For those who have not followed our writing, the Mille Club refers to properties with rates over one thousand dollars, pounds or euros, with the ‘mille’ picked up from the Italian language. The Mille Club’s premise is that guests at this level are looking for an incredible experience rather than mere accommodations. Instead, hoteliers’ offerings compete for guests independent of location, making comp sets typically geographically derived moot. With great rate comes great expectations…
But what does this have to do with potato chips? For a moment, let’s step away from the hotel environment and visit the grocery store. Shopping here, we are acutely price sensitive. Every item is identified by its price point, with promotional items typically highlighted. Unless you have a few hungry teenagers at home, potato chips are often an indulgence, with many purchases induced through promotional ‘end cap’ displays. The promotional price may be only a few pennies less than the regular retail. Still, our minds sense a bargain, not to mention the treat factor of hyperpalatable foods reinforcing the favorable buying decision.
Since most of us frequent a grocery store many times a month, we are conditioned to detect miniscule pricing variations. Brand loyalties may result in a purchase at a higher price than a competing product, but we all have a breaking point on price differentials. Thus, our favorite potato chip may be replaced with an alternate when the promotion provides the right level of monetary and emotional inducement.
This trench warfare is a way of life for most grocery goods. Price points are keenly followed, with market share and consumption patterns analyzed to an extent that makes our industry’s analysis simplistic. Packaged goods executives, including those who run potato chip companies, can predict sales differentials based on a ten-cent price spread.
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While hotel price points are significantly higher than your one-pound bag of Lay’s®, hotel revenue managers working for budget and middle-price properties still fuss over price points – as well they should! We have experienced numerous executive committee meetings where competitive rate analysis is debated to the fraction of a dollar. These discussions are our industry’s version of trench warfare.
Consumers have difficulty differentiating brands beyond price point and location for a variety of reasons. The OTAs further encourage price shopping (and loyalty within their own platforms versus direct channels) by reducing every property to a single photo, limited description and price. There’s no dynamic website aesthetic or product feel. Even loyalty programs are similarly ubiquitous in how they aggregate properties, placing economy and luxury hotels within the same query results.
Mille Club Members Are Not Potato Chips
With price points above the thousand mark, product differentiation is hypercritical, with pricing and location no longer acting as the only top components of the guests’ decision making. Unlike potato chips, where $2.99 versus $3.19 per bag (a difference of 20 cents or 6.6%) could lead to a substantial volume shift, pricing for Mille Club properties is much less elastic.
Put another way, luxury hotel guests are price inelastic but experience elastic. The only problem is that latter element – the experience – is much harder to directly measure due to all its emotional underwiring. To get a sense of what guests really want and what will compel them to shell out thousands of dollars per stay, we must look to a cluster of factors that include but are not limited to design, staff, privacy, exclusive access, F&B, wellness and activities.
Take this example. Two hotels, one is priced at $1,049 per night, and the other at $1,119 per night. This is the same 6.6% differential as our potato chip example, yet to the guest this $70 increment barely registers. And next consider that the per-night room rate nowadays may only end up being around 50% of the total folio once all ancillaries are tabulated.
Once pricing pushes to four figures, price ‘ranges’ rather than price ‘points’ are more relevant. While no public domain research of hotel pricing at this level is available, we hypothesize that a spread of $200, perhaps more, may not trigger cognitive dissonance amongst buyers. If the experience is worth it and one-of-a-kind on this planet, the guests will come.
The implications for the Mille Club property executive are significant. Traditional schools of thought on revenue management and detailed competitive pricing analysis may no longer be relevant. Instead, channel that brain power towards TRevPAR and RevPAG – thinking in terms of ancillary contribution and having great programming ‘per available guest’ whether that’s individuals, couples, families, friends or multigenerational groups.
The focus for onsite management is not simply guest satisfaction but guest enrichment or, more cerebrally, guest ‘transformation’. Whether through education, edutainment, wellbeing or wonder, the goal for this echelon of hospitality is to help each traveler improve through lives back at home through self-actualization.
To accomplish this lofty goal, labor allocation switches from BOH-heavy (which can be largely automated) to FOH (guest interface) through having a sizably higher staff-to-guest coverage ratio. Guest personalization is intensified by levering in-depth guest profiles and multi-media communication. In all, a return to why we started in this business: hospitality. And if you ever find yourself debating the minutia of numbers, take a step back and ask whether you are selling an experience or a bag of potato chips.
Together, Adam and Larry Mogelonsky represent one of the world’s most published writing teams in hospitality, with over a decade’s worth of material online. As the partners of Hotel Mogel Consulting Ltd., a Toronto-based consulting practice, Larry focuses on asset management, sales, and operations, while Adam specializes in hotel technology and marketing. Their experience encompasses properties around the world, both branded and independent, ranging from luxury and boutique to select service. Their work includes seven books: “In Vino Veritas: A Guide for Hoteliers and Restaurateurs to Sell More Wine” (2022), “More Hotel Mogel” (2020), “The Hotel Mogel” (2018), “The Llama is Inn” (2017), “Hotel Llama” (2015), “Llamas Rule” (2013) and “Are You an Ostrich or a Llama?” (2012). You can reach them at adam@hotelmogel.com to discuss hotel business challenges or to book speaking engagements.
