www.chr.cornell.edu

Cornell Hospitality ReportVol. 10, No. 7, April 2010

Successful Tactics for Surviving an Economic Downturn: Results from an International Study

by Sheryl E. Kimes, Ph.D.

Advisory Board

The Robert A. and Jan M. Beck Center at Cornell University

Cornell Hospitality Reports, Vol. 10, No. 7 (April 2010)

© 2010 Cornell University

Cornell Hospitality Report is produced for the benefit of the hospitality industry by The Center for Hospitality Research at Cornell University

Rohit Verma, Executive DirectorJennifer Macera, Associate DirectorGlenn Withiam, Director of Publications

Center for Hospitality ResearchCornell University School of Hotel Administration489 Statler HallIthaca, NY 14853

Phone: 607-255-9780Fax: 607-254-2922www.chr.cornell.edu

Back cover photo by permission of The Cornellian and Jeff Wang.

Ra’anan Ben-Zur, Chief Executive Officer, French Quarter Holdings, Inc.

Scott Berman, U.S. Advisory Leader, Hospitality and Leisure Consulting Group of PricewaterhouseCoopers

Raymond Bickson, Managing Director and Chief Executive Officer, Taj Group of Hotels, Resorts, and Palaces

Stephen C. Brandman, Co-Owner, Thompson Hotels, Inc.Raj Chandnani, Vice President, Director of Strategy, WATGBenjamin J. “Patrick” Denihan, Chief Executive Officer,

Denihan Hospitality GroupJoel M. Eisemann, Executive Vice President, Owner and

Franchise Services, Marriott International, Inc.Kurt Ekert, Chief Operating Officer, GTA by TravelportBrian Ferguson, Vice President, Supply Strategy and Analysis,

Expedia North AmericaChuck Floyd, Chief Operating Officer–North America,

HyattAnthony Gentile, Vice President–Systems & Control,

Schneider Electric/Square D CompanyGregg Gilman, Partner, Co-Chair, Employment Practices,

Davis & Gilbert LLPSusan Helstab, EVP Corporate Marketing,

Four Seasons Hotels and ResortsJeffrey A. Horwitz, Partner, Corporate Department,

Co-Head, Lodging and Gaming, ProskauerKevin J. Jacobs, Senior Vice President, Corporate Strategy &

Treasurer, Hilton WorldwideKenneth Kahn, President/Owner, LRP PublicationsPaul Kanavos, Founding Partner, Chairman, and CEO, FX Real

Estate and EntertainmentKirk Kinsell, President of Europe, Middle East, and Africa,

InterContinental Hotels GroupRadhika Kulkarni, Ph.D., VP of Advanced Analytics R&D,

SAS InstituteGerald Lawless, Executive Chairman, Jumeirah GroupMark V. Lomanno, President, Smith Travel ResearchSuzanne R. Mellen, Managing Director, HVSDavid Meltzer, Vice President of Global Business Development,

Sabre Hospitality SolutionsEric Niccolls, Vice President/GSM, Wine Division,

Southern Wine and Spirits of New YorkShane O’Flaherty, President and CEO, Forbes Travel GuideTom Parham, President and General Manager,

Philips Hospitality AmericasChris Proulx, CEO, eCornell & Executive EducationCarolyn D. Richmond, Partner and Co-Chair, Hospitality

Practice, Fox Rothschild LLPSteve Russell, Chief People Officer, Senior VP, Human

Resources, McDonald’s USAMichele Sarkisian, Senior Vice President, MaritzJanice L. Schnabel, Managing Director and Gaming Practice

Leader, Marsh’s Hospitality and Gaming PracticeTrip Schneck, President and Co-Founder, TIG Global LLCAdam Weissenberg, Vice Chairman, and U.S. Tourism,

Hospitality & Leisure Leader, Deloitte & Touche USA LLP

Senior PartnersHilton WorldwideMcDonald’s USA Philips Hospitality Southern Wine and Spirits of America STR Taj Hotels Resorts and Palaces TIG Global

