Hoteliers must realize that raising room rates will raise guest expectations
Efforts at standardization are generally limited to granting star ratings based on the overall quality of the hotel and not on room rate pricing. Room rates are simply a supply vs. demand procedure. When demand is high, room rates can move upward. When demand is low, the hotel often chases the rate downward to attract the fewer guests entering the market. In other words, reductions in room availability result in rising occupancy triggering a rise in room rates. Conversely, an oversupply of rooms compels hotels to pursue higher occupancies, frequently at the consequence of lower prices.
In a market in which 5-starred hotels are charging rates less than US$ 80 per night, the Sri Lankan government’s intervention by introducing a ‘Minimum Room Rate’ (MRP) policy, stipulating the minimum price that Colombo’s hotels of a specific star rating are permitted to sell their rooms, was met with mixed feelings by industry stakeholders.
The MRP came after a trinity of higher cost of doing business, weak occupancies and low revenues forced Colombo star-rated hotels to plead with the government to fix a minimum room rate policy.
Hoteliers in the capital city, who complained of an increasingly unhealthy price competition in an overbuilt tourist accommodation market, welcomed the move. Local travel and tour operators opposed it, claiming it would drive away tourists to lesser expensive destinations, whilst insisting that market forces should determine prices and not an MRR. The government on its part was concerned that the quality and standards of the hotels was under threat with the continuing hotel price war, aside of its impact on a struggling economy.
Where then, does this leave the customer? The typical guests of luxury properties will continue to travel and pay the higher prices for their rooms, due to the fact that the current changes in the economic dynamics have hardly any real change in their spending power. What then of the lesser affluent traveller?
Let’s face it; Customers pay very little attention to the underlying costs of operating a hotel. They would not have any clue about how much it costs a hotel to open a room for them. Customers are willing to pay based not only on what they think the room is worth, but what the hotel offers overall.
Before browsing the web, most customers have a price in mind. At the beginning of the search, they stay preoccupied on brand names – mainly because they look at ways of minimizing the risks of a bad experience. Even in the absence of brand loyalty, many believe brands deliver consistency and a uniform quality of service regardless of where the hotel is located. To some the brand name can be the impetus to pay a bit more than the price they had in mind.
Reviews too play an important part in the decision-making. Smart customers look at the volume of reviews – not be swayed by a property that features just a couple of fantastic ratings – with the suspicion that it’s probably planted by the owner. So the perceived value that a customer is looking for extends beyond the value of a hotel’s room.
Most travelers accept that higher rates are the price of travel…for now, and many feel they are not getting more for their money. While guests were patient during the pandemic, they want the services they used to get, especially in the 4 / 5 - star and luxury segment. The decision by brands to switch housekeeping services to opt-in rather than daily service and replacing 24 – hour room service were defensive moves because of the difficulty in finding labour. With consumer expectations definitely high now, hotels will have to re-think the now way of doing things.
Which means; raise the room rate and be prepared to face the backlash of raised customer expectations.
Shafeek Wahab – Editor, Hospitality Sri Lanka, Consultant, Trainer, Ex-Hotelier
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