The impact of supply on demand

Have you ever watched The Antiques Roadshow on BBC 1? If you have, you’ll have noticed how things that are beautiful and perfectly made can often turn out to have pathetically low values, while rarer items, which may be ugly or in poor condition, are sometimes shown to be worth tens of thousands. It is an object lesson in the laws of supply and demand.

Much the same applies to hotel rooms in my experience. More than once I have paid top dollar for cramped and soulless accommodation in exchange for the convenience of being within walking distance of a popular event, yet at other times have stayed virtually free in glorious surroundings where business is slack.

The online travel agents (OTAs) are masters in creating that sense of urgency, showing how few rooms are still available on your chosen date; making something plentiful appear to be in short supply. We know what trickery is involved here but turn a blind eye to it normally. And it works. Customers really do crack on with completing their online bookings if they believe the inventory is about to expire. The trick will go on working until a new disrupter emerges to challenge the way hotel search sites operate, which I believe will happen soon, whereby customers will have access to what is truly the best value for given dates and venues, immune from the quest for commission.

Last month we experienced the phenomenon ourselves when Pride of Britain reached its self-imposed limit of 50 hotels. Suddenly we received interest in membership from places I’d never anticipated, making us wonder about even stricter quality controls for the existing membership. There is something highly attractive about being part of an exclusive club, both for its members and their customers too.

At the extreme level, rarity puts certain products completely out of the reach of all but the wealthiest individuals: top vintages of champagne, large diamonds, central London property and so on. It has always surprised me how well gold retains its market value, given the number of alternative investments there are but one thing everybody knows about gold is that supply is finite, hence its high value.

If only hotel rooms could be perceived in the same way as gold, you may say. Well, perhaps it could if we as an industry reduced our reliance on lower prices as the way to stimulate demand. Estate Agents seem to have a far better grasp of this concept. Most will show at least a few homes in their windows that are already sold, subtly creating that sense of urgency again. Just seeing the word “sold” reminds you it is the buyers who are competing in certain markets, more than the sellers.

Of course we are victims of supply and demand in another sense, thanks to high employment levels and a relatively weak pound. Getting and retaining good people has become a greater headache for hotel owners than it used to be, forcing many to increase pay rates and to look closer to home for the talent they need. Ultimately I think this may be beneficial as it can only improve the perceived status of a job in hospitality. Chefs, F&B managers and housekeepers realise that their value has risen due to the shortage of decent candidates. They are neither ugly nor in poor condition, but they are worth a bit more these days… and they know it.

Peter Hancock is the chief executive of Pride of Britain Hotels