{"id":22234,"date":"2017-11-27T12:04:37","date_gmt":"2017-11-27T11:04:37","guid":{"rendered":"https:\/\/travindy.com\/?p=22234"},"modified":"2018-02-28T18:42:31","modified_gmt":"2018-02-28T17:42:31","slug":"finding-optimal-room-rate-sustainable-tourism","status":"publish","type":"post","link":"https:\/\/travindy.com\/news\/2017\/11\/finding-optimal-room-rate-sustainable-tourism\/","title":{"rendered":"Finding the optimal room rate for sustainable tourism"},"content":{"rendered":"<p><span style=\"font-weight: 400;\"><img fetchpriority=\"high\" decoding=\"async\" class=\"alignnone wp-image-22235 size-full\" src=\"https:\/\/travindy.com\/wp-content\/uploads\/2017\/11\/reception-676337_640.jpg\" alt=\"Finding the optimal room rate for sustainable tourism\" width=\"640\" height=\"426\" srcset=\"https:\/\/travindy.com\/news\/wp-content\/uploads\/2017\/11\/reception-676337_640.jpg 640w, https:\/\/travindy.com\/news\/wp-content\/uploads\/2017\/11\/reception-676337_640-300x200.jpg 300w\" sizes=\"(max-width: 640px) 100vw, 640px\" \/><\/span><\/p>\n<p><strong>Dr. Aurora Dawn Reinke,<b>\u00a0ISHC, ISSP-SA<\/b> writes a new monthly column for Travindy focusing on topics and research that support the business case for sustainability in hospitality and tourism.<\/strong><\/p>\n<p><span style=\"font-weight: 400;\"><span class=\"wpsdc-drop-cap\">T<\/span>he <em>Journal of Hospitality Marketing &amp; Management<\/em> recently <\/span><a href=\"http:\/\/dx.doi.org\/10.1080\/19368623.2017.1245168\" rel=\"nofollow\"><span style=\"font-weight: 400;\">published a theoretical model for the relationship between room rate and sustainability (1)<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><span style=\"font-weight: 400;\"> The study, which focuses on top line impact of sustainability, accounts for demand, price sensitivity, sustainability effort and costs, sustainability willingness to pay and demand, variable and fixed hotel costs. The authors determined factors that affect optimal room rate. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The negative factors were general price sensitivity, lower willingness to pay for sustainability, and the cost sustainability. Probably not surprising. We already know that higher price sensitivity tends to relate to lower room rates. This study shows higher price elasticity related to less investment in sustainability, which is more likely to occur in economy and budget hotels than in the luxury or midscale markets. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The three positive factors were: <\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Hotel capacity, or primary demand. Large hotels not only have higher capacity but also the staff and financial means to implement, maintain, and grow sustainability. This relates to the <\/span><i><span style=\"font-weight: 400;\">effort<\/span><\/i><span style=\"font-weight: 400;\"> factor. <\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Customers\u2019 sensitivity to sustainability. Recognition and preference for certain activities and features results in willingness to pay a premium. <\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Type of demand. Hotels with a blend of leisure and business customers, based on events and seasonal draw are more likely to see positive relationship between room rate and sustainability. \u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">There is also a positive feedback loop effect: More investment in sustainability improves ability to implement (<\/span><i><span style=\"font-weight: 400;\">effort<\/span><\/i><span style=\"font-weight: 400;\">) and increases demand and willingness to pay. This leads to greater ability to invest. At a certain point however, there is a point of diminishing return, but improved efficiency in integrating sustainability results in costs savings that enable the hotel to hold prices at an optimal level, increasing demand and allowing for more sustainability. <\/span><\/p>\n<p><b>Takeaway for Owners <\/b><\/p>\n<p><span style=\"font-weight: 400;\">Sustainability programs tend to be set at a corporate level within companies that own or manage a diverse set of properties, and one size does not fit all. Many owners have a mixed portfolio that includes a range of property sizes, market conditions (demand generators, competitors, etc.), brands, and star levels. Executives can use this research to create a sustainability strategy that accounts for these differences. