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 The Center for Hospitality Research at Cornell University
Releases Study Showing Price Cutting Not Advantageous

By Mike Cherney, The Sun News, Myrtle Beach, S.C.McClatchy-Tribune Regional News

Jul. 5, 2009--In a down economy, many hotels in Myrtle Beach and beyond have been slashing rates to lure customers. But a study released last week says price-cutting doesn't pay.

Although hotels that dropped prices saw an increase in occupancy, that increase was not enough to offset revenue losses caused by the lower rates, according to a study released by The Center for Hospitality Research at Cornell University. In general, the study said keeping prices above the competition is best for the bottom line.

The study reviewed hotel data provided by Smith Travel Research and compared whether the results were different from 2001 to 2003, which was a tough economic time, and 2004 to 2007, which was a good economic time. The authors found the result was the same.

The study was conducted by Cathy Enz and Linda Canina, two hospitality professors at Cornell, and by Mark Lomanno, the president of Smith Travel Research. None returned calls for comment this week.

"You gain no competitive advantage by lowering your prices because your competitors know almost immediately about your strategy and can instantly match it," the authors wrote. "In short, not only can you not count on stronger revenue with lower prices, but once prices are reduced, it can be difficult to raise them."

Each year of data included between 11,000 and 16,400 hotels, the study said. The authors grouped hotels into several categories: luxury, upper upscale, upscale, midscale with food and beverage, midscale without food and beverage, and economy. They then compared rates with revenue per available room with hotels that were directly competing.

The study found the majority of hotels priced within 10 percent of their competition, and those who priced above their competition had higher revenue per available room regardless of market segment. In general, the study found higher-class hotels made more money per room when their rates were higher as compared to lower-quality hotels -- not surprisingly, since customers of lower-end hotels are going to be more price conscious.

"The best way to have higher revenue performance than your competitors is to maintain higher rates than they do," the authors wrote. "A hotel should not set its rates below those of its true competitors if it wishes to enjoy a [revenue per available room] premium."

Some local hoteliers said they were not surprised by the study's results, noting that discounting rates is a constant balancing act. Jon Mathers, the sales and marketing director of Days Hotel Surfside Beach Resort, said the hotel has discounted at most $20 off its standard rate.

But the hotel has to take care, Mathers said, not to undercut its own marketing efforts -- it mailed coupons offering discounts to repeat customers months ago, and if rates went too low, those coupons would be worthless.

"Your larger chains like Marriott and Sheraton and some of these four-star hotels, when they are lowering their rates to basically whatever our rates are in the summertime, then we have to turn around and lower our rates," he said.

Florence Collins-Brown, the vice president of marketing for Sands Resorts, which has seven hotels on the Grand Strand, said the company has tried to add extra value to its bookings, such as more freebies at the resorts, instead of lowering prices. But the company has discounted some, she said.

"Everyone has to do what they think is going to work best for their product," she said. "What might be best for another hotel might not be best for the group that I represent."

Contact MIKE CHERNEY at 444-1765.


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