Stop following price war

This is a great topic.

In other discussions about price wars I have heard people suggest that OTAs should be responsible for addressing the issue, but I doubt that we would like it if they did.

For example, to address the issue perhaps an OTA could:

• Set a minimum rate that they would allow for a bed to be sold through their channel in order to establish a lower limit
• Established a maximum difference that would be allowed between bed prices in the same city in order to avoid wild deviation
• Give properties with particularly low prices less prominent exposure in their search results to dissuade operators from using this strategy

If they did any of these things, I think the hostels would balk and say that the OTA was taking away our power to control our pricing and our businesses. And we would be correct in that assessment.

Once a hostel of any size gets sucked into a price war it’s really hard to push the prices back up. If everyone starts dumping their prices, then everyone is stuck with them, and everyone suffers. Like Karel said, it’s important to resist following the price dumpers in the first place. As John mentioned, price fixing isn’t a legal option. We have to find alternative ways to compete.

Option 1: Get more of the guests (a bigger piece of the pie)

• Increase our marketing efforts to gain more exposure and recognition
• Include more products or services in our prices in order to increase the value of our hostel versus competitors without lowering our prices
• Make partnerships with other hostels in our feeder cities

Option 2: Get more money from the guests that we do have (more toppings on your piece of pie)

• Supplement our revenue from guests with additional sales, such as tours, food and beverage, merchandise, etc.
• Focus on creating a community or positive environment that determines guests to stay longer

Option 3: Get more guests to visit the destination (a bigger pie)

• Collaborate with other hostels in the city, Department of Tourism, transportation companies, tour operators, or other tourism organizations to create and distribute promotional materials in order to market the city as a destination and attract more travelers
• Organize an event (ex. festival, concert, competition, large-scale party) to attract visitors to the city
• Invite prominent travel bloggers to the city to write about their experiences and promote the area, and organize activities for them to do in order to showcase all the best features of the zone
• Write a feature article highlighting the attractions in your area and submit it to travel magazines or other specialized publications

If anyone has managed to escape from a price war, can you share any specific actions that were beneficial to you or key to surviving?

For anyone who has seen a price war come to an end, what aspects or actions do you attribute to the successful resolution?

[Edit: After attending the ILH Hosteliers and Entrepreneurs Workshop I added Option 3 above, which seemed like a glaring oversight in the previous conversation]

Solutions? I can only answer with how I deal with it: channel mix and what I call "micro"-hostelling: cut the whole in small flexible units. Propose them in different channels, even under different types of accomodation (differentiation of target public). Make collaborators responsible for small manageable entities or units.
Small units increase customer intimicy, loyalty and satisfaction.

This sounds like a new approach to me. Can you give an example of how this works? Does this mean you break up the physical facilities into smaller units? For example, selling the 2nd floor on one site and the 3rd floor on another site with different descriptions for different target markets? Or did you mean something else?

In the battle against price wars, opening lines of communication with other hostels is also very important. There is a natural inclination to assume that if your hostel is empty, then your competitors must have attracted all the guests. But price wars start because there is not enough demand for the beds in the city. Most likely your competitors are sitting empty as well, and thinking that all the guests must be in YOUR hostel.

By talking to each other you can avoid making the situation even worse. If everyone realizes that all the hostels are in the same boat, then no one needs to plunge the prices even lower in a futile attempt to gather up all those non-existent guests.