Friends

Thank you to our generous Corporate Members

PartnersDavis & Gilbert LLP Deloitte & Touche USA LLPDenihan Hospitality GroupeCornell & Executive EducationExpedia, Inc. Forbes Travel GuideFour Seasons Hotels and Resorts Fox Rothschild LLP French Quarter Holdings, Inc. FX Real Estate and Entertainment, Inc.HVS Hyatt InterContinental Hotels Group Jumeirah GroupLRP PublicationsMarriott International, Inc.Marsh’s Hospitality Practice MaritzPricewaterhouseCoopersProskauer Sabre Hospitality SolutionsSAS Schneider Electric Thayer Lodging Group Thompson HotelsTravelportWATG

4

ABOUT THE AUTHOR

Successful Tactics for

Downturn:

Sheryl E. Kimes, Ph.D., is Singapore Tourism Board Distinguished Professor of Asian Hospitality Management at the Cornell University School of Hotel Administration, where she has also served as interim dean (sek6@cornell.edu). In teaching restaurant revenue management, yield management, and food and beverage management, she has been named the school’s graduate teacher of the year three times. Her research interests include revenue management and forecasting in the restaurant, hotel, and golf industries. She has published over fifty articles in leading journals such as Interfaces, Journal of Operations Management, Journal of Service Research, Decision Sciences, and Cornell Hospitality Quarterly. She has served as a consultant to many hospitality enterprises around the world, including Chevy’s FreshMex Restaurants, Walt Disney World Resorts, Ruby’s Diners, Starwood Asia-Pacific, and Troon Golf. She appreciates the assistance of Eye for Travel, a corporate friend of the Center for Hospitality Research, in conducting the survey described in this report.

Results from an International Study

5

EXECUTIVE SUMMARY

6

D.1

2

Results from an International Study

CORNELL HOSPITALITY REPORT

http://www.rockcheetah.com/blog/hotel/us-­‐hotel-­‐industry-­‐recession-­‐enters-­‐new-­‐rate-­‐erosion-­‐phase/,  http://www.occu-­‐pancymarketing.com/white-­‐papers/marketing_recession.html  

travel.nytimes.com/2009/05/26/business/26hotel.html,  http://travel-­‐industry.uptake.com/blog/2009/05/26/owners-­‐brand-­‐hotel-­‐opera-­‐tors/

7

Methodology.

Cor-nell Hospitality Report

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Demographic pro!le.

5 Ibid

4

Cornell Hospitality Report

Cornell Hospitality Report

“ Cornell Hospitality Report

4 Cornell Hospitality Report

ResultsHotel performance.

EXHIBIT 1Hotel performance by world region

EXHIBIT 2Strategies and tactics studied

Category Tactic Description

Discounting Lower Rates

Rate-Obscuring

Value-added Packages Included other things (e.g., F&B, spa, parking) in addition to the room for one price

Extra Night Free

Used opaque distribution channels such as Priceline.com for selling rooms

Included free breakfast with the room rate

Prepaid F&B

Packages with Air and Car

Marketing

New Market Segments Developed new market segments that had not been approached before

Pay per Click Used pay per click advertising (e.g., AdWords with Google.com)

Developed other revenue streams (e.g., F&B, spa) within the hotel

Cost-CuttingReduced Hours Reduced the operating hours for certain facilities

Closed Facilities Either shut down part of the hotel or scheduled renovations

Use.

Performance.

Cost-cutting tactics.

Use.

E"ectiveness.

Future use.

Future use.

Use in 2010.

EXHIBIT 3Strategies and tactics used

80%

70%

60%

50%

40%

30%

20%

10%

0

Perc

enta

ge o

f res

pond

ents

Strategies used

Strategies recommended for next recession

7

6

5

4

3

2

1

Like

lihoo

d of

Use

Strategy performance

Strategies to be used in 2010

7

6

5

4

3

2

1

Rela

tive

Perf

orm

ance

Perc

enta

ge w

ho w

ill u

se

Cost cutting Discounting Marketing Rate obscuring

Cost cutting Discounting Marketing Rate obscuring

Cost cutting Discounting Marketing Rate obscuring

Cost cutting Discounting Marketing Rate obscuring

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0

EXHIBIT 4Marketing tactics

Use in 2010.

Marketing tactics.

Use.

Performance.

Future use.

