Published by Kris Glabinski
So, coronavirus? A crisis? Pandemonium? Tourism stops, hotel bookings get cancelled, events get cancelled and flights are empty.
Hotels and airlines react to the situation by lowering their prices.Although the situation is not caused by price and the reaction is not an attempt to fix it with lower pricing, but to increase demand from potential customers who normally could not afford to pay for that hotel or that flight.
I mean there needs to be something that hotels or airlines have to do, right?
They can’t manage the virus, nor the media or the panic around it. Certainly no one is willing to ignore it. So actions on price seem to be the only tool hotels or airlines can use. So that is exactly what they do, instead of sitting and waiting for cancellations to come. We have reached a state of paranoia. Liquid soap at a shop in northern Italy is selling for €90 per bottle… and for as low as €100 you can get a hotel room with… guess what? free gel, soap and clean sheets.
I have been in the industry for many years. Through the September 11 events, the 2008 crisis, Mad Cow disease, SARS, volcanoes, … they each impact our world as we know it.
So why don’t we learn from the past?
Top mistakes hotels or airlines make:
- The tendency is to think: no revenue, so adjust the cost.
So what do hotels do? They start saving. All expenditure becomes a cost and no longer an investment. And where are the biggest costs? Staff. So hotels start cutting on costs to survive the uncertainty.
The problem is that this is a very short-sighted strategy. Because every downturn observed a pick up afterwards. Every time. And who will pick up your business if not your staff? Not the GM and not the shareholders. So reducing staff in a crisis is a very risky thing to do.
- The tendency is to think: if cancellations come from my major customers, then I must seek new customers. Lower the price to attract new segments.
In the short term this may be perceived as a logical thing to do, but it is important to look at the business with a long term view.
Did it take 8 years for hotels in Manhattan to recover their ADR to the levels from before September 11?
Have a long term view on the situation.
If you consider dropping prices now, then do a displacement calculation: this is how much business I will bring in now at a lower price versus how much business I will lose and keep losing, when the situation returns to normal, yet my prices will be at a lower level.
- Desperation holds us back. We see the crisis and we go along with fear and worry.
So what has the past taught us? It’s simple. Don’t make mistakes from the past.
Think long term.
- Keep costs under control, but prepare for the upturn. Your pricing, marketing, sales and distribution should be ready with a plan to kick in as soon as the crisis is over (or a day before). Whoever picks up faster, wins.
- Your customers are not cancelling. That is a bad term to use. Imagine your customers are going through the same worries and uncertainties as you are. They may seem to be cancelling, but what they’re doing is actually postpone their activity. To when? To when the situation becomes stable. So instead of damaging your price for a long time, focus on a recovery plan. It should be ready for as soon as the crisis is over – or the day before.
- You do not have to be desperate if you have a recovery plan. History has taught us that after the storm comes the sun. Stop worrying about the storm and prepare for sunny weather.
Long term thinking is better than short term panic.
Have you got your recovery plan in place yet?
Certainly, our demand-centric approach is the fastest algorithm to react with a public price uplift. Faster than humans could realise it.
So if you want to be ready a day before? Consider Lybra.tech as part of your recovery plan.