Discounting is bad for you, says hotels study

05 October 2004
Discounting is bad for you, says hotels study

Hotels that cut rates in order to fill their bedrooms during tough times may be shooting themselves in the foot, says a new report.

The study from Cornell University in the USA found hotels that discounted room rates did increase occupancy, but their overall revenues fell.

The conclusion was based on data drawn from more than 6,000 hotels between 2001 and 2003.

"Hotels in direct competition make more money when they have comparatively higher prices and do not undercut competitors by discounting rates to fill rooms," the authors said.

"Those hotels that dropped their relative prices did capture market share from the competition (as intended), but they did not gain higher revenue per available room (revpar)."

On the other hand, hotels that raised prices slightly in relation to their direct competitors lost occupancy yet made up for the loss with higher revpar.

"Cutting prices means diminished revenue," the authors said.

"Hotels in each market may be at the mercy of their dumbest competitor in a race to the bottom if they follow a path of price discounting."

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