Postcard from Bishkek

We had an inquiry the other day from a client who wanted a single room in one of the hotels.  They had stayed with us before pm a previous visit to Kyrgyzstan and were about to pay a return visit and wrote to ask about availability and if we could give him our “best price”.

Now, I know that a lot of people use this phrase – especially in the modern world where “everything is considered to be negotiable” … but, personally, I hate it … for several reasons … but more about that later.

As it happens, on this occasion we don’t have a single room available for the duration of his visit, so the receptionist wrote back offering one of the rooms that was available – however, a it was a more expensive option … and more than he had paid on his previous visits.  It’s understandable that his response was: “I don’t need a more expensive room – I need a standard single.”

It’s also understandable, I hope, that we didn’t have one and, (short of actually building a new one just for him), were unlikely to have one unless there was a cancellation of one the existing bookings.  As he had stayed with us before and was, presumably a satisfied client – after all, he was thinking of returning to us, when I heard about the situation I said to the receptionist to explain that, unfortunately, we didn’t have a single room available – but could offer him an upgrade to the more expensive at the same cost – with a discount which would mean that the price would be the equivalent of what he had paid on his previous visits.

It seems that didn’t satisfy him … and he came back asking us to improve on the offer.

Fair enough – after all, “everything is considered to be negotiable” and although I am, personally, not very keen on bargaining and bartering, it is a way of life in many parts of the world.  I have a friend who says that he never pays the “asking price” for hotel accommodation … and considers this as just the opening shot in a bargaining process.

Hotels don’t help themselves in this respect … many have complex price structures with different rates which apply to different types of clients, the occupancy level at the time, the method of booking – a “walk in”, telephone enquiry, on line using a booking agent and so on), and the prices can change from one moment to the next.

On one occasion I walked into a hotel in Britain and asked for a room and was told: “I can offer you a room – the normal rate is X pounds, but today I can offer it to you at Y pounds.”  In a way it’s a “sure winner” of an approach.  The guest is impressed at the “saving” they are making, (although they aren’t actually saving anything), whilst the hotel gets another guest and is still making a profit.  I can’t help thinking, however, that this makes the published rate a “lie”.   If everyone gets a discount then what is the point of publishing “rack rates”  (the official published rates).

It also devalues the principle of a discount – offered as a reward, a “thank you” for choosing us, to frequent guests, “long stay” guests, booking agents who place their clients with us, … and so forth, or as a marketing ploy or special promotion.

It also means that two people may be paying pay different prices, (sometimes substantially different prices), for the same thing.  That seems to me fundamentally wrong, unless there is a valid reason – like a discount.

Whenever someone, (for example, a supermarket or cafe) offers me a discount card I usually reply that I don’t want a discount, I want good quality at reasonable prices.  If they give everyone a discount, (well, maybe not everyone, but to lots of people), then that implies that the published price is too high and as a result I am always tempted to take my business elsewhere.

 

Many hotels work on the basis of a considerable mark-up … three or four times the cost-price of providing the room for the night.  One reason for this is quite simple – as well as having to cover the variable costs, (the cost of laundry, cleaning and consumables provided for the guest’s use), there are also fixed costs that have to be met … even when the hotel is empty – and although we can make assumptions about the level of occupancy, (and hence calculate how much to include in the price to cover them), they are just that – assumptions – and if the hotel overestimates the level of occupancy they still have to raise the funds to pay these expenses.

This has an advantage in that it gives the hotel greater scope to offer discounts – and some can be quite deep discounts.  One of the first enquiries that we had when we opened the hotel was a journalist who said she was looking for a “Press discount” of 50%.  In reply I said that I was sorry but I couldn’t match that because our mark up wasn’t so great and it meant that we would be letting the room at a loss – (which, incidentally, is not allowed under the tax code).  In retrospect, perhaps I should have ignored the tax code … maybe we’d have got a good write up, although she didn’t give us a bad review – in fact, she didn’t actually mention us in her articles – but I am not sure that is ethical.

Another person, who runs a large booking agency, looked astonished when I told him the same thing.  ”You don’t compete on rack rates,” he told me … “but on discounts.”  That may be true generally, I said, but we weren’t intending to compete on price … we are too small and, as a result, don’t benefit from the economies of scale that are available to larger hotels … so we intended (and still intend) to compete on providing a level of service as a small and friendly hotel providing a homely atmosphere, responsiveness, good internet speeds and so on.

I have written another postcard about our pricing policy with respect to tour activities, so let me explain our approach in respect to the hotels.

When we opened, we set our prices by calculating what we thought it would cost us to provide the services to the guest, which, perhaps, was higher than might be possible in other establishments, factored in a profit margin which allowed us to grant discounts … and then calculated the taxes that would be be due.

Now, nobody likes paying taxes, but I was taken aback on one occasion when a guest asked me, “Cant we do something about these taxes?” … to which I replied, “Do you want me to break the law?”   Actually I think taxes are a necessary fact of life and not just a legal obligation.  When I am asked for my opinion I point out that they are part of the social contract … if I want roads to be built, schools and hospitals to be provided, the borders to be guarded and emergency services to be available to assist when necessary – for example, when my office is broken into – then I have to pay for those services and taxes are one way of doing so.

We then asked ourselves “if the market would bear that?”, that is, would potential guests be prepared to pay that price? – and we thought so, yes … as indeed proved to  be the case.

We do the same each year – taking into account rising prices due to inflation, changes in tax rates, new services and so forth … always asking ourselves what “the reaction of the market” is likely to be.  sometimes we have increased prices – sometimes we have left them alone for another year … and on some occasions we have actually reduced them.

 

I come back to the question, what does “your best price” mean?  Presumably it means “the cheapest price” that we are prepared to offer although some High Street stores seem to seem to use it to suggest the lowest price available anywhere: “If you can find cheaper then we’ll refund the difference.”

If that is their marketing strategy, and they honour it, then that’s their choice and I respect them for it – but it requires generating a large volume of business in order to do so … and that’s something that’s just not available to us.  We have a limited number of rooms and high overheads that we have to cover in order to deliver the service.  We set a price that we think is fair and reasonable and let’s us meet those expenses.

In the end, however, it’s a “buyer’s market” and if their chief criteria is finding the cheapest option available then that’s their choice – and I’ll respect that too.

Tags: Business, Hotels, Tourism