Disaggregating hotel rates - not paying for what you don’t want
Have you ever wondered how much a chain hotel is charging for having an in room big screen TV, a music system, a VCR/DVD? Or how much of your nightly rate is based on providing a king sized bed, or 6 pillows, or on demand air conditioning, or the elevator in a two story building, or the exercise room and equipment, or the indoors year round pool, or the breakfast coffee and donuts, or the bath tub with jacuzzi jets, or little premium brand bath soaps, shampoos and lotions, or a room at least twice the size of your bedroom at home?
Have you ever just checked into a place late at night, knowing you would be leaving early and not use any of that stuff, and wished you didn’t have to pay for it? Have you ever had to pay a resort fee at a large resort hotel and not then used the exercise facility, yoga and Pilates room, pool, tennis courts or golf course and felt like you were paying for someone else’s vacation? And my own personal gripe, have you ever wished they could give you a single room for a single person and charge you accordingly?
Welcome to hotels in America. We don’t have many options for not paying for what we don’t want.
Economic history of is full of lessons teaching us how bundled services eventually become separated into constituent parts and offered on an al a carte basis. A big part of the breakup of the telephone monopoly AT&T once enjoyed was the elimination of subsidies for local telephone services by the long distance revenues, separating the two and letting customers of each pay for what they were buying and only for what they were buying.
Whole cities in India have been built on the realization that even complex packaged services can be unbundled, then their separate pieces commoditized and bid out to low cost providers.
Carmakers learned pretty early that not everyone wants the same amenities in their cars, and so permitted customization, offering different levels of packages at different prices. No one had to pay for subwoofers or chrome wheels they didn’t want.
The deregulation and competition in the airline industry in the US has resulted eventually in a similar separation of service fees, with each carrier at this point charging separately for any service above and beyond simply transporting the customer to his or her location. No one now pays for an embedded service, such as a checked bag or a meal, that only someone else wants or needs.
This hasn’t yet happened on any scale in the US hotel market, but I think it is coming. And I will be glad when it does.
Now any one of these things may not be very much. Even a big screen TV with cable box would be split amongst something like a couple of hundred guests each year. But they add up. And some of them represent ongoing and daily expenses, not just some one time charge paid out of several years of revenue.
I am not suggesting that a hotel should quote you a rate over the phone for a night and then when you show up they tell you there is a separate charge for the bedsheets. I am not even suggesting that something like a TV should have a coin drop box where you have to pay in order to turn it on. (Though I note that pay per view movies at hotels do work that way, which appears to be a result of the porn industry, which also accounts for the fact that across all pay per view hotel customers and counting all movies watched, the average time of watching is something like only 7 minutes long. (Ok, I have tried to confirm this statistic and can’t find any sources, but I DID hear it once and that was before the current era of fake news so I am going to run with it, it’s mostly not that important here anyway; make note of the 7 minutes point, however, it may be on the test).)
What I am hoping for is that a range of hotel accommodations becomes available which will have different levels of service and amenities and people will know pretty much just what they are getting and paying for by having the option to choose where they stay.
Our chain-like uniform hotel industry doesn’t really do a good job at that. As you exit the highway and see them all lined up along the service road you can be pretty sure they all have a similar checklist of amenities. They are all pretty much the same. And you pay for those same things whether you need them or not.
Lets do a thought experiment. A hotel chain has built a hotel and is about to build yet another. The first hotel has a pool and the question being examined is whether they should have a pool at the second. A bright young woman with a freshly minted MBA suggests that instead of giving the use of the pool “free” to guests, they tell guests that they can use the pool, or not, but if they do, the key card admission to the pool area will result in a charge of say $5. The young MBA grad has figured out that using and maintaining a pool costs about $5 a room a night. Now the experiment is made complete by lowering the room-only nightly charge at that hotel by $5 a night, and customers are told why. Now we will see if the pool in hotel number one is paying for itself.
How many guest/parents do you think will admonish their kids to not go near that pool? They could go across the road to a competitor charging the same gross amount, $5 included and without being separately stated. But once given the $5 deal, do we expect everyone will just go and use the pool anyway? I think they won’t. But maybe they will.
In any case our MBA’s experiment will result in that company learning either to not separate the $5 pool charge for its second hotel or to not build a pool at all, having learned that it doesn’t actually matter to most guests. If their hotel is still busy at the pool-less rates it is charging and no one is using the pool then why have one? If everyone is using the pool anyway, then why bother putting a separate pool charge in place and making it confusing. If their first hotel is losing business to competitors, they will build the pool and not charge separately for it, like the competitors. We have found out exactly whether customers care about the pool and the hidden charge it represents to them.
Customers will have more choices because once the actual cost of pools and the customers’ demand for pools is gauged, some hotels will have pools and some won’t. We will have choices to not pay for what we don’t need.
Finally, you don’t have to do this thought experiment. You can just go and find the few cases of hotels offering no or low frill accommodations (and I don’t mean cheap, sleazy, unclean, dangerous or subpar, just without all the extras) and see how they are doing. Maybe, just maybe, that is a business model worth emulating. (A note on budget hotel chains, if I walk into a budget hotel that still tries to offer amenities, like a significant room size or big TV, I walk right out; that to me is a recipe for cheap, sleazy, unclean, dangerous, or subpar; you kinda need to know who and what you are trying to be.)
I recently stayed at the Society Hotel in downtown Portland, OR. The rate was quite good, almost exactly half what I would have paid at the most basic but reputable chain hotel with a downtown property nearby. The online reviews indicated it was exceptionally clean and well maintained. All of that proved true.
Security was tight, rooms were clean and beds were basic but comfortable. Furniture was practically nonexistent, using built-ins for most things. An in room sink was provided. Baths were shared, but secure, clean, nearby and there were enough of them. No TV or any of the normal amenities. No artwork on bedroom walls. Small mirror over the sink. Downstairs was a Starbucks-like coffee bar with an inviting sitting area. As with Starbucks, guests had figured out that coffee was something you buy if you want one.
I got precisely what I wanted and needed. A secure and clean place to sleep. And that is all I paid for. In America this is pretty unusual.
In Europe these places are much more common. The cover photo for this post was taken in a single bedroom I let for a couple of nights in the resort port town of Oban in Scotland. Outside that window was a view of the mountain-framed harbor, en suite bath, the room cost only $35 a night, exactly what I needed.
Strathwhillan House, Brodick, Scotland. Very nice inn close to ferry terminal and easy walk into town and bus
On this page is a picture of a room in which I spent several nights in Brodick on the Isle of Arran, also in Scotland. $50 a night, including a good hearty, kitchen made breakfast, private bath but not en suite. Clean and nothing fancy, but one could see the top of Goatfell out that window.
This is a business model that some hotels or small inns are making work. And some hostels as well since many now offer private rooms.
At some point the standard, aggregated and uniform model of hotel rooms and rates in America will break down. Airbnb is putting on hotels this kind of pressure, offering different levels of service for different costs. That will lead traditional hotels to separate out services and offer a range of experiences, in order to better compete with Airbnb.
It happened for telephones, automobiles and airlines; I bet it will happen for hotels as well.
©️ 2019 D Abbott