Industry Myth-Busting: The Lowest Price Wins the Day

by | Aug 16, 2016 | For Organizers

by Dave Kloeppel, Chairman, Groups360

We want to address a few elephants in the room. Why is it that in the group sales environment, outdated rumors and implausible assumptions continue to hold merit? In this series of myth-busting blog posts, we’ll tackle a few of the biggest elephants out there:

  • Lowest price always wins the business
  • First responders always win the business
  • All customers are created equally
  • Need dates are not so unique after all

These myths don’t just annoy us (because trust us they do), but they also hurt everyone in the meetings and events industry. Business becomes crippled when we don’t have clear insight into what’s happening around us.

It’s time to break free of these myths and come to a better understanding of what’s really going on in the group sales industry. And you don’t have to take our word for it, just listen to the data — it’ll tell you everything you’ve been missing.

The lowest price assumption

Let’s start with the myth of the lowest price. A common belief in our industry is that the lowest price will always win the business. Group booking companies boast that they have the buying power of hundreds of associates, which allows them to get the best hotel rates thanks to their scale. Sales teams are under constant pressure to close business and argue to GMs and revenue managers that they can win the business if they drop the rate by $X.

But if the price is so essential, why does the data indicate that more than 60% of the time, the lowest price doesn’t in fact win?

The answer is simple: Event planners shop based on value, and value doesn’t always correlate with the lowest price. For low prices to always win, we’d have to be dealing with hotel rooms like commodities. We can’t deal with them like commodities, however, because they are all different.

Gallons of milk

To further understand the commodity situation, let’s analyze a gallon of milk. For most gallons of milk, price equals value. The customer knows that a brand’s gallon of milk is going to be the same across all supermarkets, so what’s the differentiator? How does the customer find value in a gallon from Supermarket X versus a gallon at Supermarket Z?

The answer here is price. If Supermarket X has the gallon priced at $1.00 and Supermarket Z has it at $2.00, the customer will find value in the gallon at Supermarket X because it has a lower price tag.

Hotels are completely different. Price is far too simple a way to try to differentiate between two hotel rooms. But why?

  1. Every day of the year is different from a hotel’s perspective. Easter Sunday will always be less attractive than a typical weekday in March. Fewer people travel on Easter Sunday than they do during spring break.
  2. Every market is distinct from every other market. For example, Orlando and San Antonio share three things: comparable airlift, theme park attractions, and similar sizes. But these two cities are completely different.
  3. Every location within a market is different. In Nashville, hotels downtown like the Omni are commanding ADRs typically reserved for places like New York City. That same situation hasn’t fully reached Nashville’s suburbs, so hotels in Franklin or near the airport can’t charge Omni prices.
  4. Every hotel offers a different set of amenities, houses different room sizes, meets different levels of quality, contains different meeting space configurations — you get the idea.

It’s even more obvious now that purchasing meeting room accommodations are nothing like buying that simple gallon of milk. How could it be? There are over 300 unique markets in the U.S. that can hold a meeting. And there are tens of thousands of hotels that can host a meeting.

When it comes to factoring all the things a meeting planner has to keep in mind, the process becomes even more value-based. In our upcoming series of posts, we’ll continue to explain how event planners can find the value in a combination of destination, date, market, and hotel that works best for their group.