How Low Do You Go?
I am from the lovely seaside town of Ocean City MD. If you are from Ocean City, you LOVE the beach, Thrashers Fries, Dolles’ Popcorn, Steamed Crabs, and walking along the famous boardwalk. “Hitting the Boards,” is an activity young and old enjoy. Most shops do not close until midnight or 1 AM, and my entire life it has been safe to stroll until those hours. Our kids took their first jobs on “The Boards,” and we never once worried about their safety or that of their co-workers.
Last summer, “The Boards,” turned into something that shocked both locals and vacationers alike. It became a dangerous, crime riddled gathering place for thugs, drug dealers, and murders. It became something we had never seen. Nightly property damage, fights, and even a few deaths occurred. Businesses were closing as early as 8 PM in order to avoid what would happen after dark. It became a strange place to those of us who had lived in OCMD our entire lives.
When talking to locals about the cause, they were numerous and varied, but everyone agreed on one thing-COVID had caused oceanfront hotels to drop their prices so low, that now gang members and ne’er do wells could afford to come to a town that was one outside their price range. In attempting to make a buck, the hotels had discounted themselves so low that their property was being damaged and businesses in town shut down at early hours in order to avoid the dangers. The cost to lives, the town, and the hotels mounted to point where it became untenable.
In hospitality, there is such a thing as pricing yourself too low. There is a temptation to do so when occupancy is needed, but you can indeed cut prices to the point of damaging your income and your reputation.
Rule #1-Know Your Breakeven
Knowing your break even is one of the ingredients in setting nightly minimums. It is not the ONLY data point to consider when considering rate management.
Regular Rate $45 per night
Break Even $25 per Night
In the above scenario-any rate below $25 per site night results in a loss.
Rule #2 -DO NOT diminish your brand
As in our Ocean City example above, lowering rate did indeed increase occupancy, but it greatly increased costs and damage to the brand. Room damage, glutenous behavior at the breakfast bars, and reputation damage are just a few of by products the OC hotels faced in the aftermath of the deep discounts. According to Hospitality.net
“Discounting rates too deeply, even as a stop-gap measure against demand loss can yield negative effects for parks and the overall market. Nobody wins in the aftermath of a price war. Discounting rates in order to increase occupancy will induce higher costs on a per-site night basis and decrease profit margins. Perhaps the most deleterious effects lie in the long term, and these effects may not warrant consideration as parks struggle with the immediate challenges of their day-to-day operations. A better solution to discounting is to offer additional value to the customer without sacrificing rates.”
Rather than reducing rate, consider bundling a golf cart, a free pizza, or a free rental bike. These can be valuable add-ons without slashing rate. Once your reputation is diminished, and good guests are chased off by rowdy ones, it can be very hard to get them back.
Keeping these few items in mind, you can work on a strategy that achieves revenue goals without the pain of diminishing your brand.