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Fixed prices - Dumping and the downfall of many hostels

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danielexhostel started this discussion 12 years 10 months ago

...over the years I have been looking at random location on booking engines over the years like I hope many of you do too.

To my surprise I see places with a huge number of hostels staying on a medium/high price and times (ok the peak/low season excuse), or better to say locations where the prices are incredibly low.

What is the point in having a business if there is no profit? What benefit have hostels got in continuing this war? I agree that fixing or worse inflating prices is (and should remain) illegal but at the same time there is a legal minimum wage for a worker so there should be a minimum price for accommodation.

I was forced to fight price wars. It is ugly. Having guests coming to pay close to the cost of their stay in high season is humiliating. Who wants to work for nothing? What to do if the other hostels keep going down and you are forced to follow them having a worse location or going into low season?

The argument that "if you are a good hostel and you keep a higher price you will still be full" is a lie.

As highest rated I played with numbers: bookings were exponentially higher when the prices were lower so I assume: even with a superlow rating but offering dirt cheap beds with no service of any kind you can still compete.

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soi1david

12 years

I feel your pain....
I assume you, like I, don't own the property out-right. When other hostels do own their property out-right, Their monthly costings are not as high, so they can play that game and wait it out, hoping that the market slims and then they can re-coup the loss's in the slimmer market.
We're not the best rated, (but rarely out of the 80-89%range) and not the cheapest ( location is best, but being so, rent is higher than most others in city.)
I'm lucky enough to have been the 1st in Bangkok, and have built up quite a fan base - so "Word of mouth" and returning guest has grown so well that a ever growing % of my guest fall under this category which helps greatly.
Working for nothing... Not I.
Good luck with it.

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Nickognito

12 years

I just think evidence is that hostel market is not getting slimmer. So, if that is the strategy, it does not work.

On the other side, I do not see an easy way to avoid that, while at the moment almost everywhere if your hostel is excellent you can sell your beds at a higher price anyway.

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Scotch Argus

12 years

The problem is that hostel customers are looking for budget accommodation, so the cheaper the price the more customers you'll attract. This model lends itself to constant price wars to attract customers, which only serves to reduce profits and lower standards. I have no idea what the answer is to the problem, other than siting yourself in an area where there may not be quite the demand that the tourist hotspots have, but there are enough regular customers to keep you going. These areas will be less likely to get as many hostels, especially large chain hostels, starting up.

I imagine that this would be a real problem in countries where regulation is low and places can start up rapidly sometimes in buildings such as private homes or such which would not get a license to operate in more regulated countries. Basically I think that price wars in markets with lots of small competitors selling a similar product are nearly inevitable. A similar thing is happening in retailing - online retailers are selling products at or near cost and conventional retailers are going out of business quickly. I doubt there are any easy answers for hostel owners. I doubt that the number of hostels starting up will slow in the foreseeable future.

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danielexhostel

12 years

For sure all booking engines are not happy about this, working on commission. What would happen if they decided on a minimum based on location and market. They have the power to enforce this so that competition would be more in the service, cleanliness, atmosphere and not merely on the price.

This is illegal to do as hostels agreeing on a minimum but as service provider a booking engine can refuse prices lower than decided in a certain period.

What do you think?

...another question: what to do with illegal hostels? Have them closed by authorities? I have seen with my own eyes dorms without windows and 1 shower/toilet for about 30 people. I am talking about known European cities not some isolated place in a less fortunate country. Shocking that even with awe full reviews at a constant 20 to 30% with and according comment they still get full (selling at 14,5€) cause they are 4 or 5€ cheaper than the competition that sells at about 19€ per dorm and rating at 90%!!

Price wars are horrible also cause they bring down the hostel image creating the base to all the terrible stories we hear: dirt, bad service, safety hazards etc

There should be a campaign to rehabilitate the category and attract sections of the market that still thinks that a bad hotel will always be better than a hostel.

Thanks for you input.

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barefooted_investor

12 years

Daniel,

what you describe is a classic situation: price wars start because price is the only criterion for differentiation. That can only mean that the cheapest one
differentiates most. So how you can react is maintain a reasonable high price whilst offering criteria of differentiation. In other words: what makes you different? Can you play in another market segment?
I feel that some hostel have added value. Breakfast (not really hostel like), pub crawls, bbq, game nights etc. And a great atmosphere, on top.
Sure, if you only have teen party boozers as potential guest in a city than they´ll go for the cheapest.
Cheers

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danielexhostel

12 years

I usually visit all hostels of a city to see what the differences are in price/ratings etc and I don't really agree on your point of view.

Most people I asked in these years while traveling or as a owner tell me that the first thing they do is order hostels by price, then choose by ratings and location. This in general is the idea (also HW in an article a few months ago made the same point, and the HW conference will address this problem).

Our new hostel will have 80 hostel beds + 10 hotel rooms, sauna, outdoor Jacuzzi, pub with projector, many events planned (day and night).
Its a 1917 villa totally refurbished with about 1000 square meters. We have really no fear of the competition (only 2 nice hostels out of about 20) but we are having different opinions on what prices to stay on.

In Varna because of our location we had to be competitive on the price (people pay extra for bus/taxi) and Alicante we stay on the other good hostel's price not considering all the others (that with a rating of 50% and terrible/scary comments is always full cause of the price).

This will reinforce the bad habit of not reinvesting in the business saving on staff, paint, cleaners, fun and compensating occupancy by lowering the price.

Many hotels are following this trend: they add "hostel" to their description and lower their prices. Some go as far as having as many bunks as possible in some rooms...

There should be a quality control authority.

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Scotch Argus

12 years

I doubt we'll ever see any quality control with teeth. Even if you did have this there is a danger of it being used like in New York in order to crush competition from hotels. Obviously the action the authorities are prepared to take against dangerous illegal firetraps varies. In some countries you would be shut down quickly if you are operating outside the law, while in other it seems the law is ignored.

The thing is as well there is no absolute level of a loss making on a bed. For example in retail if I buy a can of beans for 50 cent and then sell them in my shop for 30 cents I'm losing money on every tin sold. i.e. a loss leader. In accommodation however if I charge €8 a bed and have 10 guests I may lose €50 a night after paying out staff costs, and all the expenses. If however I have 40 guest paying €8 a night I might make €300 per night after expenses. Maybe that's why price wars occur - the owner is the eternal optimist who assumes he'll be full.

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ACBBPatrick

12 years

Looks like a viable solution for a interesting opportunity. Provided the big five are playing too. Are they allowing access? Will they support this?

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HostelOffice

11 years

I have dealt with this issue for many years. The answer is not one thing but many things. Some hostels make their money from selling beer and sell beds for 2 euros just to get captive drinkers. You need to pick a price point that you are going to fight to defend. Because even if you deploy all the good tactics then you will still drop your price further without a price point. As soon as hostels start operating black then other hostels are forced to close or also start operating black.
The list of things you can do is rather long and we share this info with users of our software. Yeah I know it probably is sounding like I am just trying to sell you something. But this situation we have been dealing with for years so we know how to combat it and yes the software is a core ingredient to the solution.

But as the video below tries to explain - get off of this downward cycle and get on to a better path. We have the best possible integration with all these agents.

[video=vimeo;31899593]http://vimeo.com/31899593[/video]

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