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example, there may be a subset of hotels that get minimal sustainability upgrades with sufficient cost savings to maintain or lower room rates. Another subset of properties will have a more integrated and intensive approach to sustainability because the macro and micro conditions produce the positive feedback loop presented above. Executives deeply committed to sustainability may even choose to require properties in their portfolio support an ongoing, profitable investment in environmental and social initiatives. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Similarly, revenue managers need to account for such factors. Using industry and past performance data, they can create what-if scenarios to optimize prices based on the input they already use, plus sustainability as an influencing factor. <\/span><\/p>\n<p><b>Drawbacks<\/b><\/p>\n<p><span style=\"font-weight: 400;\">There are two downsides to point out. One relates to results of the study; the other relates to the methodology. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">First, for economy and budget hotels, the revenue argument is not strong. We need research and tools that demonstrate the ROI in terms of employee retention and performance, and costs savings (many of which are well documented, and others in need of more research and data). The news is not all bad for sustainability advocates in this category; it just means using different models and approaches to make the business case. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Second, a weakness of the study is that \u201csustainability effort\u201d is both complex and vague. The idea is that as a hotel gets more adept at executing sustainability efforts, the effectiveness and efficiency improve. But putting numbers or a rating to this can be complicated. Financial decision makers may need to do some research and data gathering to determine \u201ceffort level.\u201d Furthermore, the authors recognize that sustainability could be broken down into social and environmental. Other studies show willingness to pay is higher for some sustainability efforts than others. <\/span><\/p>\n<p><b>Calling All Math Geeks<\/b><\/p>\n<p><span style=\"font-weight: 400;\">If you\u2019re a numbers-oriented person and not afraid of a scary looking equation, I recommend you read the <\/span><a href=\"http:\/\/dx.doi.org\/10.1080\/19368623.2017.1245168\" rel=\"nofollow\"><span style=\"font-weight: 400;\">full article<\/span><\/a><span style=\"font-weight: 400;\"> and test the theory using your own data. I would love to hear about both the results and the experience of gathering the data and calculating your optimal room rate.<\/span><\/p>\n<p><strong>Travindy&#8217;s new columnist\u00a0<a href=\"https:\/\/www.linkedin.com\/in\/auroradawnreinke\" target=\"_blank\" rel=\"noopener\">Dr. Aurora Dawn Reinke,<\/a><b>\u00a0ISHC, ISSP-SA,\u00a0<\/b>founded <a href=\"http:\/\/www.astrapto.com\/\" target=\"_blank\" rel=\"noopener\">Astrapto<\/a> to bring about sustainability change in hospitality, travel, and events. Astrapto Academy offers practical online training and toolkits to make sustainability simplified and approachable for busy industry professionals. Aurora\u2019s contribution to sustainability in these sectors includes chairing the Business Travel Working Group for the Global Sustainable Tourism Council (GSTC), serving on the sustainability committee of the Global Business Travel Association, and on the redesign task force for green meeting standards for the Events Industry Council. She is always open to dialogue and ideas for how to promote the sustainability business case \u2013 email her at <a href=\"mailto:aurora@astrapto.com\">aurora@astrapto.com<\/a>.<\/strong><\/p>\n<p>reference (1)\u00a0<span style=\"font-weight: 400;\">Xu, X., Xiao, G., &amp; Gursoy, D. (2017). Maximizing profits through optimal pricing and sustainability strategies: A joint optimization approach. <\/span><i><span style=\"font-weight: 400;\">Journal of Hospitality Marketing &amp; Management<\/span><\/i><span style=\"font-weight: 400;\">, <\/span><i><span style=\"font-weight: 400;\">26<\/span><\/i><span style=\"font-weight: 400;\">(4), 395\u2013415. https:\/\/doi.org\/10.1080\/19368623.2017.1245168<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>How should hoteliers balance their sustainability strategies and the price they charge for their rooms?<\/p>\n","protected":false},"author":250,"featured_media":22235,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,266,130,535,72],"tags":[2486],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.4 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Finding the optimal room rate for sustainable 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