CASE 28 Hilton International ■
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CASE
Hilton International
“The average room rate is $10 to $12 lower than last year. We really have to
drop our rates to maintain occupancy, and we haven’t even been able to do
that.” Philip Stratton, front office manager at the Hilton International, reflected on the state of the city’s hotel market. The predicted slump in the
economy had arrived, and the Hilton was facing the consequences. Its room
rates had been the lowest in the city among comparable first-class hotels,
yet occupancy was down from last year. Philip hoped that the existing price
war would not intensify in the coming spring season.
The Hilton International
The 600-room Hilton was located in the heart of the city’s entertainment
and business area. It provided direct access to major business towers
through a three-and-a-half-mile underground shopping mall walkway. Facilities included a heated indoor/outdoor swimming pool with sauna, a health
club, 24-hour room service, covered underground parking, and convention
and meeting facilities for groups up to 1,100. Standard amenities included
color cable TV, wireless Internet service, AM/FM radios, first-run movies,
minibars, alarm clocks, oversized beds, and individual climate-controlled
rooms. The hotel also operated three restaurants and two lounges.
The Environment
Citywide occupancies had suffered a plunge from 78 percent to 71 percent
in the past year, although average room rates in the product class continued to rise, going from $145.75 to $178.50 in the same period of time. The
hotel industry was not optimistic that the market would rebound in the near
future. Additionally, more rooms would be added to the 18,000-room supply
including a new yet unbranded 450-room hotel two blocks north of the
Hilton.
Philip did not expect the new hotel to compete directly for the same
markets as the Hilton. The Hilton was better located in the financial district
for most business travelers. The new hotel, attached to a major shopping
complex, would be more likely to appeal to tourists and out-of-towners than
business travelers. Regardless, it could grab market share, and Philip was
concerned with what its tactics would be. Rather than guess, he believed
that all he could do was wait until it opened. More serious, at the moment,
was what the Sheraton right around the corner was doing.
The Hilton’s main city center competitors had already cut their rack
rates by as much as 50 percent. Exhibit 1 shows these competitors and the
winter specials each was promoting.
Pricing Strategy at the Hilton
The previous fall, with both winter and more recession materializing, Hilton
management felt that its conservative clientele (40 percent group, 30 percent
EXHIBIT 1 Hilton’s Primary Competitors’ Winter
Specials
Hotel
Room Rate
(Single
Occupancy)
Inclusive
Daily
Parking
Rate
Hilton
$149
Continental breakfast
$10
Sheraton
$169
Full breakfast
$18
Westin
$139
Room only
$16
Royal Plaza
$139
Coffee/newspaper
$17
Crowne Plaza
$149
Room only
$16
tourists, 30 percent individual business travelers) would not relish paying
room rates much over $165. It decided to lower rates below rack before the
competition did it first. Rack rates ranged from $179 to $309 single and $209
to $329 double, depending on the type of accommodations.
Input was obtained from the international sales office and all members of the executive committee. It was agreed that the winter special would
be $149 per room, single or double occupancy. A variety of promotional
packages were also designed (Exhibit 2). Because only about 1 percent of
all daily occupied rooms ever sold at rack rate, this tactic was not seen by
management as being a particularly radical move.
Now What?
In February, the Toronto Hilton had the highest occupancy rate among its
major competitors (Exhibit 3), although its occupancy was five percentage
points below the previous year. In late March, the Royal Plaza cut its rates
to $139 per room, single or double. In response, Hilton management decided
to forego a planned spring increase to $165 and decided to maintain the
$149 rate until at least the end of June.
In an attempt to combat the low rate, Philip developed a reservation call strategy for direct calls (about 30 percent of calls came through the
international Hilton 800 number) and trained all the Hilton reservationists
accordingly. Reservationists receiving a call first asked a number of questions to help identify tastes and hence room rates that the caller might find
acceptable, such as the following
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Are you a corporate client?
Will you be attending a convention while in town?
Will you be arriving on a weekday?
Helen D’Olveira contributed to this case. Some names and figures have been disguised. All dollar amounts are in US$.
