I happened to be in Las Vegas for a conference this weekend and noticed something new. No, not another hotel or attraction- those are always springing up. Rather, I noticed that prices have risen on the strip. Not hotel room prices- those have fallen hard. In fact, a room at the center-strip and recently renovated Mirage are just $63 per night. The Monte Carlo offers rooms from just $38. I have paid double and triple these rates at the same properties in the past.
The observation I speak of is that the hotels seem to have raised prices on a wide variety of incidentals. A 20 oz. Diet Coke was $3; 4 club sandwiches with Cokes was $100; taxi rates have gone up too. This may seem absurd at first. How can they raise prices with slack demand? After all, every taxi driver we encountered complained about how empty Vegas was these days.
To understand why the hotels would do this, think of the last time you visited an amusement park like Six Flags or Disney or a movie theater. Remember how expensive candy, soda and other incidentals are? They are so expensive because these venues have a captive audience. Obviously, you can't leave the theater or park to get cheaper food, so high prices persist. The same goes for much of the Las Vegas strip hotel experience. If you want a Diet Coke, you buy the one right there instead of walking a mile to the next venue and taxi rates are fixed, so you can't find an alternative ride.
So the hotels raised prices on items with largely inelastic demand. The cost of such items are not known to visitors in advance or factored into their plans, so for the time being it will help cash flow while occupancy remains low. How well will it work? Probably pretty well. How long will it work for? That, I couldn't say. If my observation is correct, this is a dramatic change from the historic Vegas pricing strategy: lure people in with cheap rooms, food and booze so they lose money gambling.
Before you shout "anecdotal!", keep in mind I'm not relying on this observation for anything or testing a hypothesis. I am merely making an observation I thought interesting.
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This conference didn't happen to be TAM7 did it? If so, sorry for not finding you and meeting you. If not, I hope you plan to come next year!
ReplyDeleteThe increase in pricing is also rooted in the change in customer mix and customer behavior. As you said, the room prices are falling due to bad economy. For the same reason the more cost conscious customers are staying out and even if they make it they are reluctant to spend on incidentals. So if anyone is willing to purchase these incidentals value these more and hence are charged for it. Graphically speaking, the demand curve shifted down, so to bring this back to previous curve increasing the price is the right solution.
ReplyDeleteSoon more hotels are also going to unbundled pricing, separate pricing for use of safe inside your room, towels, toiletries, etc.
TAM7 indeed
ReplyDelete"The increase in pricing is also rooted in the change in customer mix and customer behavior."
ReplyDeleteCould be. Given the demographics of Vegas visitors, I kind of doubt this though. You also see discounting in the high end restaurants too. For example, I was in the Bellagio and many of their high end restaurants were promoting price fixe or other "specials" that were very absent in years past. That tells me people who can afford them are thinking twice about spending. Hard to tell for sure without actual data though.
@ Rags Srinivasan
ReplyDeleteI mentioned this in the post and I think it bears elaborating, if pricing has permanently changed as observed, whether as a result of the demographic shift you cite or not, Vegas is going to go through a major shift in cash flows. There simply isn't enough discretionary spending to support the Vegas that exists currently (and is being built) without a broader customer base than the well off.
Brett
ReplyDeleteI do not have exact data, I based my statement on latest consumer sending data and related data I saw with consumer spending on brand name CPG goods.
To your point that Vegas businesses cannot exist without customer base, I think it is true since most of their costs are fixed. So they might entice consumers with low price hotel deals but try to capture more margin through unbundled pricing (like the airlines do).
Something to remember. Word might get around to the bargain hunters and cherry pickers. Cheap hotels, just pack your own food. Although I've never been to Vegas, I remember relatives and friends talking about how cheap food was. $5 buffets, $1 shrimp cocktails etc. But that was when it was for hardcore gamblers (errr like my grandmother). Cherry pickers like me probably swooped it, stayed away from the casinos, and just loaded up on the buffets.
ReplyDeleteAny truth to that hypothesis?
This phenomena seems to be true everywhere though. If you were willing to (or could) walk a block to a 7-11, you could get a Big Gulp and a hot dog for less. I always try to get away from the business/tourists centers and get "local" for the good stuff and the "local" prices.
ReplyDeleteBut sometimes you can get lucky like when the Korean Won crashed. I stayed at the Ritz-Carlton in Seoul in a suite for $150 per nite. It didn't last long. Maybe we should be thinking about the prices in Euro or Yen?
I've always been curious if Iceland was or is a deal since their crash.
ReplyDelete