The worst news a revenue manager can hear is that a new hotel is under development across the street or even across town. The only thing worse is when an entire market is in a building boom. Managing rate and distribution strategies in a market of expanding supply might be the toughest task of all for a revenue strategist.
While the U.S. hotel industry is not yet in a full-blown building frenzy, new development is on the rise and probably will continue to be so for the next couple of years. STR forecasts a 2% increase in supply in 2017. That level of increase is in line with long-term averages but significantly higher than room opening totals in the past several years.
And several large markets—New York, Miami, Houston and others—might be headed for serious oversupply issues. Lodging Econometrics reports 190 hotel projects are in the pipeline in New York City, with 102 hotels under construction and 57 more slated to start in the next 12 months. In Miami, more than 5,000 new rooms are slated to enter the market within the next year, with 3,300 rooms (6% of the existing supply) currently under construction.How to respond to new supply in your market #hotelnews #revenuestrategy Click To Tweet
While new supply obviously affects a market’s occupancy, a more significant problem can be pressure on average rates. In Miami, for example, average rates year-to-date through October fell by 2%, at least in part due to new hotels entering the market.
When faced with new competition, revenue strategists need to develop rational and viable plans to address the spectrum of competitive pressures new, fresh hotel inventory presents to existing hotels. Here are some steps RMs, as well as their GMs and executive team members, need to consider:
1. What’s coming?
Before strategies can be formulated and put in place, it’s important to thoroughly understand the new competition and how it compares to your hotel. RMs need to read the local and national media to keep tabs on new developments in their markets and competitive sets. It’s smart to tap into the local knowledge of your online travel agency managers. They often have a comprehensive overview of what’s under development, what hotels are for sale and which ones are undergoing renovations.
2. Your reputation is everything
While new and fresh usually beats old and tired, it’s important to understand your hotel’s perceived reputation in the marketplace. Even an older property can feel fresh to guests if the physical plant is in good shape and service levels are high. But it’s important to have an objective perspective on your hotel’s strengths and weaknesses as you devise rate strategies to combat newer competitors.
3. Don’t panic
Even though new development announcements can be demoralizing, it’s important not to panic and lower rates out of fear. Rate adjustments should be layered in as needed with an eye on volume and pace to make sure budgets are met or at least kept in sight. Channel management becomes key so you can rationally employ OTAs and other intermediaries as needed and as a way to maintain acceptable levels of business at rates that maximize profit opportunities.
4. Take a long view
While managing rates for today, next week and next month is important, it also pays in a compressed market to take a wider view of the market and where you can take advantage of opportunities, even in the face of heightened competition. Sometimes, taking a 365-day-ahead approach is most effective.
5. The value of value-adds
A natural reaction in a tight market is to offer value-adds to guests to enticement them to book your hotel. It can be an effective strategy if you truly understand your customer and what that customer wants. At a family resort, free breakfast can be a difference maker; not as much at a business hotel. Using social media and targeted marketing can help you and your hotel’s marketing team devise which kinds of incentives will move the needle. While your competition might offer a $50 voucher to entice traffic, that tactic might not work for your hotel. It’s a matter of understanding who you are selling to, what are your property’s strengths and weaknesses and then adapting your capabilities to the needs of potential guests.
New competition might be scary, but it doesn’t necessarily mean your property or its bottom line must suffer in the face of new supply in the market. A collaborative, creative and effort by a hotel’s entire revenue, marketing and operations teams can help you weather the storm.
Thanks to Gabriela Guevara, senior manager, managed services for Duetto for her experienced input on this topic.
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Tags: Duetto, ed watkins, Gabriela Guevara, hotel comp set, hotel competition, hotel distribution, hotel pricing, Hotel Revenue Management, hotel revenue strategy, hotel sales and marketing, hotel supply, hotel technology, Miami hotel market, new hotel competition, new york hotel market, oversupply, RMS