While the hotel industry is on a firm path to recovery and room demand especially for higher end hotels continuing to break records, average rates have still not recovered in real terms, suggesting that hoteliers continue to experience challenges in taking full advantage of the strong demand in many markets.

With pricing becoming ever more transparent, in addition to the continuing proliferation of booking channels into the mobile space, and the increasing convergence of price and reputation, it is no wonder that many revenue managers and hoteliers are even more careful about increasing rates. They fear that they may be punished immediately by the market with a drop in booking volume, declining social reputation indexes and a potential storm in the “Twitterverse”.

Many revenue managers and hotel operators are faced with a conundrum – high compression and increasing occupancy, but very little upside in pricing power overall. There is even talk of a “pricing ceiling” which might have been reached in key markets (such as New York City). Have we really reached the glass ceiling of pricing in these markets? Working with a number of high-end hotels in these key markets, the evidence suggests otherwise.

What if the real problem in the industry is the lack of differentiation and the increased commoditization of hotels? Is the pricing ceiling artificial because of a lack of diversity?

Yes, every brand is trying hard to take you places, provide countless ways to welcome and offer great hotels guests love. But in reality, for the majority of travellers – unless they are staying for a special occasion – doesn’t it come down to a convenient room, at the best possible price, at the most convenient location and the ability to earn points while you sleep? If that is the case, it is no wonder that many high-end hotels are finding themselves in a situation where their pricing power is restricted, demand is flowing almost exclusively into the base room types, and the premium room types stay empty or are filled with overflow demand – for free.

When was the last time you or anyone you know booked a room that is one or two levels above the base room type? Why not? It is hard to see the value of paying more at the point of booking. You want the reservation process to be as quickly and as pain-free as possible, and not waste time comparing and evaluating whether room type A is better than room type B, or if it is worth the extra $20, $30 or $40. In your mind, you say to yourself, “I’ll just ask for a free upgrade at the front desk,” or maybe take the deeply discounted optional upgrade offer that some hotel companies provide during the post-purchase and pre-stay email deluge.

If commoditization is defined as the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brands) end up becoming simple commodities in the eyes of the market or consumers, is that where the hotel industry is heading? And is technology and the proliferation of booking channels and mobile technology only accelerating the process?

A recent study by leading consumer research company JD Powers has shown that “perhaps the most important finding for hotel owners and managers is that interactions between guests and hotel staff may have a significant impact on satisfaction.” And recent research by Cornell’s Center for Hospitality Research has demonstrated that “a 1 percent [online social media] reputation improvement leads up to a 0.89 increase in ADR and a 1.42-percent increase in revenue per available room (RevPAR).”
So better interaction between guests and staff might have a significant impact on satisfaction – and higher satisfaction seems to result in higher pricing power. Could a focus on creating differentiation through service help hotels break through the perceived pricing ceiling? It seems that it could. What if we train front line staff to not only provide better service, but focus on successfully differentiating the value of a hotel’s underutilized premium room types at the point of check-in – not by discounting but by offering the right guests the right room product at the right time. What if 5 percent of your guests spend 20 percent to 30 percent more for every night, and believe they got a great deal? What would that do to your average rate and bottom line? Working with hotels around the world to help them solve this puzzle, I know it can do wonders.