80%

70%

60%

50%

40%

30%

20%

10%

0

Perc

enta

ge o

f res

pond

ents

Marketing tactics used

Marketing tactics recommended for next recession7

6

5

4

3

2

1

Like

lihoo

d of

Use

Marketing tactics performance

Marketing tactics to be used in 2010

7

6

5

4

3

2

1

Rela

tive

Perf

orm

ance

Perc

enta

ge w

ho w

ill u

se

Developed new market segments Used pay per click Developed other revenues

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0 Developed new market segments Used pay per click Developed other revenues

Developed new market segments Used pay per click Developed other revenues

Developed new market segments Used pay per click Developed other revenues

Developed new market segments Used pay per click Developed other revenues

Developed new market segments Used pay per click Developed other revenues

Use in 2010.

Rate-obscuring tactics.

Use.

Performance.

Future use.

EXHIBIT 5Rate-obscuring tactics

Rate-obscuring tactics used Performance of rate-obscuring tactics

Rate-obscuring tactics recommended for next recession Rate-obscuring tactics to be used in 2010

Air and Car Breakfast Extra night Opaque Prepaid F&B Two for one Value added

Air and Car Breakfast Extra night Opaque Prepaid F&B Two for one Value added Air and Car Breakfast Extra night Opaque Prepaid F&B Two for one Value added

Air and Car Breakfast Extra night Opaque Prepaid F&B Two for one Value added

7

6

5

4

3

2

1

7

6

5

4

3

2

1

80%

70%

60%

50%

40%

30%

20%

10%

0

Perc

enta

ge o

f res

pond

ents

Rela

tive

Perf

orm

ance

Like

lihoo

d of

Use

Perc

enta

ge w

ho w

ill u

se

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0

Use in 2010.

It is never too early to be prepared. You should always have a contingency plan that you can imple-ment within minutes

Maintain the brand image, be insistent on the pricing strategy. Focus on your long-term goal and be patient

(1) Don’t panic!

Do not panic. Do not compare downturn periods with previous good periods. !ink in terms of long-term decisions

(2) Be wary of broad-scale discounting

Don’t drop rate—or let me state it this way: Don’t drop your public or retail rate. Use the retail rate as the benchmark for discount rate programs and fence these discounts appropri-ately My advice would to be careful about playing the rate reduction game. In 2007 and 2008 we were aggressive with increasing our corporate pricing and in the space of a few months, all that and more has been undone. We have literally undone 3 years of solid

work in the space of the last 8 months. It will take us another 3 to 4 years at least to get that back

(3) Don’t cut your marketing budget

When the bad times hit again, save the marketing dollars on new initiatives (e.g., acquire new customers or promoting new hotels), but focus the spending on the existing customer base.”

(4) Consider marketing approaches

Explore new market seg-ments and new ways of promotions. Try not to drop rates for all market segments; some of them are not so price sensitive. We have to identify these guests and work hard to attract them to our property.”  

nicely: “We just have to diversify our business rather than rely too heavily on a particular business and geographic segment. At the same time, more emphasis has to be put on how to opti-mize revenue conversion from all revenue streams be it major or minor, which will ultimately help to improve bottom line.”

Capitalizing on e-channels. We have re-launched our website, re-structured our URLs for better ranking, and organic search in the search engines

(5) Consider rate-obscuring practices

The foremost piece of advice from this survey was to be

prepared with a plan on how to respond to a recession—

possibly with a standard operating procedure manual.

My advice is maintain rate, continue to look for new markets (e.g., religious retreats, romantic weekend packages), develop specials which focus on value-added extras like spa treatments, be creative in your F&B promotions, and watch for pro-longed gaps in occupancy which might be "lled with internet promotions or opaque distribution channels which won’t later e#ect your rate strategy so dramatically.”  

Don’t drop rate drastically, and use opaque dis-tribution systems when you are forced to do so.”  

Opaque channel customers are not desirable. !ey don’t want to pay the premium an upper-upscale or luxury charges on services (e.g., parking, F&B), but expect the moon in return. In the long run, it doesn’t cover your costs and o$en can drive down your GSI.”

(6) Maintain service levels

Don’t reduce standards but do add value; guests are very sensitive to changes. Bad times are not forever, and it could take a longer time to recover if you cut corners to save a buck!

Do not make cost cuts on quality service. It is okay to bring prices down, but set yourself a limit which will not handicap you when you want to bring the ADR up again the following year. “

Conclusion

Lessons from this Study

(1) Don’t panic. Instead be strategic.

(2) Beware of broadscale discounting.

(3) Maintain marketing efforts. (4) Focus on market-based

initiatives.

(5) Consider rate-obscuring practicies.

(6) Maintain service levels.

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