice, the survey-based study indicated, hotels would prefer to have engaged in more marketing initiatives to combat the Great Recession. So why didn’t they? The report also showed that the minority of hotels that did engage in expanded, targeted marketing as a response to the demand situation of the last two years enjoyed a significant perceived performance advantage.
Well, duh.
As a marketing and public relations professional working with the hotel industry, I could have told you that developing new market segments and engaging in targeted, cost-effective outreach and visibility strategies were the keys to surviving and thriving during the worst economic downturn in a century. Instead, we saw hotels slash their rates right along with their marketing budgets. It turns out these hotels were simply slashing their own revenue conduits, and condemning themselves to the worst the recession could dish out. Were you one of them?
I’d say I told you so, but as a diplomatic marketing girl I know that’s poor form. Instead, I’ll let the Cornell study do it for me.
“This 2010 survey on the effectiveness of tactics that revenue management professionals used to survive the Great Recession showed that while discounting was the most frequent strategy used, marketing approaches were considered to be the most effective.” So there.
“That’s harsh, Jenn,” I can hear hotels protest already, “it was a recession! We had to do something. Everyone else in our competitive set was cutting their rates, we couldn’t just stand still.” It’s true, inactivity wasn’t and isn’t a viable operating strategy. But other studies have shown that discounting negatively affects consumers’ perception of a hotel property and can actually be a drag on ADR over the long term. This makes discounting a Sophie’s choice between ADR and occupancy – which do you sacrifice? It’s a false choice, though; as the Cornell report states, there are options other than discounting to keep heads in beds.
“Of course there are other options, Jenn,” my imaginary critics continue, “but hindsight is 20/20. That Cornell report is derived from surveys conducted after the fact. During the crisis, discounting was the best option we had.”
The recession was a tough time for everyone (and it’s not over yet; with 9% unemployment, we have yet to get to a self-sustaining demand recovery in our industry), but there were clues, even in early 2009, that across-the-board discounting was not the most effective coping strategy.
History shows that opportunities arise out of the uncertainty of a slowdown. Sears surpassed Montgomery Ward during World War II; Kellogg overtook Post in the breakfast cereal market during the Depression; Revlon and Phillip Morris gained market share in the ‘70s recession; Taco Bell and Pizza Hut gained share from McDonalds during the ’90-91 recession and in the 2001 slowdown Apple, which had languished as a second-place player in the personal computing business, launched the iPod and revolutionized its business model. In fact, studies have shown that companies- like those listed above- that maintain or increase spending on advertising, marketing, PR and research & development during recessions do significantly better than those which make operating budget cuts.
During the 1991 recession in particular, PR spending actually increased across the U.S. Consequently, twice as many companies climbed from the bottom of their industries to the top as did so in the years before and after.
The lesson? Always listen to Jenn. Seriously, though, we might all be well served by following the Cornell study’s advice, to avoid panic and broad-swath rate cuts and to think strategically and allocate resources where they can do the most good.
And more often than not, those resources ought to go to effective, targeted marketing and visibility initiatives.
I told you so!
Jennifer Rodrigues, Visibility Specialist with ThinkInk Communications, is a seasoned public relations professional with a passion for the hospitality industry, which is expressed in her role at ThinkInk’s travel division called TravelInk’d. At TravelInk’d, she is responsible for developing cost-effective and creative public relations and marketing strategies for clients in the travel and tourism, airline, lodging, cruise and meeting/event sectors. For more information on TravelInk’d, please visit www.travelinkd.com or contact Jennifer at jrodrigues@thinkinkpr.com. And for more info about how companies can market for success in a recession, download our whitepaper here.
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Excellent post. All too often, the reflex is to slash prices in hopes of keeping people coming through the door. But thoughtful, strategic marketing can generate far more revenue by maintaining target customers – and even growing your customer base during a recession. As a young hotelier, I’m always on the lookout for smart tips like this. Another tip … in the design phase of my venture I came across a good resource for the restaurant menu covers, menucoverman.com. I’ve heard from others in the industry that they do a great job creating menus, which can seem like a small detail but actually serve as an important first impression and a proxy for quality. Best of luck to all!
The recession was a tough time for everyone (and it’s not over yet; with 9% unemployment, we have yet to get to a self-sustaining demand recovery in our industry), but there were clues, even in early 2009, that across-the-board discounting was not the most effective coping strategy.
I agree with your views on price cutting and discounts. Our hotel is based in a college town and often times we have to spur new marketing ideas in order to show potential guests how we are set apart from competition. A good marketing mix is a lot stronger than a cheaper price. Most people who are staying in a hotel are willing to pay as little extra if they feel they are getting a little more, and a lot of these things can be cost effective amenities for the hotel.
Very clever article. Thought evoking to say the least. Thanks for the post.