Copyright © 2007 by Pearson Education, Inc. All rights reserved. This material is protected by copyright, and permission should be obtained from the publisher prior to any prohibited reproduction or transmission in any form or by any means. For information regarding permission, write to: Rights and Permissions
Department.
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EXHIBIT 2
Hilton International
Promotional Packages at the Toronto Hilton
Package Name
Dates
Available
Rate
Amenities
Comments
Warm Winter
1/7–4/15
Mon–Sun
$149 (S/D)
$169
Hot chocolate
500 mugs to first 500 at
this rate
Interline Staff (airline
employee)
2/5–5/31
Mon–Sun
$115 (S/D)
$135
None
Subject to availability
Bounce Back & Romance
Break
2/5–4/31
Mon–Sun
$149 (S/D)
None
Based on availability
Enroute Hotel Clearing
Center
3/8–6/1
Mon–Sun
$5 off minimum
day rate
None
Calls must come through
hotel hotline
Doubleheader Baseball
Package
4/13–9/28
Fri only
$209 (S)
$229 (D)
2 field-level tickets
Subject to availability,
$35 deposit
American Express
Dinner for 2
2/4–7/31
Fri–Sun
$149
Continental breakfast
and dinner
Must be
requested
Bounce Back
10/1–4/30
Fri–Sun
$149 (S)
$169 (D)
Continental breakfast
Arrivals on
Friday only
Bounce Back
Same
Thurs–Sun
Same
Same
Arrivals Thursday;
must stay through
Saturday
Bounce Back (junior suite)
Same
Same
$139 (S/D)
$259
Continental breakfast
Guaranteed
junior suite
Bounce Back (executive
floor)
Same
Thurs–Sun
$229 (S)
$249 (D)
Same
Thursday arrival;
must stay into
weekend
Double Your
Adventure
11/15–3/31
Mon–Sun
$149 (S)
$169 (D)
None
“Passport” at
check-in
Romance Break (regular
room)
10/1–4/30
Same
$305
including tax
and gratuities
Wine, gift, full breakfasts
Guaranteed king-size
bed; $249 for extra
night
Romance Break
(junior suite)
Same
Same
$339
including tax
and gratuities
Same
Guaranteed junior suite;
$305 for extra night
Romance Break
(executive floor)
Same
Same
$369
Same
Guaranteed executive
floor; $329 for
extra night
Hilton Gold Card
Members (weekdays)
Same
Sun–Thurs
$185 (S)
$209 (D)
F&B discounts
Can book up to
10 rooms
Hilton Gold Card
Members (weekends)
Same
Fri–Sun
$139 (S)
$159 (D)
F&B discounts
Only Fri–Sat
Senior Hilton Honors Club
10/1–12/31
Mon–Sun
$149 (S)
$169 (D)
None
CASE 28 Hilton International ■
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EXHIBIT 3
Hotel
February Occupancy Rates for Hilton and
Primary Competitors
Number of Rooms
Occupancy
Hilton
601
67%
Crowne Plaza
587
42%
Royal Plaza
1,438
48%
Sheraton
1,398
59%
964
57%
Westin
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How many nights would you like to stay?
How many people will be staying in the room?
Would you like to reserve for any other times or at another Hilton?
Each day Philip set a minimum daily rate, based on anticipated occupancy, that was conveyed to all reservationists. Reservationists were encouraged to quote the rack rate, but were allowed to quote a lower rate
down to the minimum daily rate. Management approval was required to go
lower than the minimum. If management was not available, however, reservationists were entrusted to use their discretion in quoting lower rates
acceptable to the caller. Philip believed this flexibility contributed greatly
to the relatively high occupancies that Hilton enjoyed in the city. He found
no indication that the flexibility was abused. In fact, reservationists
seemed to like the responsibility.
As spring approached, Philip was not sure what price reaction to
expect from his competitors. He concerned himself with maintaining the
relatively high occupancy rate he had successfully established in the winter
season. Finally, there was still the nagging thought of the Marriott opening
in the fall with its special opening prices. Philip decided to call a strategy
meeting to formulate some plan to deal with these issues.