Faculty & Research
Cornell Study Finds Low-end Properties Benefit from High-end Neighbors
FOR IMMEDIATE RELEASE
Joe Strodel, Jr., 607-255-4646, js343@cornell.edu
Ithaca ,NY, October 18, 2005 -- Opening a low-end hotel near high-end properties is generally a sound business strategy, according to a new report from Cornell's Center for Hospitality Research (CHR).
The study, by professors Cathy A. Enz, Linda Canina, and Jeffrey Harrison, found that being different is good, but only when your operation is near a cluster of upper-scale properties. Comparing RevPAR results in year 2000 for 14,995 U.S. hotels, the team found that economy and budget hotels had higher RevPARs when they were located in markets with a high proportion of upscale and luxury hotels. On the other hand, luxury hotels that operated amid downmarket hotels suffer diminished RevPAR. The study, "The Agglomeration Conundrum: How Co-location Helps Some Hotels and Hurts Others," is available at no charge from http://www.hotelschool.cornell.edu/research/chr/pubs/reports/.
"We controlled for many demand-shaping factors such as chain affiliation and market location, and it turns out that co-location is a key contributor to RevPAR premiums for low-end hotels that operate near those in higher market segment," explained Enz. "Looking at a particular hotel's pricing strategy, we found that the more different a property is from the average property in a particular cluster, the greater the RevPAR benefit for a low-end hotel and the greater the detriment for a high end hotel."
Cathy A. Enz, Ph.D. |
Linda Canina, Ph.D. |
Jeffrey Harrison, Ph.D. |
Translating the findings into practical terms, Enz said the study suggests that developers should locate luxury hotels away from clusters of midmarket hotels. At the same time, developers of economy or budget hotels might seek to locate near a cluster of luxury or upscale properties.
The data were drawn from operating information compiled by Smith Travel Research (STR), which is a partner with the Center for Hospitality Research. STR provided the data on the condition that results for individuals properties and chains not be disclosed. Responding to the study, STR President Mark Lomanno, pointed out two additional factors that seem to boost RevPAR. "Not only does the analysis quantify the benefits of chain affiliation, it also clearly establishes the relationship between intelligent site selection and superior performance," Lomanno said. "This study clearly dispels the notion that co-locating hotels is bad for business. In fact it often helps."
All CHR Reports and Tools are available from the Center's web site, http://www.thecenterforhospitalityresearch.org. Thanks to the support of the partners listed below, all CHR are made available free of charge.
About the Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the Center's 40 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The Center also publishes the award-winning hospitality journal, the Cornell Hotel and Restaurant Administration Quarterly. To learn more about CHR and its projects, visit http://www.thecenterforhospitalityresearch.org.
CHR Partners and sponsors: AIG Global Real Estate Investment Corp., Cendant Corporation, Four Seasons Hotels and Resorts, HVS International, JohnsonDiversey, Inc., Kohinoor Group, Marsh's Hospitality Practice, Nestlé, Smith Travel Research, Southern Wine and Spirits of America, Inc., Taj Hotels Resorts and Palaces, and Thayer Group of Companies.
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